Pr

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World Beef Sheepmeat Dynamics and
Outlook for ProChile Osorno 6th November 2008
Michel Benedict Dir tel [phone]
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Agenda a global and macro perspective on red
meat demand supply

• 1. Long Term Global meat demand overview
• Global Beef consumption and trade highlights
• Global sheepmeat consumption and trade highlights
• Initial implications for the Chilean red meat
  sector

Throughout the presentation forecasts are
based on Giras Long Term Strategic Trends in
World Meat Markets Study, published April 2007
the forecasts from which have not been updated to
reflect recent economic, currency and feed cost
changes. Update offered for 1Q09
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1. A quarter of total meat consumption takes
place in China and thats where most growth
will come from!
Breakdown of total meat consumption 2005

• Global meat demand pulled by
• Population growth
• Economic growth
• Urbanisation

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Poultry pigmeat demand will grow fastest
Meat consumption by species - 2005/2015

• Poultry is the winner
• Cheapest animal protein
• Healthy reputation
• Ease of use at household, industry and
  foodservice level
• No ethnic restrictions

Pigmeat market is 65 larger than beef and growth
to 2015 is gt 2.5x faster! But pigmeat market
growth is slightly slower than for poultry.
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BSE and other animal diseases have caused huge
disruption and extra costs, and are a continued
threat

• BSE cases continue at low level.
• declining UK BSE cases (and smooth recovery of
  OTM to food chain and export status, after 10
  yrs)
• low vCJD incidence thankfully!
• Major BSE cost consequence, and loss of 5th qtr.
  revenue for ever???
• Other disease problems for cattle
• FMD access risk for S.America PK
  implications
• BTV8, BVD, TB, Johnes
• other species have problems too HPAI H5N1, PMWS,
  PRRS, CSF
• The cost to the industry is huge
• Less government compensation
• Revenue impact - Disrupted trade.
• Obstacles Opportunities
• the meat industry needs to be very well
  organised
• to anticipate and prevent
• To control and eradicate
• To communicate

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Environmental issues are also a major concern and
need to be pre-empted
Typically robust Danish response

• Real environmental challenges to the livestock
  sector especially cattle
• Greenhouse gases (carbon dioxide, methane,
  nitrous oxide)
• Water pollution e.g. South China sea
• Land degradation
• Loss of biodiversity

• DANISH OBJECTIVES FOR 2015 vs. 2002
• Nitrogen in pig slurry to be reduced by 18
• Ammonia emission to be reduced gt 40
• Develop new technologies to reduce odours from
  pig production
• Reduce consumption of energy and water further
• Continue to use slaughter waste

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We have clearly entered a new phase of higher
arable prices but how much higher?
CBOT prices for Cereals Oilseed - Jan. 2000
11th Aug. 2008
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Strategic impact of higher feed costs

• The feed cost increase must catalyse higher meat
  prices
• This will reduce Giras consumption forecasts
• Complex changes to comparative advantage between
  the species
• Poultry (and pigmeat) use the most bought-in
  feed, but are the most efficient (highest FCR)
• Grassland costs have increased too
• Some of the best grassland converted to arable
  (decreasing forage area)
• Higher input costs (and higher yields) and
  increased land values
• Further competitive advantage to South American
  meat producers especially in Brazil assuming
  export market access
• Lower feedgrain prices relative to global
  competitors
• Capacity for more arable production
• Ease of manure disposal (on arable land)
• Relative ease of locating new, scale-efficient,
  industrial meat complexes close to the feedgrain
  production

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Menu

• Agenda 1. Long term trends in global meat demand
• 2. Long term global trends in beef

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3. BF Global Beef consumption 8 million tonne
in 10 years (1.2 p.a.)
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Demand factors favour pigmeat and poultry more
than beef (and sheepmeat) which is limited by
supply constraints

• Economic population growth only partly favours
  beef
• Most high growth countries eat beef (not India)
  dairy boost for beef supply
• Other (cheaper) meats will benefit more
• Beef is expensive relative to poultry and pigmeat
  (some BF cuts are competitive)
• The consumer pull for convenience products
  favours pigmeat (traditional processed products)
  and poultry (ideal ingredient, and
  quick-to-cook), but beef is catching up
• Huge penetration of the beefburger (and other
  ground beef products)
• Success of grilling cuts and BBQ items
• Growth of modern convenience products
  (quick-to-cook)
• Beef suffers from supply limitations
• Expensive and slow to produce, with low FCR
  compared with monogastrics.
• Water and pastoral limits and threatening
  environmental issues
• Productivity gains are slow, but more motivation
  now higher cattle prices
• Competition from arable agribusiness
• Weak vertical co-ordination in the beef supply
  chain

