Europe, Russia & Middle East Region

Jackie Hruby – Director for Europe, Russia and the Middle East

Europe, Russia & the Middle East

Europe• EU-25• Eastern Europe, includes Romania and Bulgaria.

Russia• Russian Federation• CIS, includes Armenia, Azerbaijan, Belarus,

Georgia, Kazakhstan, Kyrgystan, Moldova, Ukraine, Turkmenistan, Uzbekistan, Tajikistan

Middle East• Includes Saudi Arabia, United Arab Emirates,

Kuwait, Israel, Lebanon, Bahrain, Egypt

Importance of the Region and its Markets to U.S. Beef and Pork

Europe

• The EU is the world’s most affluent trading bloc, made up of 25 countries and a total population of 455 million

• There is a growing beef deficit in the EU, estimated at 400-450,000 tons

Russia

• High growth, lucrative potential markets • The region accounted for 24% of total U.S. beef

variety meat (primarily beef liver) exports in 2003• Significant opportunities for U.S. pork exports

Middle East

• One of the fastest growing populations in the world.

• Strong economic growth conditions are forecast for the gulf countries in the near term.

• With relatively little domestic beef production and little opportunity to significantly raise domestic production, beef imports are set to increase in importance.

Demographics

Europe

• Continued expansion of the EU• Growing markets in Eastern Europe, such as

Romania and Bulgaria

Russia

• Increasing per capita incomes in line with economic growth

Middle East

• Young population coupled with a high rate of growth

Economic Situation

Europe• High per capita incomes across the EU • Lower per capita incomes in Eastern

Europe, but higher growth rates

Russia/Middle East• Significant levels of economic growth

(7% in Russia) - fueled by higher oil revenues

Political Climate

• EU– A new EU President and set of Commissioners,

(one from each of the 25 member states), will work together to define EU policy commencing November 1.

• Russia – President Putin strives to exert increasing

controls following his re-election earlier this year, and in the face of continued terrorist attacks.

• Middle East– Continuing turmoil in Iraq and instability in the

region.

Trade Policy & Market Access Environment

• Europe– The continued expansion of the EU has resulted in

the US industry losing access to markets such as Poland, as new member states are forced to comply with restrictive EU food policies.

• Russia – Increasing Government control has resulted in the

imposition of Tariff Rate Quotas (TRQs) on red meat imports.

• Middle East– Political turmoil and war in the region had little

impact on exports in 2003.

Current Market Access

Europe• The EU and Eastern Europe have remained open

for U.S. beef.

Russia • Banned U.S. beef and has not yet presented any

conditions under which U.S. beef exports can restart.

Middle East• Saudi Arabia and Bahrain remained open for U.S.

beef. Egypt has recently re-opened its market subject to certain conditions. The UAE and Lebanon may soon follow.

Europe

General Market Situation

• Increasing deficit in beef production– Agricultural policy reform continues to drive down

production– Recovery in consumer confidence and

consumption post BSE

• Declining pork production– Environmental concerns– Increasing costs of production and lower returns

to the producer

Europe - Beef

• Open for U.S. beef and beef variety meats

• Increasingly dependent on imports– Current EU beef deficit estimated at 400-450,000

tons

• Major competitors are South American producers– Brazil– Argentina– Uruguay

• Consumption continues to increase following EU beef crises

Key Drivers & Strategic Priorities-- Europe Beef --

Key Drivers• Severe restrictions on

access to the EU markets for U.S. beef.

• Declining EU Beef Production.

• Growing HRI Sector.

• Increasing Beef Consumption.

Strategic Priorities• Work with the U.S. industry to

increase the supply of U.S. beef eligible for export to the EU.

• Establish distribution links for U.S. beef and build product loyalty among targeted end-users.

• Expand the number of HRI outlets that incorporate US beef onto their menus.

• Position U.S. beef as the preferred, highest quality product among targeted consumers.

Europe-- Pork --

• Exports to the EU increased by 55% in 2003, to over 15,000 tons

• Exports to Eastern Europe continue to grow in 2004, driven by exports to Romania

• Further growth is dependant on additional EU-approved suppliers coming on-line

• Primary competition comes from domestic (EU) producers

• Consumption of added-value processed products increasing

Key Drivers & Strategic Priorities-- Europe Pork --

Key Drivers

• Declining or static pork production.

• Restricted access for U.S. pork to the EU.

• Growing demand for

added-value processed pork products.

Strategic Priorities

• Work with the U.S. industry to increase the number of EU approved suppliers.

• Establish distribution links for U.S. pork and build product loyalty among targeted importers, distributors and processors in the region.

Russia

General Market Situation & Trends

• Russia is 66 percent self-sufficient in beef and pork.

• Meat consumption is constantly increasing – 50 kg per capita in 2003 (42 kg in 1990)

• Meat processing sector grows by 10 percent annually.

• Russian retail and HRI sectors are rapidly growing.

General Market Situation & Trends

• HRI Sector:– There are 3,000 restaurants in Moscow and 1,500

in St. Petersburg and more mid-level restaurants are opening.

