Global poultry industry trends

Rabobank International

Shaping the industry for competitiveness

Nan-Dirk Mulder, 27 April 2016

Global poultry outlook

Column containing text

1. Long term market outlook

2. Key investment themes

3. Strategic global industry outlook

Content

Rabobank: The world’s leading global F&A bankRabobank group global presence

Animal protein is our sweet spot

EuropeNorth America South America Asia & Oceania

14 out of top 20 meat companies are client of Rabobank

Exposure in Animal Protein: EUR 19 billion

Global animal protein industry has benefited from lower feed prices until recent oversupply

Rabobank global meat market monitor

Source: Rabobank analysis based on Bloomberg, FAO, USDA, local statistics, 2016

Asian supply

isssues in pork

and poultry

Improving pork

prices

Global stable

feed price

Supply

reduction

50.00

70.00

90.00

110.00

130.00

150.00

170.00

190.00

210.00

230.00

250.00

Q1

Q3

Q1

Q3

Q1

Q3

Q1

Q3

Q1

Q3

Q1

Q3

Q1

Q3

Q1

Q3

Q1

Q3

Q1

f

Q3

f

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Feed price Chicken Pork Beef

Index, 2007 Q1 =100

Poultry gains further market share in the animal protein market, China remains different

Global market excl. China China meat and egg market

Source: Rabobank analysis based on USDA, FAO and local statistics, 2016

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

Chicken Eggs Pork Beef

World ex China

2012 2013 2014 2015 2016f

1,000 tonnes

CAGR: +2.2%

CAGR:+2.1%

CAGR: +0.7% CAGR: -0.4%

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

Chicken Eggs Pork Beef

China

2012 2013 2014 2015 2016f

1,000 tonnes

CAGR: -1.6%

CAGR: +0.4%

CAGR: +1.5%

CAGR: +2.8%

Feed grains: Ongoing overproduction with stock rebuilding at all world grains markets

Corn Wheat Soybeans

0

50

100

150

200

250

300

350

400

550

600

650

700

750

800

850

900

950

1,000

1,050

Ending stocks Production

Consumption

0

50

100

150

200

250

300

350

400

450

500

550

570

590

610

630

650

670

690

710

730

750

Ending stocks Production

Consumption

0

20

40

60

80

100

120

140

150

170

190

210

230

250

270

290

310

330

Ending stocks Production

Consumption

Avian Influenza has become a global challenge

Avian influenza outbreaks Jan 2014 – Feb 2016

Long term outlook: 65% more poultry in 20 years

Global demand for animal protein

Source: Rabobank analysis, FAO, OECD, FAPRI, 2015

-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

1985 1995 2005 2015 2025 2035

Seafood Eggs Sheep Poultry Pork Beef

x 1,000 tonnes

+40%

+25%

+24%

+20%

+18%

Change:15/35Seafood:+30%

Eggs: +50%

Poultry: +65%

Pork: +35%

Beef: +20%

-5,000

-

5,000

10,000

15,000

20,000

25,000

30,000

Eggs Poultry Beef Pork

1,000 tonnes

First tier: 59% Second tier: 20% Rest::21%

4% 2%

65% of global protein demand growth is in Asia

Global market volume change 2014-2024

Source: Rabobank forecast based on FAO, FAPRI, OECD. 2015

Asia lacks adequate resources

Brazil10%

Argentina7%

Other South America

11%

Russia9%

Other Eastern Europe/Central

Asia

3%

Sub Saharan Africa45%

Rest of the world15%

Available new agricultural landGlobal land and water availability per

capita

Source: FAO/Rabobank analysis 2015Source: Rabobank, FAO 2015

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

0

2

4

6

8

10

12

14

16

18

20

Acre per capita Water availability per capita

Asian chicken production is 30-50% more expensive as Brazilian production

14

0

50

100

150

200

250

Processing Live broiler

Cost price comparison whole broiler 2013EUR/100 kg

Source: Rabobank, WUR, 2015

0

2,000

4,000

6,000

8,000

10,000

12,000

Chicken Beef Pork

x 1,000 tonnes

Growing importance of trade, but volatile global market conditions

15

Global trade in meat 2000-2015

Source: Rabobank, USDA, 2015

Pork: CAGR: +5.4%

, 6% of global

supply

Poultry: CAGR: +5.5%

, 12% of global supply

Beef: CAGR:

+3.7%,

17% of global

supply

Global poultry production outlook: Growth everywhere, especially in BRICs

16

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

2005 2015 2025

x 1,000 tonnes

+1.2%

+1.9%

+2.2%+0.9%

+7.2%+3.0%

+2.7% +6.9% +2.2% +4.4% +2.5% +2.7%

+2.4%

+1.8%+2..6%

Global broiler production outlook 2025

Column containing text

1. Long term market outlook

2. Key investment themes

3. Strategic global industry outlook

Content

Economic development drives food market change

ECONOMIC CONSOLIDATION Food as

nutrition/well-being

ECONOMIC REINVENTION

Food as stimulation

ECONOMIC TAKE-OFFFood as a need

ECONOMIC DEVELOPMENTFood as a social occasion

Income: < $ 5,000

Income: $ 5,000 - $15,000 Income: $15,000 - $40,000

Income: > $40,000

Time free

Location Bound

Time bound

Location free

Source: Rabobank analysis, 2015

Consumer concern driven change to change global industries especially in emerged markets

CaliforniaJan 2015 cage ban

EU: 2012 Cage ban 2013 sow house ban

D: GermanyInitiative Tierwohl

ACT, WA:Bans on cage houses and sow stalls

China: Antibiotics, melamine scandals

Canada: ban on pig gestation

Alberta: Phase out of

battery cages

NL: Chicken of tomorrow

Source: Rabobank, 2016

Brazil discussion about cage

ban

Client based push to non cage eggs

Antibiotics free

Premium chickens: An opportunity?

