European meat industry developments in a global context

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European meat industry developments

in a global context

Reggio Emilia Pigmeat Conference: April 27th 2012

Based on extracts from the Gira European Meat Company Panorama

2010/11-2015

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1. Global meat sector dynamics

2. pan-EU meat sector dynamics

3. Italian meat sector characteristics

4. Appendix:

- Gira European Meat Company Panorama,

- Other country PK overview

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Long term Global meat consumption growth

dominated by poultry, driven by its relative price

Global Meat Consumption growth by Species 2010-20f

97,301

121,128

108,185

119,402

60,820

64,503

+3,683

50,000

100,000

150,000

200,000

250,000

300,000

350,000

2010

PY

PK

BF

SH

2020

('

0

0 t

c

w

e

)

SH

BF

PK

PY

Source: Gira Lon g-Term Me at study

282,556

322,282

+23,800

+11,200

+1,000

16,250

17,250

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Global meat consumption growth quite broadly

based, but led by China

q

Global growth is largely outside EU … (which has got off to a bad start against this forecast)

Consumption Growth by Region 2010-20(f)

50,000

100,000

150,000

200,000

250,000

300,000

350,000

2010

CN

NAFTA

BR

MENA

RU

EU

JP+KR Others

2020

('

0

0 t

c

w

e

)

280,000 319,700

Source: Gira Long-Term Meat study

+13,000 +5,600 +2,000 +3,670

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Significant rise in real prices across all meats … boosted by

emerging market price increases … which surpass EU prices

90 100 110 120 130 140 150 160 170 180 190 200 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

p

ri

c

e

in

d

ic

e

s

, c

o

n

s

ta

n

t p

ri

c

e

s

All meat producer/wholesaler price indices, 2000-2012(f) (2000 L.C.)

Including China

SHEEPMEAT BEEF & VEAL PIGMEAT ALL POULTRY

Source: GIRA GMC 2011

Based on 2000 producer prices

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7 Rising pig producer prices … especially in emerging

markets … but with short-term exporter convergence

GMC Dec. 2011 –

Figure SYN-PK 9a Pig Producer Prices, 2000-2012 (current USD/t cwe)

0 500 1 000 1 500 2 000 2 500 3 000 3 500 4 000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 RU CN US BR EU CA

Figure SYN-PK 9b Pig Producer Prices, 2000-2012 (2010 USD/t cwe)

0 500 1 000 1 500 2 000 2 500 3 000 3 500 4 000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 RU CN US BR EU CA

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8 Pigmeat Exporters: US & EU growth. BR still lacking

further market access .. . and facing RU bans

0 500 1 000 1 500 2 000 2 500 3 000 3 500 4 000 4 500 5 000 5 500 6 000 6 500 7 000 7 500 2009 2010 2011 2012

Figure SYN-PK 7: Pork Exporters 2009-2012 (incl. live, '000 t cwe)

Others Other F .E. TW CN CEECs E.U. BR US CA CA MX RU JP Other F.E. Others 0 500 1 000 1 500 2 000 2 500 2009 2010 2011 2012 US US CEECs RU JP Other F.E. Others 0 250 500 750 1 000 1 250 1 500 1 750 2 000 2009 2010 2011 2012 E.U. SAm RU CN Others 0 100 200 300 400 500 600 700 2009 2010 2011 2012 BR USA JP RU CN Others 0 250 500 750 1 000 1 250 1 500 1 750 2 000 2009 2010 2011 2012 CA CA

GMC Dec. 2011 –

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0 2,000

4,000

6,000

8,000

10,000

12,000

0

1

0

2

0

3

0

4

0

5

0

6

0

7

0

8

0

9

1

0

1

1 e

1

2 f

0

0 T

C

W

E

US Pork Balance

Production

Imports

Exports

Consumption

Buoyant export markets have rescued the

US pigmeat chain

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2.

pan-EU meat sector perspective

- total meat sector

- pigmeat sector

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Slight decrease of EU meat consumption in 2011-12 … but

slight recovery subsequently … although caution is the byword

Source: GMC, Dec 2011 0 5 000 10 000 15 000 20 000 25 000 30 000 35 000 40 000 45 000 50 000 2 0 0 0 2 0 0 1 2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 '0 0 0 t c w e Sheep Poultry Pigmeat Beef & veal