• Retail trade has become more westernized : – There are now more specialized stores,

supermarkets, hypermarkets.– The share of wet markets decreased from 60

percent to 30 percent in a total retail turnover.– European retail chains (Auchan, Metro, Dorinda,

IKEA) opened more than 60 outlets in Russia. WalMart announced its entry into the Russian market in 2005.

Russia-- Beef --

• Export forecast once the ban is removed:– The U.S. will regain its pre-BSE market share by 2006.– HRI – U.S. marbled beef has a special position in the

market and importers are eager to resume imports. – Beef variety meat – 75 percent of all beef liver imported

to Russia is of U.S. origin.• Competition - Brazil, Argentina, EU, Australia• Beef consumption trends

– Improving standard of living will result in increased consumption of high-quality beef

– Increased prices for beef will cause the share of beef in total meat consumption to go down, i.e., versus poultry, fish, etc.

Key Drivers & Strategic Priorities-- Russia Beef --

Key Drivers• Consumption of

processed meat products is increasing.

• Expanding HRI sector.

• Actively growing retail sector.

• Consumers are increasingly safety and nutrition conscious

Strategic Priorities• Recapture the number of

importers and processors using U.S. beef and variety meat by demonstrating profitability

• Expand the range of beef cuts in the HRI sector.

• Position U.S. beef as the highest quality, preferred product among targeted HRI customers.

• Build demand for U.S. beef and beef variety meat in retail sector.

Russia-- Pork --

Russian Pork Import Quotas, 2004, thousand mt

Other Countries - 179.5

EU - 227.3

Paraguay - 1

US - 42.2

• Favorable quota allocations in 2004 have already increased the import of U.S. pork by 170 percent in the first 8 months of 2004.

• Pork import of U.S. main competitors in Russia – Brazil and China – is significantly restricted by quotas.

Russian Pork Import, 2003, thousand mtOther

Countries - 370

EU - 145

US - 7

Russia-- Pork --

• U.S. pork exports to Russia:– Expected to grow as the quota allocation

for 2005 is predicted to be favorable for the U.S.

• Pork consumption trends:– Demand for processed pork products and

pork muscle cuts is going up;– U.S. pork has won its position in the HRI

sector, but just six U.S. pork packing facilities are approved for export of pork to Russia for retail sale.

Key Drivers & Strategic Priorities-- Russia Pork --

Key Drivers• Rapidly expanding HRI

sector.• Significant potential of

growing retail sector.• Restricted access for U.S.

pork traded in retail sector. • Increasing demand for

high-quality processed pork products.

Strategic Priorities• Expand U.S. pork usage in

the Russian HRI sector. • Build a presence for U.S. pork

in the developing Russian retail sector.

• Facilitate access for U.S. pork in the growing HRI and retail sectors.

• Maintain demand for U.S. pork in the processing industry in Russia.

Middle East

General Market Situation & Trends

• The six Middle East Gulf states enjoy some of the world’s highest per capita incomes and population growth rates. The total food market is estimated at more than U.S.$ 35 billion – and growing daily.

• The Middle East imports roughly 90% of the beef and beef products that it consumes.

• Demand for beef is driven by limited production, improving economies and soaring population.

• The region presents good opportunities for HQB and value added products due to the expansion of HRI sector, growing number of fast food outlets and western style supermarkets.

Middle East-- Beef --

• USMEF predicts that U.S. beef exports to the Middle East will regain their pre-BSE market share by 2006.– HQB – U.S. high quality beef has a special niche in the HRI

sector and distributors and importers are eager to resume imports.

– Beef variety meat – almost 80 percent of all beef livers imported to the Middle East are of U.S. origin.

• The growing number of fast food restaurants, hotels and resorts, catering operations and upscale supermarkets, continue to create greater opportunities for U.S. beef products.

• Price is the overriding consideration when purchasing mea, although affluent Middle Eastern consumers and visitors can afford fine dining. The ABC program is appealing to this select clientele.

Middle East-- Beef --

• Other suppliers to the Middle East HRI and retail sectors include: Australia, Brazil, New Zealand, South America, India and China.

• In particular, the Australians have become more active in the Middle Eastern markets through its Meat & Livestock Australia (MLA). Retail promotions, foodservice promotions and technical consumer orientation programs are common. Australian chefs are promoting Australian prime beef and lamb at several hotels and restaurants in the region.

Key Drivers & Strategic Priorities-- Middle East Beef --

Key Drivers• There is significant

competition from other suppliers and, increasingly, from local processors.

• HRI and retail sectors are rapidly expanding and becoming more westernized.

• Consumers are increasingly safety and nutrition conscious.

Strategic Priorities

• Educate importers’ and distributors’ of the safety and availability of U.S. beef and BVM’s.

• Develop relationships with vendors supplying coalition forces and contractors in the region.

• Develop the image of U.S. beef among consumers as the premier beef available on the market.

• Increase the visibility of U.S. beef at retail and enhance consumer awareness of U.S. beef safety and nutrition attributes.

?? Questions ??

Jackie Hruby – Europe & Middle EastAnna Puzyrevskaya -- Russia