1

Philip SengPresident and CEOU.S. Meat Export Federation

Opportunities, Challenges, Opportunities, Challenges, and Future Potential for U.S. and Future Potential for U.S.

Pork in the Global Marketplace Pork in the Global Marketplace

National Pork Industry ForumNational Pork Industry ForumMarch 5, 2005March 5, 2005

2

The Expanding Pork Checkoff Dollar

Each $1 of checkoff invested with USMEF Each $1 of checkoff invested with USMEF last year returned $2.27 (ROI of 127%)last year returned $2.27 (ROI of 127%)

+ + =

Pork Checkoff

$3.7 Million

MAP

$4.1 Million3rd Parties

$0.6 Million

$8.4 Million

USMEFUSMEF

3

USMEF Mission Statement

“To increase the value and profitability of the U.S. beef, pork and lamb industries by enhancing demand for their products in targeted export markets through a dynamic partnership of all stakeholders.”

4

USMEF StakeholdersPrivate Companies

– Tyson– Swift & Company– Excel– Sara Lee– Hormel– Smithfield

Agribusiness– Chicago Mercantile

Exchange– Elanco Animal Health

U.S. Dept. of Agriculture

Nat’l & State Organizations– National Pork Board– Cattlemen’s Beef Board– United Soybean Board– American Farm Bureau

Federation– National Corn Growers

Association– National Cattlemen’s Beef

Association– Minnesota Pork Board– American Meat Institute– National Pork Producers

Council

5

USMEF-- A Global Presence --

Offices– Tokyo & Osaka– Seoul– Mexico City &

Monterrey– Hong Kong– Taipei– Moscow & St.

Petersburg– Shanghai– Singapore– London

Representatives– Beirut– Caribbean– Central America– South America (based

in Sao Paulo)– Beijing

Total Staffing– Approximately 100

Annual Budget– $25,000,000

6

USMEF Pork Funding Sources

Checkoff35%USDA

54%

Other1%

Corn & Soybean

10%

7

Strategic Priorities

• Market Access• Trade Support• Market Presence• Buyer Education and Loyalty• Product Image• Total Carcass Utilization

8

2004 Overview

9

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

met

ric

ton

s

0

500

1,000

1,500

2,000

2,500

mil

lio

n $

PVM - MTPork - MTValue - million $

U.S. Pork and Pork Variety Meat Exports

Source: USDA

14.3% Average Annual Growth - Volume14.3% Average Annual Growth - Volume

10

Where Was the Growth in 2004U.S. Pork / PVM Exports

Others3%

Taiwan5%

Canada5%Russia

7%

HK/China9%

Mexico54%Japan

17%

Source: U.S. Census Data

U.S. has a 30% advantage compared

to Jan. ‘03

© 2005 by Prof. Werner Antweiler, University of British Columbia, Vancouver BC, Canada

12

BSE Impact on U.S. Pork Exports?

Regions That HaveReopened to Beef

2003 2004 % ch

Mexico 219,034 361,587 +65%

Canada 97,902 112,360 +15%

C/S Am * 17,210 17,585 +2%

Caribbean 7,289 13,014 +79%

EU 16,614 10,712 -36%

ASEAN 4,753 8,127 +71%

362,802 523,385 +44%

* Panama remains closed to U.S. beef

Regions that RemainClosed to Beef

2003 2004 % ch

Japan 269,230 313,574 +17%

S. Korea 28,779 27,876 -3%

Russia 7,329 27,152 +271%

HK/CH 56,625 79,701 +41%

Taiwan 25,893 38,806 +50%

Other 6,748 12,919 +91%

394,604 500,028 +27%

Source: USDA, USMEF

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0%

2%

4%

6%

8%

10%

12%

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

Per

cen

t o

f P

rod

U.S. Pork / PVM Exports as a Percent of Production

Source: USDA, USMEF

14-300,000

-200,000

-100,000

0

100,000

200,000

300,000

400,000

500,000

600,000

Met

ric

To

ns

-800

-600

-400

-200

0

200

400

600

800

1000

Mil

lio

n U

S$

Volume in MT

Value in US$

Trade Balance of U.S. Pork and PVM Exports

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Chef Training-- China --

• Funded with $15,000 contribution from MN Pork Board

• December 27-29 in Hainan province – China’s “Oriental Hawaii”

• 50 chefs from throughout China participated:– Classroom presentations– Guest chef demonstrations– Hands-on applications

• Very effective in expanding the range of cuts and number of restaurants using U.S. pork

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U.S. Pork Campaign-- Japan --

• Participation by 30 national and regional retail chains (2200 outlets) in summer of ‘04

• Involved tie-in with Moranbong to include 1 of 4 different meat sauce mini-packets in U.S. Pork retail packs

• Increases reported by participating retailers generally in 10%-15% range

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U.S. Pork Caravan Supports Retail Promotions

• Supported U.S. Pork retail campaign at 8 locations on 6 weekends in May and June, 2004

• Opportunity to demonstrate recipes being promoted in-store

• Helped drive increases in total pork sales – U.S. Pork sales increases

ranging from 110% to more than 500%.

• Strong demand from retailers to continue this type of promotion support

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Mother’s Day Promotion-- Mexico --

• USMEF partnered with Gigante and Commercial Mexicana (102 total outlets) for 6 week promotion in the Spring of ‘04.

• Coupons inserted in meat packages with beef purchases worth 1 point each, pork purchases 2 points.

• With 20 points, consumers could exchange coupons for a ticket to the Mother’s Day celebration event.

• Nearly 3,000 attended the Mother’s Day event.