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Chinese beef production will rise by 5.2 p.a.
!! (correct trend ... but planned statistics)
Beef Production 1995-2015
Growth in China Brazil
Source Gira compilations and forecasts
Source Gira compilations and forecasts
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Beef production in South AmericaBrazil is by
far the main producer with most growth
Main Beef Producers in South America 2000-2005,
2006(e)/2010(f)/2015(f)
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Global Cattle Producer Prices rising, and
motivating for long term herd development
Cattle producer prices have increased
significantly since these data were recorded,
reflecting tight supplies, rising costs and
demand still holding up.
Figure SYN-BF 9a Cattle Producer Prices, 1995-2007 (current USD/t cwe)
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Beef Veal Imports the US will remain the
largest importer, but other big import markets
will grow faster
Beef and Veal Importers 2000-2015 (incl. Live)
Source Gira compilations and forecasts
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Beef Veal Exports South Americans becoming
increasingly dominant in global beef trade
Beef and Veal Exporters 2000-2015 (incl. Live)
The biggest exporters, with a breakdown of
destinations
Source Gira compilations and forecasts
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World Beef Trade Flows 2010, with continued
growth trends to 2015
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Rising beef exports from South America Brazil
is the main exporter, showing fast growth
Main Beef Exporters in South America 2000-2005,
2006(e)/2010(f)/2015(f)
FMD
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Brazilian beef Strong international demand,
pulling exports which co-drives production
growth
Brazil Beef Balance 2000-2005,
2006(e)/2010(f)/2015(f)

• Export and domestic consumption growth driving
  production
• Broader/better export portfolio destinations,
  channels, customers, products, prices

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but Brazil needs to respond to many issues e.g.
Greenpeace investigation links fast food giants
to Amazon destruction

• Aerial view in the rainforest, Para State,
  Amazon. The forest is being burned by the US
  based Cargill corporation to clear land for soya
  plantations Greenpeace website
• Campaign launched to hold McDonald's
  accountable 06 April 2006, Greenpeace

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US BF huge market still some demand growth, but
limited domestic supply potential

• Dairy herd size will now stabilise (maximum
  performance) whilst the beef herd will show a
  small upswing to reflect firm demand and
  attractive cattle prices.

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The EU is a major beef market increasingly
attractive to global exporters

• Strong demand (post BSE)
• Declining production
• CAP reform (dairy reform, suckler cow herd)
• High costs small farms, standards etc.
• More arable
• Rising imports
• need
• WTO pressures

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Russian BF consumption has recovered, thanks to
rising imports at improved prices

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Japanese BF recovering from BSE, with imports
providing the extra supply

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The Brazilians have made strong inroads into the
growing Arab markets
Beef Importer Share by Origin
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The global meat industry is changing in reaction
to a number of drivers

• Strong long term global meat demand growth in
  spite of the current economic slowdown
• Dramatic trend change in arable supply demand
  situation, but volatile
• cost increase knock-on effect throughout the
  meats
• Higher meat prices needed now, and in the long
  term
• Increasing environmental and sustainability
  issues ... especially for meat
• Plethora of good agribusiness opportunities (not
  just in meat) especially in S.America (also E.
  Europe CIS etc) attracting investors
• Domestic as well as export markets
• Conditional on proactive satisfaction of export
  customer needs (EU)
• processing opportunities more volume
  concentration added-value
• WTO process, low-cost labour, less disease risk,
  TRQ loopholes etc.
• Scale economies and freer trade (WTO) will favour
  the larger and more global firms
• Risk diversification and management
• more vertically aligned, and robust, cost
  efficient supply chains
• niche opportunities for the smaller, more
  flexible firms
• Some spectacular recent MA (especially in beef)

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Significant corporate developments amongst global
meat processors

• US firms have traditionally been the biggest
  operators
• massive scale-advantage over RoW (in production
  marketing)
• Huge plants, high speeds, high capacity
  utilisation, industry concentration
• but with a US domestic market mindset, and
  commodity by-product exports
• Smithfield has been especially expansionist
• Vertical integration in pigmeat
• Global expansion including Europe
• Tyson is now more proactive outside the US news
  in BR, CN
• The Brazilian meat processors are very rapidly
  expanding ... globally
• Sadia and Perdigao lead the poultry and pigmeat
  sectors
• Vertically integrated grasping both
  agribusiness and consumer marketing
• Rapidly deepening and broadening their export
  portfolios
• JBS dramatic growth massive, multi-origin,
  global sales reach
• Acquisition and organic Brazil , Argentina, US,
  Australia and Italy
• Several other beef processors are also attracting
  Stockmarket capital and are acquisitive e.g.
  Marfrigs announced acquisition of Moy Park
• forcing response - even in EU! Vion, Danish
  Crown, Tonnies, Biggard

