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National Renderers Association
Long-term Forces Shaping Our Industryg g y
October 21, 2009
800.229.4253 [email protected]
Mapping Success in the Food SystemDiscover. Analyze. Strategize. Implement. Execute.
www.halegroup.com
The Hale Group’s Consulting Practice
Strategic Advisory
Opportunity Assessment
Technology Development
Agricultural Inputs
Agricultural Inputs
Agricultural ProductionAgricultural Production
First-StageProcessingFirst-StageProcessing
Food Manufacturer
Food Manufacturer
Distributor, Broker
Networks &
Distributor, Broker
Networks &
Foodservice Operations &
Food Retailers
Foodservice Operations &
Food Retailers nsum
ers
nsum
ers
M k t A t
pp ggBuying GroupsBuying Groups
Food RetailersFood Retailers
Con
Con
Market Assessment
Mergers & Acquisitions
Divestments
Page 2
Sample Client List
Page 3
The World Has Changed
General Business EnvironmentGeneral Business EnvironmentNear financial meltdownSlow economic recoveryNear financial meltdownSlow economic recoveryGrowing importance of China and IndiaGrowing importance of China and India
AgricultureCommodity price roller coaster ride
AgricultureCommodity price roller coaster rideAnimal rights activistsChanging weather patternsAnimal rights activistsChanging weather patternsg g pg g p
Page 4
Volatile Corn Prices
$6 00
$7.00 $6.55
$5.00
$6.00
$3 00
$4.00
er b
ushe
l
$3.90 $3.98
$2.00
$3.00
$ p
$2.07
$3.03 $3.22
$0.00
$1.00
Jan-
06
Apr-0
6
Jul-0
6
Oct-0
6
Jan-
07
Apr-0
7
Jul-0
7
Oct-0
7
Jan-
08
Apr-0
8
Jul-0
8
Oct-0
8
Jan-
09
Apr-0
9
Jul-0
9
Page 5 Source: Economic Research Service, USDA, Central Illinois Grain Elevators
Future Drivers of Food and Agriculture
Future Demand• What will drive the demand for food?
Future Demand• What will drive the demand for food?• What’s the future of biofuels?
Future Supply• What’s the future of biofuels?
Future SupplyFuture Supply• Does the world have enough land for agriculture?• Does the world have enough water to support agriculture?
Future Supply• Does the world have enough land for agriculture?• Does the world have enough water to support agriculture?Does the world have enough water to support agriculture?• Will technology bail us out?
Global Trade
Does the world have enough water to support agriculture?• Will technology bail us out?
Global TradeGlobal Trade• Are we going forward or backward on globalization?
Implications for the Rendering Industry
Global Trade• Are we going forward or backward on globalization?
Implications for the Rendering IndustryImplications for the Rendering Industry• What does all this mean for your business?
Implications for the Rendering Industry• What does all this mean for your business?
Page 6
Global Demand
What will drive the demand for food?
Wh t’ th f t f bi f l ?
What will drive the demand for food?
Wh t’ th f t f bi f l ?What’s the future of biofuels?What’s the future of biofuels?
World Population Trends, 1950 ― 2050
Past Growth Projected Growth
United Nations Moderate Population Projection
Million Past Growth Projected Growth
6 8 Bil
9.1 Bil
6.8 Bil
Source: United NationsPage 8
World Population Growth (In millions)
2005 2030 Increase from 2005 - 2030
World 6,476 8,379 1,903Less Developed Countries 5,267 7,121 1,854More Developed Countries 1 209 1 258 49More Developed Countries 1,209 1,258 49Select Region BreakdownSub-Saharan Africa 752 1 300 548Sub-Saharan Africa 752 1,300 548Asia (Excl. Near East) 3,648 4,590 942
China 1,306 1,462 156China 1,306 1,462 156India 1,094 1,533 439
North America 328 412 84
Asia and Sub-Saharan Africa represent 78% of population growth, 2005-2030.Asia and Sub-Saharan Africa represent 78% of population growth, 2005-2030.
North America represents <0.5%.North America represents <0.5%.
Page 9 Source: U.S. Census Bureau
The Growing Global Middle Class
The global middle class is expected to triple from 2005 to 2030. The global middle class is expected to triple from 2005 to 2030.
