What will be Brazil's role in the dairy market in the coming years?

9 de abril de 2023

Marcelo Pereira de CarvalhoCEO - AgriPoint

What will be the role of Brazil in the coming years?

AgriPoint

A company in the information business for agricultural sectors, with dairying being the main area.

Our services/products for the dairy sector

Forecasts/Previsões

Forecasts/Previsões

In 2020, Brazil would be exporting between 1,7 and 6,0 billion liters/year...

It’s not east to make forecasts...

• The time frame they are done affect our perceptions and therefore the results

• Many different and uncontrollable variables

• We live in a moment of significant changes

In 14 years, nearly 50 kg more per person...

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013100

110

120

130

140

150

160

170

180

122 120

127125

128132

136 136141

153

160

168 168171

Per capita milk consumption (milk-equivalent/year)

Source: MilkPoint

Add to that 28 million more people consuming!

Total market: +62% or +13 billion liters

Market growth dynamics

Mercado to

tal

Inspecio

nado

População

Per capita

Produçã

o0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

3.12%

2.26%

1.64%1.46%

3.18%3.13%

5.56%

1.34%

1.76%

4.27%

4.42%

5.08%

1.01%

3.38%

4.02%

1989-2000

2001-2006

2007-2013

Source: MilkPoint

Production growth

19881989

19901991

19921993

19941995

19961997

19981999

20002001

20022003

20042005

20062007

20082009

20102011

2012

7,500

10,000

12,500

15,000

17,500

20,000

22,500

25,000

27,500

30,000

32,500

35,000

Fonte: IBGE / Elaboração: MilkPoint

Milh

ões

de

litro

s 4,1%

3,2%

How much of our consumption is produced internally

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 201388%

90%

92%

94%

96%

98%

100%

102%

104%

Self-sufficiency Index (production/consumption)

Source: MilkPoint

Can Brazil be considered a structural importer?

Brazil x world milk price

Source: MilkPoint, based on gDT and Cepea values

Jul-08

Oct-08

Jan-09

Apr-09

Jul-09

Oct-09

Jan-10

Apr-10

Jul-10

Oct-10

Jan-11

Apr-11

Jul-11

Oct-11

Jan-12

Apr-12

Jul-12

Oct-12

Jan-13

Apr-13

Jul-13

Oct-13

Jan-14

Apr-14

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

Equiv. LF importado (R$/l) Média CEPEA BR

R$/l

itro

• Trade policy: 27% tax for WMP distort the market – will it be kept?

• No clear trend regarding being either a large importer or a large exporter

• Exchange rates and world prices impact this status

Brazil’s role regarding dairy trade

• Consumption will growth less in the future• Production will also growth less in the next

years

What can we expect?

But important changes are happening

Dynamics after 2007

1/19909/19915/19931/19959/19965/19981/20009/20015/20031/20059/20065/20081/20109/20115/201300

50

100

150

200

250

300

350

400

450

Food Price IndexMeat Price IndexDairy Price IndexCereals Price IndexOils Price IndexSugar Price Index

Source: FAO

Land values rising – Brazilian example (R$/ha)

Source: FNP/Estado de S. Paulo (2013)

2003 2004 2005 2006 2007 2008 2009 2010 2011 20120

2000

4000

6000

8000

10000

12000

14000

16000

NORTH; 2.089

NORTHEAST; 3.112

MIDWEST; 5.748

SOUTH; 14.117

SOUTHEAST; 11.714

BRAZIL; 6.995

R$/H

A

+70%

Land opportunity costs – Brazilian example on sugarcane areas

• OPPORTUNITY COSTS – SÃO PAULO STATE

• -2003 - U$ 180,00/ha = equal to a profit of R$ 0,09/L, considering 3.500/kg/ha/year.

-2010 - U$ 625,00/ha = R$ 0,10/L, considering 10.000/kg/ha/year.

This effect puts pressure on dairy productivity

Source: Roberto Jank Jr. – Interleite (2011)

Fonte: Cepea/USP e IBGE (2013)

Minimum wage and milk prices (1991 = 100)

779

393

Valores nominais

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 20120

100

200

300

400

500

600

700

800

900

1000

Minimum Wage Milk Price

410

889

Growing interest on robot milking

Survey on number/profile of dairy producers

• 48 dairy companies

• June/July 2013

• 17,5 million liters/day

• 30% of inspected production

Survey on number/profile of dairy producers

Considering total inspected production

Number of Producers Volume

Ranges liters/day Number % Liters/day %

Up to 250 168.463 67% 14.062.050 23%

250-500 46.637 19% 12.679.935 21%

500-1000 22.668 9,0% 12.432.707 20%

1000-3000 10.821 4,3% 13.668.693 22%

More than 3000 2.194 0,9% 8.357.996 14%

Total 250.782 100% 61.201.381 100%

Average: 249 kg/day

Official data 2005/2006 x our survey

2005/2006 MilkPoint/Leite Brasil 20130

100000200000300000400000500000600000700000800000900000

1000000

Producers selling the milk x our survey

Official data 2005/2006 x our survey

2005/2006 MilkPoint/Leite Brasil 20130

100000200000300000400000500000600000700000800000900000

1000000

Producers selling the milk x our survey

Every 6 minutes a producer left the

business!

