Emerging feed markets

Pinpointing potential

Title

Emerging feed markets Pinpointing potential Emma Cardy-Brown Email emma.cardy-brown@rabobank.com The names of other authors are mentioned in the respective chapters. September 2006 No part of this publication may be reproduced in any form by print, photo print, microlm or any other means without written permission of Rabobank. Neither Rabobank, or other legal entities in the group to which it belongs, accept any liability whatsoever for any direct or consequential loss howsoever arising from any use of this document or its contents or otherwise arising in connection herewith. Rabobank International F&A Research and Advisory Telephone + 31 30 216 1178 Website www.rabobank.com/far

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Rabobank Emerging feed markets

Table of contents
Foreword Introduction Feed markets: fast developers 1 1.1 1.2 1.3 1.4 1.5 1.6 2 2.1 2.2 2.3 2.4 2.5 2.6 3 3.1 3.2 3.3 3.4 3.5 3.6 4 4.1 4.2 4.3 4.4 4.5 4.6 Russia Summary Scale PEST Drivers Players Outlook Market attractiveness Ukraine Summary Scale PEST Drivers Players Outlook Market attractiveness China Summary Scale PEST Drivers Players Outlook Market attractiveness India Summary Scale PEST Drivers Players Outlook Market attractiveness 5 6 6 10 10 10 14 19 20 23 24 26 26 26 30 33 37 38 38 40 40 42 46 48 50 52 55 56 56 56 60 63 65 66 67

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5 5.1 5.2 5.3 5.4 5.5 5.6 6 6.1 6.2 6.3 6.4 6.5 6.6 7

Brazil Summary Scale PEST Drivers Players Outlook Market attractiveness Mexico Summary Scale PEST Drivers Players Outlook Market attractiveness Conclusion

68 68 68 70 73 74 75 76 77 77 77 80 81 82 84 86 87

Rabobank Emerging feed markets

Foreword
Rabobank is the worlds leading food and agribusiness bank offering F&A clients products specialised for the industry.The Food and Agribusiness Research unit (FAR) works to provide knowledge both internally and externally, keeping both bank and client up to date with market developments enabling better communication between the two. The following report is designed for our most valued clients. It aims to provide a series of snapshots of key emerging markets for the feed industry. We would like to thank all those in the industry who have given us the benet of their time and knowledge to pull this report together. This study has been published in line with Rabobanks long-term commitment to the international food and agribusiness. It is one of a series of publications undertaken by the global department of Food & Agribusiness Research and Advisory.

Rabobank Emerging feed markets

Introduction
By Emma Cardy-Brown, Food and Agribusiness Research and Advisory, Utrecht

Feed markets: fast developers

High GDP equals high protein consumption

The following report aims to outline the main market trends found in the emerging feed sectors around the world. Over the last 15 years strong growth in meat and dairy production has been found in many of the developing countries that have either large populations to feed (China) or ample cheap feed grains (Brazil) allowing competitive meat production for export.The value of the meat consumption markets still lies very much with the developed world. High gross domestic product (GDP) coupled with high proportions of meat in the diet dictate that the mature markets of Western Europe, North America, Japan and Australia are still the valuable consumer markets. Figure 0.1 shows the high level of meat consumed per capita in line with higher GDP. Where GDP is low it follows that the proportion of relatively expensive meat is lower and cheaper feed stuffs such as rice represent a larger proportion of the diet.

Figure 0.1

Identifying value consumption

Bubble size = population 2004 Total meat kg/capita

160 140 120 100 EU-15 80 60 40 20 Asia (excl. China) Eastern Europe South America China Oceania total North America

-5,000

10,000

25,000

40,000

GDP USD/capita Source: Food and Agriculture Organization of the United Nations, USDA, 2005

Meat consumption growth is found mainly in the new developing markets where GDP growth is strong. Figure 0.1, however, shows the low base from which GDP must develop in the emerging markets. In Figure 0.2 can be seen how fast GDP per capita has developed since 1985. As wealth improves so does the diet, and chicken, pork, beef and sh are more regularly consumed.