16%tion East Asia & the Pacific1.2 Bil
12%
16%
d Po
pula
Europe & Central Asia
4%
8%
t of W
orld
Latin America & the Caribbean
Middle East & North Africa400 Mil
0%
4%
Perc
ent Middle East & North Africa
South Asia
2005 2030 Sub-Saharan Africa
Source: Global Economic Prospects - World Bank staff calculations Page 10
Food Shift from Income Growth
There is a fairly close correlation between income and meat consumption.There is a fairly close correlation between income and meat consumption.
A i i 10% t ti 15%A i i 10% t ti 15%
Source: FAO, CIA, World Resource Institute
As incomes rise 10%, meat consumption grows 15%.As incomes rise 10%, meat consumption grows 15%.
Page 11
Per Capita Meat Consumption, Selected Countries
The U.S. consumes more meat per person than any other country.
Note: Information is based on 2003 statisticsSource: FAOSTAT Page 12
Projected Meat Consumption, 203013 5%
90
10013.5%
ent
70
80 42.4%
55 2% 31.4%ght e
quiva
le
50
6055.2%
arca
ss w
eig
20
30
40 65.1%
er ca
pita
, ca
0
10
20 42.6% 120.8%kg p
e
0
Sub-Saharan Africa
Near East / North Africa
Latin America & the Caribbean
South Asia East Asia Industrial Countries
Transition Countries
1997 - 99 9.4 21.2 53.8 5.3 37.7 88.2 46.2
Page 13 Source: FAO World Agriculture: Towards 2015 / 2030
2030 13.4 35.0 76.6 11.7 58.5 100.1 60.7Change 4.0 13.8 22.8 6.4 20.8 11.9 14.5
Food Industry Life Cycle, by Country
The U.S. is not a high growth market.The U.S. is not a high growth market.
U.S.WesternEurope
Developingunity
p
IndiaChina Developed
et O
ppor
tuMa
rke
Pakistan
Emerging Mature
Page 14
Global Meat Production
Where will meat be produced globally?Where will meat be produced globally?
Will meat exports drive U S livestock industry?Will meat exports drive U.S. livestock industry?
Page 15
Comparative Advantage
Global comparative cost advantage changes somewhat due to fluctuating currency exchange rates.Global comparative cost advantage changes somewhat due to fluctuating currency exchange rates.
Beef Pork Chicken
ArgentinaBrazil
BrazilU S
BrazilU SBrazil
U.S.U.S.Canada
U.S.Canada
Canada Thailand
Is Brazil doing to the U.S. today what the U.S. did to Europe a few decades ago?
Page 16
– A U.S. livestock producer
Projected U.S. Meat Production, 2018
Projected growth for domestic and export markets.
In Billions of Pounds of Meat
2008 2018 Pct / Year
Beef 26.7 28.0 0.5%
Pork 23.5 24.9 0.6%
Broilers 36 7 41 2 1 2%Broilers 36.7 41.2 1.2%
Page 17 Source: Economic Research Service, USDA
Global Ethanol Production, by Country 2008
Total World:
U S 9 000
Total World:17,335
China, 502
U.S., 9,000
China, 502Other, 627
E U 734E.U., 734Brazil, 6,472
Million Gallons
Page 18 Source: Renewable Fuels Association
Million Gallons
Renewable Fuel Targets in 2007 Energy Bill
Billion Gallons
Many question the feasibility of these legislative goals.
Billion Gallons
Source: Pro Exporter NetworkPage 19
Alternative Energy SourcesHigh altitude wind turbinesAdvanced biofuelsHigh altitude wind turbinesAdvanced biofuels• Ethanol from cellulose• Biodiesel from algae• Ethanol from cellulose• Biodiesel from algaeBiodiesel from algaeWave energy – harnessing the oceansNuclear fusion
Biodiesel from algaeWave energy – harnessing the oceansNuclear fusionNuclear fusionEnhanced geothermalNuclear fusionEnhanced geothermalSolar energy from spaceSolar energy from space
Alternatives will take time to become commercialized.
Best “alternative” in the short term is energy efficiency
Page 20
Best alternative in the short term is energy efficiency.
World Ethanol and Biodiesel Projections 2005 ― 2018
Conventional ethanol and biodiesel will continue to grow for the foreseeable future.
tres
Billio
n lit
Source: FAO-OECD Outlook 2009 Page 21
Projected Petroleum Prices
Petroleum prices are major driver of biodiesel profitability.