• Population income raised and unemployment rate fell steadily to less that 5% higher consumption but also labor and sucession challenges in farms

• Higher land opportunity costs improve productivity or leave

• Investments in processing capacity aiming domestic market and exports

• Import tax shielded (to some extent) Brazilian market to what was happening in the world artificially high internal prices

• But production lagged behind consumption market were tight and industries were pressured

Dynamics after 2007

Jan.04Jul.0

4Jan.05

Jul.05Jan.06

Jul.06Jan.07

Jul.07Jan.08

Jul.08Jan.09

Jul.09Jan.10

Jul.10Jan.11

Jul.11Jan.12

Jul.12Jan.13

Jul.13

0.500

0.600

0.700

0.800

0.900

1.000

1.100

1.200

1.300

Real increase in milk prices

Source: MilkPoint/Cepea (2013)

R$/liter (inflation-corrected)

• Averages hide a big range in prices received by dairy farmers

• Within the same region, there may be producers getting R$ 0,80/liter up to R$ 1,30/liter

– Volume– Quality– Influence, etc

• Are they in the same business?

• Efficient large farmers do have a good business!

Dynamics after 2007

Top 100 grew nearly 10% in 2013

New investments going on – Southeast Brazil

New investments going on – Midwest Brazil

New investments going on – Northeast Brazil

Progressive producers – South Brazil

Midwest Brazil

South Brazil

Small producers with family labour also growing

Small producers with family labour also growing

•How long it will last for?

But...

Real retail prices for a mix of dairy products1.

9.06

1.11

.06

1.1.

071.

3.07

1.5.

071.

7.07

1.9.

071.

11.0

71.

1.08

1.3.

081.

5.08

1.7.

081.

9.08

1.11

.08

1.1.

091.

3.09

1.5.

091.

7.09

1.9.

091.

11.0

91.

1.10

1.3.

101.

5.10

1.7.

101.

9.10

1.11

.10

1.1.

111.

3.11

1.5.

111.

7.11

1.9.

111.

11.1

11.

1.12

1.3.

121.

5.12

1.7.

121.

9.12

1.11

.12

1.1.

131.

3.13

1.5.

131.

7.13

1.9.

131.

11.1

3

0.00

0.50

1.00

1.50

2.00

2.50

3.00

Composto Varejo Composto Indústria ProdutorFonte: CEPEA, MilkPoint; Elaboração: MilkPoint

R$/liter – inflation corrected

Industry lost margin to producers and retailers

2008 2009 2010 2011 2012 20130.40

0.50

0.60

0.70

0.80

0.90

1.00

1.10

0.93

0.86 0.86

0.95 0.94

1.04

0.76 0.78 0.77

0.670.62

0.710.61

0.640.59

0.64

0.71

0.75

% Produtor

% Indústria

% Varejo

Fonte: CEPEA e MilkPoint (2013)

Inflation-corrected values for a mix of UHT, pasteurized, powder milk and cheese

Some relevant processors facing problems

Solvency problems

Coop sold 50% to Vigor - JBS

Board authorized to sell dairy assets

New players studying Brazil, but only a minor deal ocurred

What to expect?

• Large price ranges will continue• This, coupled with opportunity costs, will lead to a

structural change in production• Many will leave the business, but production will keep

growing• How many will be producing milk in 10 years? Good

question!• Production will grow less – 2-3% in average, compared

to >4% from 2007-2013• Brazil will still be an opportunistic exporter and a minor

importer, unless...• Import taxes are removed (if so, the change will be more

dramatic and faster!)

What to expect?

Farming trends

Consolidation Technology adoption Higher productivity Automation Irrigation Integration with agriculture Investments Improved services Management/information “sharemilking” systems?

Labour challenges Management challenges Environment/manure mngt. High costs/volatility Animal welfare/milk quality

But...there are broader challenges:

Policies Exporting agenda Dairy chain coordination

Gracias – Obrigado – Thank you!

Marcelo P. Carvalho19 99187-4922mpc@agripoint.com.br