2010 cordingley

Food in the world and emerging opportunities for Chile

Bill CordingleyHead of Food & Agribusiness Research and AdvisoryAmericas regionRabobank International, New York

Food in the world and emerging opportunities for Chile

Rabobank International

Bill CordingleyFood & Agribusiness Research and Advisory

Americas regionRabobank International, New York

Rabobank Food & Agribusiness Research and Advisory

A global network of research professionals!

� Over 70 people

in 12 different in 12 different

countries

� Focus areas:

−Animal Protein

−Beverages

−Dairy

−Farm Inputs

−Food Retail

Mexico City

New York

London

−Fruits & Vegetables

−Grains & Oilseeds

−Sugar & SweetenersSao Paulo

Santiago de Chile Buenos Aires

Rabobank Food & Agribusiness Research and Advisory

New Delhi

Singapore

Hong Kong

Mumbai

Utrecht

Shanghai

Beijing

London

2

Christchurch

Sao PauloSydney

Melbourne

Contents

Section 1:

Section 2:

Section 3:

Section 4:

Global economy

The big picture for global agriculture

Emerging markets: Brazil, China and India

Some key trends shaping the global marketSection 4:

Section 5:

Some key trends shaping the global market

Chile: positioning for the future

3

Global economy







The financial market has been severely impacted: credit write-downs are almost USD 1.1 trillion so far IMF predicts losses of USD 2.2 trillion

Morgan

RBS

Deutsche

Bank Credit Societe

Generale120

Value Jan. 20, 2009

Value 2Q 2007

Change in market value (USD billion) of selected banks

Global banking system almost failed completely!IMF estimates write offs of $2.2 trillion

Morgan

Stanley

BankAgricole

Generale

Citigroup

49

120

7667

80

255

16 4.6 10.317

26

Source: Bloomberg, 10th 2009

Goldman

SachsSantander

Credit Suisse

75

100

116

27 35 64 19

CONFIDENCIAL

The financial market has been severely impacted: downs are almost USD 1.1 trillion so far -

IMF predicts losses of USD 2.2 trillion

Barclays

BNP

ParibasUnicredit

UBS

108 116

Change in market value (USD billion) of selected banks

Global banking system almost failed completely!

JP Morgan

HSBC

91

10893

116

215

7.432.5 26 35

Food & Agribusiness Research and Advisory

165

85 97

� The deepest economic contraction in the last 50 years, and not just in the U.S.

� The worst financial and banking crisis since the Great Depression of the 1930’s

The global financial crisis and “great recession”

� Large and growing public deficits

� Lack of liquidity in the financial system and rapid deleveraging adding to the credit crisis

� Millions of insolvent individuals (foreclosures)

� Contraction in consumption and consumer confidence at lowest levels since they started measuring

� Doubling in unemployment in key developed markets

The deepest economic contraction in the last 50 years, and not just in the U.S.

The worst financial and banking crisis since the Great Depression of the 1930’s

The global financial crisis and “great recession”

Lack of liquidity in the financial system and rapid deleveraging adding to the

Millions of insolvent individuals (foreclosures)

Contraction in consumption and consumer confidence at lowest levels since they

Doubling in unemployment in key developed markets

Recovery from great recession better than expected driven by developing world!

6

Recovery from great recession better than expected driven by developing world!

Latin America has been a new millennium success story!

� Brazil v Chile stock index

Latin America has been a new millennium success story!

Contents

Section 1:

Section 2:

Section 3:

Section 4:

Global economy




Section 5:



8

Global economy







Strong fundamentals support Global demand growth in agribusiness

� Global Demand Drivers

Population Growth

�World population has been growing at 1.7%p.a.

�Growth is mostly concentrated on emerging economies

Income Growth

Additional

Food Demand

Urbanization

�Global income has been improving mostly in emerging markets

� Strong biofuel programs are under

�Urbanization process in large countries increases the consumption of industrialized food, with direct impact on the demand for vegetable oils and proteins

� Based on the factors above, food demand tends to continue growing at strong levels

� FAO expects food production to grow over 40% by 2030 and over 70% by 2050

Source: FAO, FAPRI, Rabobank

Additional Demand

Greater Global Demand for Agribusiness Products

� Strong biofuel programs are under development in various countries, increasing the demand for sugar-cane, grains and oilseeds

Strong fundamentals support Global demand

World population has been growing at

Selected Commodities Consumption

1,100

1,050

FAPRI Projections

[MM MT]