$200
bar
rel
$130
$ pe
r
$50
Page 22 Source: U.S. Department of Energy
Global Agricultural Production
Does the world have enough land for agriculture?
Does the world have enough water to support agriculture?
Does the world have enough land for agriculture?
Does the world have enough water to support agriculture?
Will technology bail us out?Will technology bail us out?
Agricultural Land – Utilized and Non-Utilized
Brazil has far more unutilized ag land than any other country.
Area Utilized Area Not Utilized
Page 24 Source: Professor David Bell, Harvard Business School
Countries with Lion’s Share of Available Land
Very Suitable and Suitable Agriculture Land Available Land
for Potential Country and Suitable Land (million
hectares)
gin Use
(million hectares)
for Potential Development
(million hectares)Argentina 77 30 47Bolivia 27 3 24Brazil 200 67 133Colombia 20 4 16Angola 47 4 43Angola 47 4 43Democratic Republic of the Congo 55 8 47gSudan 76 20 56Total 502 136 366
Source: FAOSTAT, IIASAPage 25
Global Water Utilization
The U.S., India and China utilize huge amounts of water.
Page 26 Source: Professor David Bell, Harvard Business School
Global Water Availability
South America has huge amounts of available, renewable water.
Page 27 Source: Professor David Bell, Harvard Business School
Water Resources in Select Countries
Water availability is a greater concern than land.Water availability is a greater concern than land.
Country Total Internal Renewable Water per capita (m3/inhab./yr.)
Freshwater withdrawal as a % of total renewable water
resources resources Australia 23,964 5%Brazil 28,618 1%China 2,117 22%India 1,094 34%Indonesia 12,400 3%Pakistan 342 75%Saudi Arabia 99 936%United States 9,248 16%
Page 28 Source: AQUASTAT
Total Factor Productivity for U.S. Agriculture
Agricultural productivity increases are a great American success story.Agricultural productivity increases are a great American success story.
1.4
1.0
1.2
0.6
0.8
0.2
0.4
0.01948 1953 1958 1963 1968 1973 1978 1983 1988 1993 1998 2003
Source: U.S. Department of AgriculturePage 29
Average U.S. Corn Yields per Acre
Hybrid corn yields grew steadily after World War II.Hybrid corn yields grew steadily after World War II.Bu / Acre
160 0
180.0Fairly high degree of yield variability
Bu / Acre
120.0
140.0
160.0
80.0
100.0
20 0
40.0
60.0
0.0
20.0
1912 1922 1932 1942 1952 1962 1972 1982 1992 2002
Source: U.S. Department of AgriculturePage 30
Comparative Crop Yields, 2008
Wheat Yields (Bu / A)Wheat Yields (Bu / A) Corn Yields (Bu / A)Corn Yields (Bu / A)( )
United States 45
( )
United States 45
( )
United States 154
( )
United States 154
India 42
Pakistan 40
India 42
Pakistan 40
Ukraine 76
Russia 64
Ukraine 76
Russia 64
Russia 36
Af h i t 14
Russia 36
Af h i t 14
Brazil 58
I di 36
Brazil 58
I di 36Afghanistan 14Afghanistan 14 India 36India 36
Climate and soil account for some of the yield differences.
Technology transfer can greatly improve yields in some countries.ec o ogy t a s e ca g eat y p o e y e ds so e cou t es
Source: Foreign Agricultural Service, USDAPage 31
Areas of Future Agricultural Growth
The next two decades:Brazil
The next two decades:BrazilBrazilArgentina – modestly United States and Canada – modestly
BrazilArgentina – modestly United States and Canada – modestlyUnited States and Canada modestlyMaybe Africa – modestly Unlikely places – large ill conceived projects
United States and Canada modestlyMaybe Africa – modestly Unlikely places – large ill conceived projectsUnlikely places – large ill conceived projects
Future decades:
Unlikely places – large ill conceived projects
Future decades:Future decades:BrazilArgentina maybe
Future decades:BrazilArgentina maybe Argentina – maybe Russia and the UkraineAfrica maybe
Argentina – maybe Russia and the UkraineAfrica maybe Africa – maybe Africa – maybe
Page 32
Global Trade
Are we going forward or backward on globalization?Are we going forward or backward on globalization?