• Source: Rabobank analysis, 2015

Animal

- Slow growing bird

- Lower density

- Straw, light

Environment: Sustainanable Soy

Netherlands: NGO and retail driven change

Germany: Initiative Tierwohl

Program

- Separate programs for red meat and poultry industry

- 80% of German supermarkets

- More space per bird

Labels to guarantee standards of production

United Kingdom France

Europe: High welfare concepts US: Antibiotics free and QSR

standardsNorth America: Antibiotics free

QSR and retail: higher animal welfare standards

From volume to value: The journey to higher margins

Brand

Value added food

Value added chicken

Premium chicken

Standard chicken

Investors who

follow this strategy

The poultry value added pyramid

Low

High

Margin

level

Chinese industry still struggles with low confidence in white chicken

Animal disease fears: Human H7N9 cases

Why are there so manyfood scandals?

Food safety scandals

China: Breeding stock shortage to affect market and imports in H2 2016

23

China poultry and pork priceChina breeding stock

imports

Source: Rabobank analysis based on local statistics, 2016

Pork

Poultry

1.71

1.9

1.49

1.35

1.49

1.21

0.7

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

2

2009 2010 2011 2012 2013 2014 2015

4

6

8

10

12

14

16

18

20

Shandong Province Hog Price

China will recover, but in another shape. Regaining confidence is keyChina poultry consumption: low

Source: Rabobank/USDA, 2015

Road to recovery

Avian influenza

management

Supply management

Value chain model

Branding

Wet market policy

Wet markets = 70%

Broiler meat markets = 30%

-

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

kg/head

South East Asia: Growing interest from regional and global investors

+6.0%

+5.1%

+1.0%

+6.1%+4.9%

+2.1%

Thailand PhilippinesVietnam

Indonesia

Malaysia

Myamar

International investorsSouth East Asia market growth and

regional internationalisation

Source: Rabobank analysis based on USDA, FAO and local statistics, 2016

Eastern European industry is growing very fast driven by local and export market growth

EU poultry production growth Jan- Oct 2015 versus 2014

Source: Rabobank analysis based on Eurostat, 2016

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

-5

0

5

10

15

20

25

30

35

40

0.0% 2.0% 4.0% 6.0% 8.0% 10.0%

Sub Saharan Africa: Investments are also taking off

Africa meat and egg market

2025fAfrica Poultry Growth by Market

Kg/head

CAGR2015-2020

Source: Rabobank projections based on USDA, FAO and local statistics, 2016

-

5,000

10,000

15,000

20,000

25,000

30,000

1995 2005 2015 2025Sheep Pork Beef Eggs Poultry

1,000 tonnes

Meat and eggsCAGR +3.8%

Meat and eggsCAGR +4.1%

Meat and egsCAGR +4.1%

BeefCAGR +2.0%

PoultryCAGR +5.5%

EggsCAGR +5.1%

32%

14%

7%

28%

20%

17%6%

39%

19%

19%

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

Production Consumption Exports2007 2008 2009 2010 20112012 2013 2014 2015 2016f

x 1,000 tonnes

-10%

US broiler sector: Exports -12%

US: Oversupply after 2015 avian flu crisis

28

AI

-12%

+4%

+7%

Source: Rabobank analysis based on USDA, 2016

US Layer hen herd versus egg and feed prices

0

50

100

150

200

250

250

260

270

280

290

300

310

320

330

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2012 2013 2014 2015 2015

Feed index Laying hens Egg price

Million laying hens Index 2012=100

AI

-12%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Wholechicken

Breast Cuts Processed

Brazil US Thailand China EU Turkey Other

Mitigate AI risk: Higher dependence on limited suppliers, opportunities for newcomers

Global export market shares by

country

AI

AI

AI AI

Opportunities for new comers

Product High potentials

Whole

Breast

Cuts

Processed

Source: Rabobank analysis, 2016

AI: To change breeding supply, local programmes and internationalisation

Global

Local

Further globalization of distributionand compartmentalisation

Domestic programs to reduceImport dependence

Source: Rabobank analysis, 2016

Column containing text

1. Long term market outlook

2. Key investment themes

3. Strategic global industry outlook

Content

Column containing text

Globalisation of the industry: Companies from emerging markets take the lead

Top 20 Global meat companies 2016

Column containing text

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

China Rest of the world

x 1,000 tonnes

The rising importance of Asia for global soybean and meat trade

China’s rising share in global soybean trade

Source: Rabobank analysis, Bloomberg, USDA, 2016

Asia’s rising share in global meat trade

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

1990 1995 2000 2005 2010

Beef Pork Broiler

1,000 tonnes

43%

46%

48%

Internationalisation in the meat industry to continue

Globalization in the animal protein industry

Africa

Middle East

SE

Asia

Australi

a

Russia

EU

United States

Mexic

o Brazil

Argentin

a

ChinaJapan

India

Source: Rabobank, 2016

Column containing text

Towards the Asian and African decades in poultry development

Global

investments

1980 1990 2000 2010 2020

2030

Global investments in the poultry and egg industries

Source: Rabobank, 2015

Questions?nan-dirk.mulder@rabobank.com

Nan-Dirk Mulder, 27 April 2016

Thanks for your attention