EU 15 EU 25 EU 27 0 10 20 30 40 50 60 70 80 90 100 2 0 0 0 2 0 0 1 2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 M e a t c o n s u m p ti o n ( k g / c a p it a ) Sheep Poultry Beef & veal Pigmeat

EU Meat Consumption, 2000-2012(f)

Total ‘000t cwe and per capita kg cwe

q

EU meat consumption fell

in 2009, and

again in 2011-12, reflecting:

─

Poor EU economic situation

─

Tight meat supplies (due to reduced

production and imports)

─

Higher prices

q

Total consumption situation is actually

“not too bad

’: but underlying

dynamics are tough

on the meat

processors:

─

Significant consumer trading down

through various different mechanisms

─

Retailer ‘price wars’ which have more

resonance than in past

q

Net effect is

more margin pressure

on

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Beef & veal Pigmeat Poultry Sheep TOTAL FMD FMD FMD FMD BSE BSE BSE BSE HPAI HPAIHPAI HPAI AI in NL AI in NLAI in NL AI in NL EU EU EU EU CrisisCrisisCrisisCrisis

12 … but (supply driven) price increases indicating surprisingly

good EU demand performance in these tough economic times

EU Meat Producer Prices (2004 EUR/t cwe),

2000-2012(f)

Source: GMC Dec11 :PY wholesale prices and producer prices for other meats

1000 1500 2000 2500 3000 3500 4000 4500 5000 5500 6000 2 0 0 0 2 0 0 1 2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 2 0 1 0 E U R / t c w e Sheep

Beef & veal Average Pig Poultry

q

Rising EU meat producer prices

(in real

terms) since 2001/02

q

Exceptional 2011 price rises

: reflecting

supply tightness (both domestically and from

import/export balance)

q

Margin squeeze on processors

due to

difficulty in passing through producer price

rises to customers

q

Rising EU meat expenditure trend

(in

real terms) with dramatic rises in 2007/08

and again in 2011 … but lower growth

than in the developing world

q

Bouyant meat marketing

environment

, with many different

dynamics and requiring more

sophisticated marketing by processors

EU Meat Expenditure Index (base 2000),

2000-2012(f)

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13 Discounters: LIDL and ALDI, entered the fresh meat

market in 2002/03

… and have rapidly increased market share

Growth of hard discounter share in

fresh meat retailing, 2001-2010

Impact of cooperation with HD on Tönnies

output and turnover, 2001-2010

Tönnies’ key to success = immediate response

to the German HDs’ needs

for large amounts of

efficiently produced case-ready meat.

Heidemark/Rothkötter (PY) have also grown fast

4. News 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Discounters

Other full-range food stores Sef-service stores (> 2,000 m2) Hypermarkets (> 800 m2) Supermarkets (<800 m2) Specialty stores Others

Source: Gira from GfK

0 200 400 600 800 1000 1200 1400 1600 0 500 1000 1500 2000 2500 3000 3500 4000 4500 5000 2001 2003 2005 2006 2010 P ig p ro d u c ti o n ( '0 0 0 t c w e ) T u rn o v e r (E U R m io .) Turnover (EUR mio.) Pig production ('000 t cwe)

HD share of processed meat in retail is even higher

(almost 50%) … indicating the further market share

gains which are possible in fresh meat

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Recent external EU meat trade balance shifting to

exports, giving advantage to the bigger processors

EU Meat 3rd country Imports*,

2000-2012(f)

EU Meat 3rd country Exports*,

2000-2012(f)

q

EU meat imports have fallen since

2008

reflecting:

─

Poor EU economic situation

─

Tight global BF and SH meat

supplies

─

Brazilian BF traceability problems

which have reduced supply

availability further

─

(After paying EU import tariff) higher

FOB prices for exporters to EU in

other 3rd country markets (RU,

MENA etc.)

q

Imports likely to

rise again in the future

– as EU

demand recovers

q

… but for the time being much

less import

pressure on EU prices

… and a renewed

retailer focus on sustainable

local meat supply

q

Export volumes have boomed

:

─ Strong 3rd country demand ─ Weaker Euro

─ Carcass meat export volumes might be difficult to sustain … but sustainable focus

on 3rd country exports of offals and by-products

q Competitive advantage for processors who havescale to invest in direct (export) trade

marketing. Source: GMC Dec 11 0 500 1000 1500 2000 2500 3000 3500 4000 4500 2 0 0 0 2 0 0 1 2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 '0 0 0 t c w e Sheep Poultry Beef & veal Pigmeat EU 15 EU 25 EU 27 *including the carcass equivalents of live animals 0 200 400 600 800 1000 1200 1400 1600 1800 2000 2 0 0 0 2 0 0 1 2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 '0 0 0 t c w e Sheep Poultry Beef & veal Pigmeat EU 15 EU 25 EU 27 *including the carcass equivalents of live animals

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Ownership of primary processing is still mainly private,

with family control … although coops are still important

─

Majority of meat processing is still

owned by

private and family firms

…

─

Very

little retailer ownership

of slaughtering ….

but there is still some

─

Municipal ownership

of abattoirs has been

declining

for very many years …

─

Access-to-capital

to finance further major

consolidation – be it national or international, is a

challenge.

Family owned

firms largely find

solutions

to the challenge of

succession

issues …

The

Stockmarket

has rarely proven an

effective long term form of ownership for the

meat sector

Vion is owned by a farmers union

(ZLTO)

(categorised here as ‘coop/farmer’): but is a

for-profit focused company rather than being

a coop price maximiser …

Danish Crown

transferred operating assets

to a Ltd company status in 2011, but is still

100% owned

by the original

coop

.

Atria and HK

are Stockmarket quoted Plcs,

but the original coops hold the voting

majority.

─

Brazilian mega-M&A has slowed

…. but some

strategic infill acquisition in EU are likely

Ownership of the Top 100

EU-27 meat companies - 2010

45% 46% 40% 29% 16% 7% 15% 22% 33% 8% 10% 20% 3% _6% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Top 100 Top 50 Top 15

Retailer Stock market Coop/Farmer Private Family owned Source: Gira compilations

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EU Pigmeat focus

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EU PK balance shows small medium-term production growth for

processors in spite of the pressures on the EU market … after recovery

from sow stall legislation … and huge trade volumes

EU pigmeat balance – 2001-2011(e) – 2015(f)

5. Production etc.

The ‘sum’ of balance tables from the 27 member states, illustrated here does

emphasise the enormous volume of intra-EU Member State trade, even if the

net 3rd country trade figure is deceiving and is better illustrated in the overall

EU27 3rd country import and export summaries on slide 31

0 5,000 10,000 15,000 20,000 25,000 2 0 0 0 2 0 0 1 2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 5 V o lu m e ( '0 0 0 t c w e ) Net Production Apparent consumption Total Exports Total Imports Source: GIRA

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De, Fr, Es & It are the biggest EU meat producers … but with Italy

amongst the losers in the future … to the Top 3, plus UK, Dk &

NMS

Total meat (3 species) GIP/net production by country – 2011 and change 2015/2011

5. Production etc. 1,2 1,5 0,6 1,0 _0,9 0,4 _0,3 _0,2 0,5 0,4 _0,2 5,5 2,3 3,4 1,6 0,8 1,3 _1,6 1,1 0,6 0,2 0,4 0,3 _0,2 1,9 0,4 0,5 _0,3 1,6 1,8 1,3 1,2 1,6 0,7 0,2 0,3 0,3 1,3 0,4 0,4 0,2 8,3 5,6 5,2 3,9 3,2 2,4 2,0 1,6 0,9 0,8 _0,8 0,5 _0,4 _0,3 3,5 0,9 0,9 0,5 0,2 0,2 0,2 0,1 0,1 0,1 0,1 0,0 -5% -4% -3% -2% -1% 0% 1% 2% 3% 4% 5% … 1 2 3 4 5 6 7 8 9 DE FR ES IT UK NL DK BE AT IE PT SE FI EL PL RO HU CZ BG SK LT SI CY EE LV MT C h a n g e p .a . 2 0 1 5 /1 1 i n t o ta l m e a t p ro d u c ti o n N e t/ G IP p ro d u c ti o n ( m io t o n s c w e ) Source: Gira EU 15 EU 27 138,0 253,5 218,8 96,0 126,0 80,0 57,0 160,0 25,0 66,0 21,113,0 42,037,0 3,013,018,01,4 113,0 68,4 64,0 106,0 46,0 58,045,041,0 7,0 82,064,0 36,2 17,024,0 7,0 1 7461 848 1 288 1 224 1 577 774 191252 133121 336 88 104170 1 396 408393 185 11486 45 72 37 18 23 7-1% 19 999% 39 999% 59 999% 79 999% 99 999% 119 999% 139 999% 159 999% 179 999% 199 999% … 20 40 60 80 100 120 140