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Significant recent MA which makes the biggest
firms bigger, more global, and more BR
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Can the Stock Exchange accept the earnings
volatility of agribusiness and meat?
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Positive recent Brazilian meat company share
price performance
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Concluding comment will the UK be a precedent
for the EU in meat?

• UK meat production sector has been humbled by
  disease, customer power, and lack of supply chain
  organisation and communication
• A new and more strategic long term approach to
  purchasing will be required from customers to
  motivate increased meat production in UK (and EU)
• UK producers processors need to catch-up
• Production efficiency gains
• supply-chain confidence
• effective export trading
• By-product valorisation
• but UK is ahead on many market-related
  developments

Source Gira Meat in Retail Winners Losers
report
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Menu

• 3. Long term trends in global sheepmeat

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2. SH Sheepmeat consumption (and production)
growth will be driven by China

• Overall consumption growth 2005-2015 1.7 p.a.
• Sheepmeat suffers from a number of drawbacks,
  including the lack of convenience and the high
  price either a niche or an ethnic meat!!

Sheepmeat consumption by major contributing
countries/regions - 2005/2015
() EU25 in 2005, EU27 in 2015
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Sheepmeat Consumption per Capita 1995-2015


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Some key demand factors should favour sheepmeat,
but there are many supply-chain problems

• Population economic growth largely in
  undeveloped countries which should favour
  sheepmeat demand Middle East (China, India)
• many with very low meat consumption but scope
  to grow
• Mostly with a preference for sheepmeat
• But sheepmeat is expensive relative to other
  meats
• Lamb is a premium price meat in danger of
  becoming a speciality
• Mutton is cheap but traditional consumer
  profile taste and oily problems
• Expensive to produce (even on marginal land) and
  process
• Low 5th quarter revenue wool and pelt prices
• Disease (FMD, BTV etc), parasites, and
  environmental issues
• Productivity gains are small compared with the
  monogastrics
• Low RD spend compared with the other species
• Weak uptake of new developments because sheep
  farming is especially fragmented
• Sheepmeat processors are small relative to other
  species

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Sheep Producer Prices trending upward and they
need to to improve farmer motivation
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Global Lamb Exports dominated by NZ, followed by
Australia
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Mutton Exports half the size of lamb volumes,
and declining short term (reflecting supply)
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Global Sheepmeat trade flows, 2007 dominated by
NZ and Australia
L15 M8
L9 M1
L13 M9
L19
L35 M4
S6 L5
L11 M28
S75 L25 M57
L41 M6
L56 M22
S2 L42 M10
28 M6
L5 M18
L212 M46
Red arrow decrease forecast in n1 Black arrow
no significant change Blue arrow increase
forecast in n1
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17 increase in sheepmeat trade forecast over 10
years from the familiar origins

• Main trends
• growing exports of cuts rather than carcasses
• growing exports of chilled rather than frozen
• still important export of live sheep from
  Australia to the Middle East.

Sheepmeat exports 2005-2015
Source Gira
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Menu

• 4. Initial implications for the Chilean red meat
  sector

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Dynamic developments in the Chilean beef market

• Import penetration is high but in the positive
  context of consumption and production growth
• Niche export opportunities exist due to Chiles
  excellent sanitary status, and the consequent
  export market access

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The Chilean pigmeat export record shows a good
precedent for red meat
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Concluding observations for Chilean beef and
sheepmeat players

• Good long term global demand outlook for all
  meats
• Including the Chilean domestic market which
  should be a priority for the domestic industry
• Selective opportunities for strategic exports of
  Chilean red meat
• To pull further production growth
• To balance the carcass, to compliment those
  imported meats which are competitive and
  sustainable, and to maximise valorisation
• To occupy niches in export markets left by
  bigger exporters (e.g. Brazilians)
• Prerequisite strengths for exporters
• Maintain sanitary achievements and credibility
• Be organised
• To properly understand the global export market
  niches and how Chileans can differentiate from
  competitors
• To be educated vendors not overly competing
  with each other

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Thank you for your attention