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Figure 0.2

Identifying value growth

Bubble size = population 2005 Meat consumption CAGR% 1985-2005

8 6 4 South America 2 2 0 -2 North America Oceania total EU-15 0 2 4 6 8 Eastern Europe Asia (excl. China) China

GDP CAGR% 1985-2005 Source: Food and Agriculture Organization of the United Nations, USDA, 2005

However, the high value markets are also characterised by maturity and narrowing margins as increasing labour, land and regulation costs expand the cost of meat production. Producers in North West Europe for example, are operating with increasingly tight margins. A frequently adopted model utilised to produce poultry and pork production has been vertical integration where companies take control of their own inputs and produce their own feed. Vertical integration offers the possibility of increasing efciency, cutting out the middle man and allowing for improved cost planning. In the developing markets vertical integration offers the possibility to alleviate themselves from often inadequate local infrastructure problems. In fact, world wide a large proportion of companies producing feed are vertically integrated. As seen below, the columns in blue produce both feed and meat.
Figure 0.3 000 MT/year
16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000

Leading global feed companies

CP

ABNA

Ucaab

Sadia

ADM

Ridley

DLG

Perdue

Nutreco

Provimi

Bachoco

Cehave

Perdigao

Gold Kist

Tyson Foods

Hope Group

BOCM Pauls

Smithfield

Land O'lakes Purina

Source: Feed International, 2005

Rabobank Emerging feed markets 7

Zen-noh Co-operative

Evialis/Guypmarc'h

Cargill/Agribrands

Glon Sanders

J D Heiskell

Veronesi

Although many companies are marked as vertical integrators (VI) (in Figure 0.3 in blue) those VI companies operating in mature markets with high expense (labour, land and energy) have struggled to make the model more protable than sticking to the core activity. In the European Union-15 member states (EU-15), several market leaders have made a U-turn in their strategy away from the vertical integrated model focusing more on pure feed activities or meat production, whichever was their original core competence. Many Western European feed companies are expanding geographically in search of the growth markets. Home feed markets in north west Europe are shrinking along with meat production due to increasing pressure of meat imports from cheaper production locations such as Brazil.The subsequent trends in the mature European markets are shown schematically in Figure 0.4.

Figure 0.4

Dynamics of the north western European feed companies

Products Specialised additives T Number of farms T Number of animal T Size of farm T Economies of scale T Specialisation T Professionalisation Corporate farms mixing their own compound feed Custom mixed concentrates

Sales volume Number of products

Plant & transaction costs

Basic compound Plant efficiency

Raw materials

Source: Rabobank, 2005

As an explanation of Figure 0.4: production of meat in Europe is consolidating to produce corporate farms with better scales of economy and increased professionalism.They have in turn increased bargaining power with their supplying feed companies.The demand for tailor made feed is increasing while the demand for one size ts all type feed is falling.The impact on the feed company is often reduced plant efciency. Inventories are made up of increasing numbers of tailor-made orders, usually in low volumes, which subsequently leads to complicated production schedules and increasing bottle necks in through put. With so many companies in search of new greener pastures where animal protein production growth is driving an increased demand for animal feed stuffs the following report aims at outlining the key developments in important growth markets. Not all growth markets are covered but the trends isolated can be found being repeated in many of the developing markets.

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A number of markets have been described to give an outline of their characteristics and their level of attractiveness for feed companies.The countries discussed are represented in blue in Figure 0.5.

Figure 0.5 million MT

U.S. China Brazil Japan Mexico Canada France Spain Germany Australia Russia India Netherlands Ukraine 0

Industrial feed excl. premix (2005)

147 63.1 43.4 23.9 23.8 22.1 21.8 19.2 19 18 16.5 14.3 12.4 1.6 25 50 75 100 125 150

Source: Feed International, Rabobank, 2005

Animal disease outbreaks have become prevalent in all markets; avian u, foot and mouth, swine fever all have massive immediate impacts on animal production. However, the meat industry has shown remarkable resilience to these outbreaks and although short term disruptions are painful, producers often bounce back with increased efciency.The impact of animal disease has therefore been left outside this report as to cover the subject with any completeness would require an additional report.

Rabobank Emerging feed markets