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Advertising Support

• 72 inserts in women’s and cooking publications

• 800,000 in-store flyers distributed over 4-week promotion

• 276 radio spots

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“New Realities”

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“New Realities”

• Protein complex is dealing with the dual shocks of BSE and AI – creating opportunity to grow percentage of eating occasions that include U.S. Pork

• Consumers are becoming increasingly concerned about food safety. Brands/traceability are becoming more important

• Competition for export markets is intensifying

• FTA’s are enhancing long-term market prospects

• Checkoffs face an uncertain future

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#1 -- The Consumer Reality

• Consumers want to know who stands behind the product, how the animal was raised & what it was fed – essentially creating “story” pork

• Increasing importance of source and process verification

• Driven by BSE, AI, E-coli, mis-labeling, etc.

23

Aeon Department Store

• In response to consumer concerns about beef safety, Japanese retailer installed computers in their meat departments enabling consumers to see:– DOB and slaughter date– Where raised– Feed– Health records– BSE testing certification

• Similar info also now made available thru cell phone camera technology

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#2 – Competition is Intensifying

• Brazil has emerged as a global meat exporter– Increased from 2% of world pork trade in 1994 to 15% in

2003– Will be the #1 exporter of beef in 2004

• China– Will investment turn the world’s largest hog production

base into an export powerhouse?• Mexico and Chile also becoming exporters and

benefiting from trade agreements with Japan• Korea recently established a pork checkoff

promotion plan and has its eyes on a return to the Japanese market

• Canada and Denmark continue to push aggressive promotion programs

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Recent Efforts

• Argentina receiving FMD clearance by region – Beef access agreement with China

• Brazil has a goal to double meat production in 10 years

• Uruguay is USDA Process Certified

• Canada (Maple Leaf) will be using DNA traceability for Japan in 2005

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S. America Factor

27

Global Beef Exporters by Country

0200400600800

1,0001,2001,4001,6001,800

1,0

00

MT

CW

E

1999

2000

2001

2002

2003

2004 (f)

2005 (f)

Source: USDA

Competition is Fierce

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Global Pork Market Share

Canada

EU-25

United States

Brazil

ChinaOthers

0%10%20%

30%40%50%60%70%

80%90%

100%

1999 2000 2001 2002 2003 2004 2005 f

Source: World Trade Atlas

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Growth in World Pork Imports- 2.436 million mt from 1993 to 2003 -

OECD *56%

Non-OECD44%

* Excluding Intra EU Trade

Source: FAO

1,074,500 mt 1,361,551 mt

#3 – Global Pork Demand is Rising

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Growth in World Pork Imports- 2.436 million mt from 1993 to 2003 -

Singapore2%

EU (15) *2%

Canada3%

Romania4%

Hong Kong8%

S. Korea6%

Others18%

Russia8%

U.S.9%

China9%

Mexico9%

Japan22%

* Excluding Intra EU Trade

OECD in RED

Growth ’93 –’03

Japan 533,655

Mexico 231,247

China 216,987

U.S. 208,190

Russia 199,290

Hong Kong 194,668

S. Korea 148,931

Romania 105,821

Canada 67,707

Singapore 56,918

EU (15) * 43,321

Others 429,316

Total 2,436,051Source: FAO

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Challenges / Opportunities

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Threats to U.S. Success• Production built to domestic market

– Our competitors have a very different perspective

• Funding sources– Checkoff uncertainty– Budget deficits will decrease future federal

agriculture funding

• Protectionist attitudes– At home and abroad

• FTA’s– China / S. America?– Asian Free Trade Area?

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Threats to U.S. Success (cont.)

• Inability to control food safety and animal health issues– Avian Influenza, FMD

• Inability to develop standardized trading principles– Sovereignty rights vs. worldwide

obligations– Non-tariff trade barriers: dumping cases,

SPS issues, etc.

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As Tariffs Fall…Other Measures Rise

0%

5%

10%

15%

20%

25%

30%

'87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99

Av

era

ge

Ta

riff

ra

te

0

50

100

150

200

250

300

350

400

450

500

Nu

mb

er

of

AD

Me

as

ure

s in

Pla

ce

Avg. Tariffs

Measures in Force

Source: Cato Institute

Average Tariffs and Antidumping Measures(nontraditional users, 1987-1999)

35

Future Demand?

36

Global Beef and Pork Consumption

0

20

40

60

80

100

120

140

160

180

'60 '70 '80 '90 '00

mill

ion

mt

PorkBeef

Pork 287%

Beef 111%

37

Global Pork Consumers

05,000

10,00015,00020,00025,00030,00035,00040,00045,00050,000

China

EU-25

U.S.

Japan

Russia

Brazil

Mex

ico

Korea

Philippin

esCan

ada

Other

s

1,0

00

MT

CW

E

1999

2000

2001

2002

2003

2004 f

2005 f

Source: USDA

38

China Factor

• World food demand will increase 50% over the next 20 years, paced by the growing population and greater affluence of China

1988 to 2002• In China

– calories from animal sources +120% – calories from vegetable sources - unchanged

• In the Developing World– calories from animal sources +48% – calories from vegetable sources +4%.

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Who Will Meet The Demand?

• U.S. pork exports represented– 2% of Japanese meat consumption in 2002– 13.7 million mt available

– 4% of Mexico meat consumption in 2002– 6.7 million mt available

40

Who Will Meet The Demand?

96%

4%

U.S. Pork Production

World Meat* Consumption

Source: FAO, USDA* Beef, Pork, and Poultry

41

Questions

For more information:USMEF – Denver303-623-6328

On the web: www.usmef.org