Corn

Soybean

Wheat

Urbanization process in large countries

industrialized food, with direct impact on

Based on the factors above, food demand tends to continue growing at strong levelsFAO expects food production to grow over

841

287

750

939

800

850

900

950

1,000+110

+56

+66

Sugar

Soybean

cane,

1513110905030199

287

184200

0

07 1917

250

300 +56

+43

Population growth 484 mln (+8.8%) in 10 years in the selected countries

Source: UN

Population growth 484 mln (+8.8%) in 10 years in

Economic growth has two effects: eat more and eat more expensively

Source: Bob Thompson, University of Illinois, World Bank

Economic growth has two effects: eat more and

Source: Bob Thompson, University of Illinois, World Bank

The effect of economic growth and population growth combined: Food markets to grow by 109% in ten years

Source: Rabobank, based on KEO, Economist Intelligence Unit and FAO

The effect of economic growth and population growth combined: Food markets to grow by 109% in ten

Source: Rabobank, based on KEO, Economist Intelligence Unit and FAO

Trade will continue to increase with globalization and growth

Source: FAO, UN

Trade will continue to increase with globalization and growth

Structurally higher global demand can be seen in global grains prices!We are now in an environment where $3 / bushel corn looks cheap! Risks appear to increasingly be on

the upside

700

800

200

300

400

500

600

US¢/b

ushel

Source: Bloomberg, rabobank

0

100

1959 1964 1969 1974 1979 1984 1989 1994

Monthly CBOT Corn Prices

Structurally higher global demand can be seen in global

We are now in an environment where $3 / bushel corn looks cheap! Risks appear to increasingly be on

A new range?

US corn price seems

to have solid support to have solid support

at above $3.

With competition for

corn supplies likely to

be high in coming

seasons it is unlikely

that consumers will let

coverage slide

significantly which will

underpin the market

14

1994 1999 2004 2009

Contents

Section 1:

Section 2:

Section 3:

Section 4:

Global economy




Section 5:



15

Global economy







Brazil - a developing global powerhouse

‘Winter’ crop

(corn)

Summer cropSummer crop

(soybeans)

a developing global powerhouse

16

Brazil is one of the largest agricultural commodity producers with enormous potential

- Brazil ranks number 1 or 2 on major commodities production and exports

- Agribusiness is a strong pillar of national economy representing close to 25% of total GDP

� Highlights

Source: Rabobank analysis

Evolution of the Agriculture GDP Growth (%)

representing close to 25% of total GDP

- Brazil has significant potential to increase yields for several field crops

- Brazil still enjoys great potential to expand crop areas

- Infrastructure bottlenecks play a critical role in the agribusiness expansion towards new areas

163

[Index (2000=100)]

Estimated Agricultural GDP

Agricultural GDP

Estimated GDP

GDP

Source: MCM Consultores

13

162

121110

142

142

0908

143

133

07060504

122

111

03020100

100

Brazil as Producer and Exporter of Key Commodities

Brazil is one of the largest agricultural commodity producers with enormous potential

Production ExportsExp. Value

(USD MM 2009)

Sugar 1st 1st 2,748

Source: USDA

Brazilian Agricultural Commodity Exports

Sugar 1 1 2,748

Coffee 1st 1st 4,270

FCOJ 1st 1st 396

Ethanol 2nd 1st 1,338

Beef 2nd 1st 4,118

Soybeans 2nd 2nd 10,925

Poultry 3rd 1st 5,535

Soy Oil 4th 2nd 1,223

Soybean

Animal Protein

Sugar

Coffee

Corn

Pulp [Million MT]

Source: Bloomberg, USDA, UNICA

65

07

68

06

60

05

54

04

51

03

46

8,1%

09

73

08

Macroeconomic fundamentals have been consistently improving in Brazil…

Gross Domestic Product (GDP)

Forecast

Actual[US$ Trillion]

CAGR

Evolution of Inflation

020100

10,4%

1312111009080706050403

Forecast

Actual[Consumer price index (IPCA) – annually (%)]

Note: current R$ converted by average exchange rate

Source: MCM Consultores (BACEN)

CAGR

� Note: accumulated in the period

� Source: MCM Consultores (BACEN)

5,9%

07

4,5%

06

3,1%

05

5,7%

04

7,6%

03

9,3%

02

12,5%

01

7,7%

00

6,0%

-4%

13

4,5%

12

4,5%

11

4,7%

10

5,3%

09

4,3%

08

Evolution of Interest Rates - SELIC

Macroeconomic fundamentals have been consistently improving in Brazil…

Forecast

-5,2%

Forecast

Actual[Nominal]