Global Trade of Food and Agricultural Commodities
140.0
100.0
120.0
60.0
80.0
20.0
40.0
0.0
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2
Intermediate Products Consumer Goods Commodities
Page 34 Source: Foreign Agricultural Service, USDA
Least Developed Countries Are Net Importers
Developing countries have shifted from net exporters to net importers.
10000Agricultural ImportsAgricultural Exports
8000
ars
Agricultural Exports
4000
6000
s of U
.S. D
olla
2000
4000
Mill
ions
01961 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999
Years
Source: Economic Research Service, USDA Page 35
Future of Global Trade in Agricultural Goods
Difficulty of Doha round of trade negotiations is troubling.Nobody wants their ox to be gored.Difficulty of Doha round of trade negotiations is troubling.Nobody wants their ox to be gored.Nobody wants their ox to be gored.• European Union• United States
Nobody wants their ox to be gored.• European Union• United StatesUnited States• Developing countries
However global trade in agricultural commodities MUST
United States• Developing countries
However global trade in agricultural commodities MUST However, global trade in agricultural commodities MUST increase.However, global trade in agricultural commodities MUST increase.
Global agricultural capacity and global population are not
distributed in a similar pattern.
Page 36
Implications for the Rendering Business
What does all this mean for your business?What does all this mean for your business?
The Future of Meat
Meat demand will grow rapidly in developing countries.Meat demand will grow rapidly in developing countries.
Meat demand will grow slowly in industrialized nations.
Location of increased meat production is somewhat uncertain –
Meat demand will grow slowly in industrialized nations.
Location of increased meat production is somewhat uncertain –pbut look to South America.
Global agricultural production will gradually shift to regions with
pbut look to South America.
Global agricultural production will gradually shift to regions with Global agricultural production will gradually shift to regions with greater comparative economic advantage.
Limited water and changing weather patterns are challenging
Global agricultural production will gradually shift to regions with greater comparative economic advantage.
Limited water and changing weather patterns are challenging Limited water and changing weather patterns are challenging global agricultural production.
Purchasing power will be very unevenly distributed within
Limited water and changing weather patterns are challenging global agricultural production.
Purchasing power will be very unevenly distributed within Purchasing power will be very unevenly distributed within societies.Purchasing power will be very unevenly distributed within societies.
Page 38
The Future of Biofuels
A new era for agriculture:• Food
A new era for agriculture:• FoodFood• Fiber• Fuel
Food• Fiber• FuelFuel
The search for renewable energy sources is creating major demand for sugar starch and fats and oils
Fuel
The search for renewable energy sources is creating major demand for sugar starch and fats and oilsdemand for sugar, starch, and fats and oils.
Inextricable linkage – agriculture and energy
demand for sugar, starch, and fats and oils.
Inextricable linkage – agriculture and energy• At least for the foreseeable future
Price volatility – the “new normal.”
• At least for the foreseeable future
Price volatility – the “new normal.”yy
Page 39
The Future of RenderingDemand for protein meals for animal feed will be strong after the economic recovery.Demand for protein meals for animal feed will be strong after the economic recovery.
Demand for fats and oils will be strong if petroleum prices rebound.Demand for fats and oils will be strong if petroleum prices rebound.
Asia and other developing countries are growth areas.
Prices will be much more volatile than in the past
Asia and other developing countries are growth areas.
Prices will be much more volatile than in the pastPrices will be much more volatile than in the past.
Brazil will increase its dominance.
Prices will be much more volatile than in the past.
Brazil will increase its dominance.
Watch Middle East investments.Watch Middle East investments.
You must be knowledgeable about the energy industry as well as the meat industry
Page 40
well as the meat industry.
Key Question for Thinking Ahead
What are the forces that MIGHTWhat are the forces that MIGHTcreate significant change over
the next 5 years?
41
Thriving with Uncertainty
What will cause inflection points in current trends?
Scenario 3
Scenario 1
Scenario 2
Think “off the trend lines.”
Page 42
Bottom Line
The future belongs to those who prepare for a different world in the future
The future belongs to those who prepare for a different world in the futurefor a different world in the future.for a different world in the future.
Page 43
Th k Y !Th k Y !Thank You!Thank You!Thank You!Thank You!
8 Cherry StreetDanvers, MA 01923
800-229-4253800-229-4253www.halegroup.com
Page 44