DEFRES IT UKNLDKBEAT IE PTSE FI EL PLROHUCZBGSKLT SI CYEELVMT

C h a n g e 2 0 1 1 /0 6 in to ta l m e a t c o n s u m p ti o n ) C o n s u m p ti o n ( K g /C a p it a )

Poultrymeat GIP production Pigmeat net production Beef and veal net production Negative change p.a. 2015/11 Positive change p.a. 2015/11

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Catering Further processing Traditional stores Modern retail Direct sales & other retail

19 Pigmeat distribution is dominated by the importance of further

processing … with (low) cost ingredient focus

5.3 Production etc. - Pigmeat

q The chart is an estimate shown for illustrative purposes only, of the segmentation of the domestic markets. The

distribution shares vary considerablyin the different countries. However, the definitions and data are not fully

comparable: Gira has had to estimate, so readers should exercise considerable caution should they choose to draw conclusions from these data.

q Further processing dominatesthe usage of pigmeat (including bacon, as well as the obvious hams, charcuterie,

sausages, meatballs, elaborated etc)

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The EU is a major net exporter of pigmeat to 3rd countries:

important, but this is threatened by lower cost competitors

EU-27 pigmeat imports by 3rd

country origin 2010-2012

EU-27 pigmeat exports by 3rd

country destination 2010-2012

5.3 Production etc. - Pigmeat

5 10 15 20 25 30 35 40 2010 2011 2012 P ig m e a t im p o rt s ( '0 0 0 t c w e ) Others Brazil Chile Canada USA

Source: Gira from Eurostat

0 200 400 600 800 1000 1200 1400 1600 1800 2000 2010 2011 2012 P ig m e a t e x p o rt s ( '0 0 0 t c w e ) Others CIS - Baltics CEECs Africa/Middle East USA Central/South America Other Far East China

South Korea Japan Russia

Source: Gira from Eurostat

q The EU pigmeat market is still effectively protected from (all but minimal) importsby TRQ and various SPS barriers.

Some selective relaxation may come through FTA’s but Gira is assuming that the short-medium imports will be small … and so the domestic industry does face a significant import threat

q 3rd country exports are important at 10% of production. Current market conditions are buoyant – with high prices,

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The TopCos have increased kill share in a slowly

concentrating European pigmeat industry

q

Top 15 EU pigmeat processors have increased EU27 share to 38%,

up from 34% in 2006 … but in

some countries the outright leaders have lost some share

q

Slow process of consolidation and more international development than for the other species

Leaders' market share in the top 5 production countries (% cwe) –

2006/2010

Share of EU-27 Top 15

– 2006/2010

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% % K il l

Source: Gira estimates

Other Producers N°5 producer N°4 producer N°3 producer N°2 producer Leader 22% 27% 58% 63% 52% 68% 27% 21% 95% 98%

Percentages given on the top of each column correspond to the share of top 5 companies compared to total country's net production

34% 38% 66% 62% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2006 2010 % K il l

Source: Gira estimates

Other EU27 Top 15

21

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Source: Gira estimate

23 Italy - PK: A traditionally fragmented sector;

relying on added-value through PDO

q

Likely

production downturn

in spite of

differentiated heavy pig focus

─

pigmeat import pressure

─

2013 sow housing

─

feed costs

q

Fragmented slaughtering

: between a few

large, efficient plants & over 1,000 small firms

q

Need for processing

capacity consolidation

q

M&A activity has been limited in a sector

characterised by the

predominance of coops

─

the share of top producers has remained

constant over the past decade

q

Gruppo Ghinzelli

is by far the largest

pigmeat producer, with 11 plants in all. Slight

growth

q

Italcarni

is the main cooperative competitor,

─

all slaughtering concentrated in a single

site

q

The Veronesi Group owns the No.5 pig

slaughterer

Montorsi

as well as the leading

poultry company in Italy, Aia

IT: Top 5 companies share in pig slaughter

(in cwe) – 2010

IT: Pigmeat balance

2001-2011(e), 2015(f)

4. News -500 1 000 1 500 2 000 2 500 '0 0 0 t c w e Net production Apparent consumption Exports Imports Source: GIRA