CAGR

Average Exchange Rate

-5,2%

13

10,5%

12

10,8%

11

12,0%

10

9,8%

09

10,1%

08

12,5%

07

11,9%

6

15,3%

5

18,2%

04

17,5%

3

16,9%

02

23,0%

01

19,1%

00

16,2%

Forecast

[R$/US$]

Forecast

Actual

� Note: annualized variation


4,5%

131210 110401 070600 050302 0908

2,35

� Note: period average


Chindia

19

2.0%

Income and population growth in selected countries

Income and population growth are key drivers of increased food consumption

Germany

France

Italy

USCanada

Japan

0.5%

1.0%

1.5%

2.0%

CAG

R p

opula

tion (

06-1

1)

-1.0%

-0.5%

0.0%

-7% -5% -3% -1% 1%

GDP growth (2008)

CAG

R p

opula

tion (

06

Source: UN, IMF, Rabobank



BRIC

Income and population growth are key drivers of consumption - 2008

Germany

France

Brazil

Mexico

China

India

BRICcountries

Russia

3% 5% 7% 9% 11%

GDP growth (2008)


…2009 retraction…


CAG

R p

opula

tion (

06-1

1)

GDP growth (2009)

CAG

R p

opula

tion (

06

Source: UN, IMF, Rabobank


CHINDIA now the savior

GDP growth (2009)

…Bounce back in 2010…


CAG

R p

opula

tion (

06-1

1)

GDP growth (2010)

CAG

R p

opula

tion (

06


GDP growth (2010) Source: UN, IMF, Rabobank, 2010

Chinese urbanisation - income divide has fostered thisNearly 60% of China’s consumers are in rural areas.

Urban vs. Rural per capita disposable incomeSource: China Statistics Yearbook

X 3.5

X 2.5

X 3.5

income divide has fostered thisNearly 60% of China’s consumers are in rural areas.

Urban / rural population balance in ChinaSource: China Statistics Yearbook

2009 760 million!

1991

1993

1995

1997

1999

2001

2003

2005

2007

760 million!

0% 20% 40% 60% 80% 100%

1978

1985

Urban Rural

Today, urban consumers eat double the meat and drink triple the milk of their rural counterparts

Urban vs. Rural per capita consumption (kg)Source: China Statistics Yearbook

Today, urban consumers eat double the meat and drink triple the milk of their rural counterparts

China’s protein consumption forecast (mln MT)Source: FAPRI, 2010

60

70

29% 10 year absolute growth

20

30

40

50

60

25%

26%

0

10

Pork Beef Poultry Fluid Milk

1999 2009 2019

25%

196%

China’s Corn Position – Is it a structural change?China will increasingly play an important role in the global corn trade, its position as a prominent

exporter is increasingly looking untenable. Increasing reliance on the US...

14

16

18

-4

-2

0

2

4

6

8

10

12

14

Millio

n to

nnes

Source: USDA, Rabobank

-4

Net Trade Ending Stocks

Is it a structural change?China will increasingly play an important role in the global corn trade, its position as a prominent

exporter is increasingly looking untenable. Increasing reliance on the US...

China’s export program has

120

140

China has now become a net importer of corn...

Is this an isolated weather event or is it a structural

program has drawn down on stocks...

0

20

40

60

80

100

120

Millio

nto

nnes

25

is it a structural issue?

0

Ending Stocks

Chile has a small share but a large opportunity!

Total trade USD million

20000

F&A Exports USD million

0

5000

10000

15000

20000

2004 2005 2006 2007 2008 2009

Imports (Cif)

Exports (Fob)

1600

1800salmon

26

0

200

400

600

800

1000

1200

1400

1600

2008 2009

Others

Wine

Fishmeal / oil

T. Grapes

Other Ag

Pulp, paper other

forestry prod

Chile has a small share but a large opportunity!

Total Exports from Chile USD million

14000

Trade Agreement

• Free trade agreement came into force

0

2000

4000

6000

8000

10000

12000

14000

2004 2005 2006 2007 2008 2009

others

Industrial

Mining

Primary

• Free trade agreement came into force

in October 2006

India’s dynamic growth and immense production strengths in agribusiness

� Agriculture represents 17.1% of GDP

(2009) (2009)

� Employs 52% of the total workforce

� 126 million farming families engaged in

primary agriculture

� Average farm size – 1.41 Ha

� Favourable government policies

India has the potential to be :

• One of the largest food markets in the world

• One of the top global exporters

• The home base for many Indian Multinational Corporations

27

India’s dynamic growth and immense production

# 1 – Milk producer (108 million tonne)

# 1 – Cattle /buffaloes (283 mn)

# 2 – Arable land area (161 mn ha)

# 2 – Fruit and Vegetables (188 mn tonnes)

# 2 – Food grains (229 mn tonnes)

# 2 – Sugarcane (271 mn tonnes)

One of the largest food markets in the world

The home base for many Indian Multinational Corporations

# 3 – Agri commodities

Rapid growth in Indian F&A sector due to…

Favourable monsoon in recent past*

20

25

30

35

40

2317 22

8 712

7 5

Increasing MSPs Increasing FDI in the sector (INR 10.6 bn in FY09)

0

5

10

15

20

2004 2005 2006 2007 2008

26 7

12 9

2623

17

17 22

Excess Normal Deficient

1200

* data pertaining to the 36 meteorological sub-divisions

0

200

400

600

800

1000

2005 2006 2007 2008 2009

Paddy Wheat

Source: Government of India

28

Rapid growth in Indian F&A sector due to…

Increasing penetration of irrigation

1

1,5

2

90

95

100

105

Irrigate

d a

rea (

in m

n h

a)

Gro

wth

art

e (

%)

Increasing FDI in the sector (INR 10.6 bn in FY09)

0

0,5

1

75

80

85

90

1992-97 1997-2002 2002-2007

Cummulative irrigation created (in mn Ha)

Annual growth rate (area created)

Annual growth rate (area utilized)

Tea & coffee Sugar

Irrigate

d a

rea (

in m

n h

a)

Gro

wth

art

e (

%)

Food processing industries

55%

Agriculture services

13%

Agricultural machineries

10%

Fertilizers7%

Edible oils6%

Tea & coffee 6%

Sugar3%

Rising income and increasing urbanisation are in play

49%

30%18%

70%

80%

90%

100%

Income in USD/annum (PPP basis)Source: Mckinsey Global Institute

1% 1% 3%

12%5%

23%

34%44%

43%

33%

0%

10%

20%

30%

40%

50%

60%

70%

2005 2015 2025

> 116,849 58,424-116,849 23,367-58,424

10,514-23,367 <10,514

• Rapid growth in GDP is leading to higher disposable incomes

• The consuming and rich class is projected to grow further

• Urban population to constitute 32% of total population

Rising income and increasing urbanisation are in play

25.7%

27.8%29%

32%

Percentage of urban householdsSource: Govt. of India

23.3%

25.7%

1981 1991 2001 2005 2010

Rapid growth in GDP is leading to higher disposable incomes

The consuming and rich class is projected to grow further

Urban population to constitute 32% of total population

29

India offers immense opportunities….but can be a tough environment requiring a long term perspective

� Fragmented sub-sectors and small scale� Fragmented sub-sectors and small scale

� F&A is more than a commodity play, but commodity risk cannot be avoided

� High working capital during the year is normal

� Lack of infrastructure

� Limited adoption of modern agricultural practices and use of technology

� F&A sector is highly regulated

� There is limited research coverage, given the small number of listed players

30

India offers immense opportunities….but can be a tough environment requiring a long term perspective

sectors and small scalesectors and small scale

F&A is more than a commodity play, but commodity risk cannot be avoided

High working capital during the year is normal

Limited adoption of modern agricultural practices and use of technology

There is limited research coverage, given the small number of listed players

Chile's exports to India challenged by market complexity, persistence required

Total Trade USD million

3000

F&A Exports (Inc. Forestry)

0

500

1000

1500

2000

2500

2004 2005 2006 2007 2008 2009

Imports (Cif)

Exports (Fob)

40

45

50Other n/e

31

0

5

10

15

20

25

30

35

40

2008 2009

Others

Wine

Fishmeal / oil

T. Grapes

Fresh apples

Pulp, paper other

forestry prod

Chile's exports to India challenged by market complexity, persistence required

Total Export USD million

2500

Selected F&A Export to India

0

500

1000

1500

2000

2500

2004 2005 2006 2007 2008 2009

others

Industrial

Mining

Primary

• “Partial reach” trade agreement• “Partial reach” trade agreement

• Signed August 2007

• Immediately after signature 98% of Chilean exports (91 % of Indian exports) underwent an average 20% decrease of import duties

• The number of products exported to india represents only 2.7% of the total number of prods exported by Chile

Contents

Section 1:

Section 2:

Section 3:

Section 4:

Global economy




Section 5:



32

Global economy







Rising protein and calorie consumption in Asia…

33

Rising protein and calorie consumption in

The new frugal consumer – they have no choice!they have no choice!

Despite the recession consumers still becoming more demanding world wide…

‘Efficient Nutrition’

HEALTH‘The Knowledge factor’

INDULGENCE

‘Guilt Free indulgence’

‘The Sensory Experience’

• Gelatos

• Sugar free chocolates (Kit Kat lite)

• Pro-biotic ice cream

Despite the recession consumers still becoming more demanding world wide…

‘Efficient Nutrition’• Kellogs – Special K

• Maggi Atta Noodles

• Sunfeast Kit Fit

‘The Time factor’

CONVENIENCE

• Sunfeast Kit Fit

35

INDULGENCE

‘The Sensory Experience’

‘Convenience Plus’

• Kurkure

• Haldiram Namkeen

Environment becoming more important for consumers – a challenge and opportunity for Chile

36

Environment becoming more important for a challenge and opportunity for Chile

Growing concerns about food safety also presents opportunities!

37

Growing concerns about food safety also

Consumer trust in the modern food system is shaken

38

Consumer trust in the modern food system is

Contents

Section 1:

Section 2:

Section 3:

Section 4:

Global economy




Section 5:



39

Global economy







Chile’s great advantages

40

Chile has earned its success!

Global Rankings

IndexIndex

Corruption Perception Index 2009

(Transparency International)

Business Environment 2005-2009

(The Economist Intelligence Unit)

Economic Freedom Index 2010

(Heritage Foundation)(Heritage Foundation)

Global Competitiveness Index 2009

(World Economic Forum)

Chile has earned its success!

Global Rankings

PositionPosition

Global Ranking Position: 25

Latin American Ranking Position: 1




Latin American Ranking Position: 1Latin American Ranking Position: 1



Food and Agribusiness enjoys a prominent and important position in the Chilean economy

• 19% of GDP• 19% of GDP

• 29% of work force

• Geographically diverse across Chile

• FTAs with key F&A importing countries

• 21% of exports – USD 11.2 billion in 2009

Fresh fruit – $3b

Processed food – $2.3b

Salmon - $2bSalmon - $2b

Wine - $1.4b

Fisheries - $1.2b

Meat 0 $0.75b

Food and Agribusiness enjoys a prominent and important position in the Chilean economy

Geographically diverse across Chile

FTAs with key F&A importing countries

USD 11.2 billion in 2009

Chile's strengths compelling in a globalizing world

• Highly prized premium food exports

seafood, wine, meat, further processed premium foodsseafood, wine, meat, further processed premium foods

• Counter seasonal supply

• Domestic systems and infrastructure that support exports and new

market development

• Sanitary and phytosanitary conditions that are conducive to trade

into premium markets

• Excellent market access provisions through bilateral negotiations

• A very stable and welcoming environment for capital, technology • A very stable and welcoming environment for capital, technology

and knowhow

• A cultural and political view to the world that encourages

connections and trade

Chile's strengths compelling in a globalizing world

Highly prized premium food exports – fresh fruit, vegetables,

seafood, wine, meat, further processed premium foodsseafood, wine, meat, further processed premium foods

Domestic systems and infrastructure that support exports and new

Sanitary and phytosanitary conditions that are conducive to trade

Excellent market access provisions through bilateral negotiations

A very stable and welcoming environment for capital, technology A very stable and welcoming environment for capital, technology

A cultural and political view to the world that encourages

The challenges for Chile

• Leverage rankings

• Build on market access gains by developing commercial, trade and

government trade links government trade links

• “Brand Chile” and “Destination Chile” together.

• Prioritize premium quality, food safety and environmental

stewardship in products, production processes and brand positioning

in developed and developing markets

• Be aware of the competition and never stand still

• Differentiate from competitors on the basis of Chile’s unique strengths

• The others are doing better, how does Chile stay ahead and profit from this?• The others are doing better, how does Chile stay ahead and profit from this?

• Invest in export markets, value chains and relationships

Build on market access gains by developing commercial, trade and

“Brand Chile” and “Destination Chile” together.

Prioritize premium quality, food safety and environmental

stewardship in products, production processes and brand positioning

in developed and developing markets

Be aware of the competition and never stand still

Differentiate from competitors on the basis of Chile’s unique strengths

The others are doing better, how does Chile stay ahead and profit from this?The others are doing better, how does Chile stay ahead and profit from this?

Invest in export markets, value chains and relationships

“The financial link in the global food chain”™

“The financial link in the global food chain”™

2010 cordingley

Documents