balancing supply chain risk & capitalisation 2012
TRANSCRIPT
A World of Food Solutions
Balancing Supply Chain Risk and Capitalization Modernization in agriculture
China Agribusiness and Food Safety Investment Summit 21 June 2012
Beijing
A World of Food Solutions
China is today the world’s largest local protein market
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50 MMT
50.05 MMT
Pork 6% of global production traded
Poultry 12% of global production traded
Beef 12% of global production traded
12.6 MMT
12.5 MMT
5.6 MMT
5.5 MMT
Pro
du
cer
Co
nsu
mer
However, China is significantly land constrained which will require choices for resources
A World of Food Solutions
Although consolidation is underway, majority of industry remains fragmented
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69%
5%
21%
25%
10%
70%
0%
20%
40%
60%
80%
100%
120%
2010 2020F
Slaughtering by hand Half mechanized Mechanized
21,000
3,000
0
5,000
10,000
15,000
20,000
25,000
2010 2020F
Changes in # of designated pork slaughter Source: China Commerce Department
China’s pork slaughter mechanization Source: China Commerce Department
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Specialized farm (50~3000 heads/farm)
Commercial farm (+3000 heads/farm)
This fragmentation is largely due to China’s farm structure
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Backyard farm (1~49 heads/farm)
China’s poultry farm size by year Source: MOA
China’s pig farm size by year Source: MOA
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Driven by sheer number of ppl in agriculture and thus limited land availability per person
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0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
China’s farm size by province (acres / person)
Source: China Statistics Yearbook
北 南
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Demographics of rural China changing more than we realize
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China’s population breakdown Source: China Statistics Bureau
0
200
400
600
800
1,000
1,200
1,400
1,600
2000 2010 2020
Rural Unclassified urban Urban
Million inhabitants
Age of China’s rural half Source: United Nations
36.2%
15.8%
48.0%
47.0%
14.8%
38.3%
55.4%
13.9%
30.7%
713 million “rural” inhabitants
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This trend will only expected to accelerate
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Social security coverage – urban vs. migrant
Source: NBS, 2011 Report on Development of China’s Migrant Population, National Population and Family
Planning Commission
Agriculture laborers: zero
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Shifting demand & farmers’ planting decisions
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270
280
290
300
310
320
330
340
350
142
144
146
148
150
152
154
156
158
million persons
million hecta
res
Cultivated Land Rural Agriculture Labourers (right)
Harvested acreage by crop Source: China Statistics Bureau
Cultivated land and rural laborers Source: China Statistics Yearbook
Policy driven
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Urban consumers are evolving at a faster pace than production agriculture
Producers 40% of the labour force
Consumers 55% of GDP vs.
And capturing the attention of China‟s rural youth
1. 2012 GDP growth of 8%
2. CPI at 4% (3% in „10)
3. Food safety
1. Double farmers incomes by 2020
2. Grain self sufficiency
3. Arable land no less than 120 mln hectares
Rural welfare Consumer welfare
Inventory Mgmt
Trade
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Urbanization will transform the supply chain
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20
10
2
02
0
Pork Poultry Beef
48.9MMT 15.7MMT 5.4MMT
59.6MMT 21.0MMT 7.3MMT
China’s urban population boom and coming changes in consumer channels
Source: United Nations, OSI
Million inhabitants
Urban population by city size
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Clear direction, but flexible enforcement
2015 annual meat output target
Category Output (million tons)
Percentage (%) among total
Pork 53.6 63%
Poultry 17.8 21%
Beef 6.9 13.9%
Mutton 5
Others 1.7 2.1%
As per the National Meat Development Plan released by
the State Council under China’s 12th 5 Year Plan
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3rd Five Year Plan 1966-1970
Spare no efforts to develop agriculture, solve problems concerning people's food…
In order to support agriculture, to enhance infrastructure, continue to improve production quality, increase production variety and quantity, to build an economy of self-reliance,
and to develop transportation, commerce, culture, education and
scientific research
12th Five Year Plan 2011-2015
1.Urbanization rate reaching 51.5% 2.Value-added output of emerging strategic industries accounting for 8% of GDP 3.Inviting of foreign investment in modern agriculture, high-tech, and environment protection industries 4.Moving coastal regions from being the "world's factory" to hubs of research and development, high-end manufacturing, and the service sector 5.Increased momentum for large-scale hydropower plants in southwest China 6.Length of high-speed railways reaching 45,000 km 7.Length of highway networks reaching 83,000 km 8.36 million new affordable apartments for low-income people
China has nearly 3,000 country-level districts
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Regulation in China has many complexities
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China
Ministry of Health
State Food and Drug Administration
Ministry of Agriculture
Ministry of Commerce
General Administration of Quality Supervision, Inspection,
and Quarantine
State Administration for Industry and Commerce
Ministry of Science and Technology
National Institute of Nutrition and Food Safety
United States
USDA FSIS
FDA
State / local agencies
United Kingdom
FSA
DEFRA
Australia & New Zealand
FSANZ
Singapore
AVA
The China challenge
OSI Weihai
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Capital constraints in China agriculture
Working capital advances by offtakers has become increasingly needed to fill the capital gap in order to secure raw materials
The contract model has emerged as lower capital solution to supply chain development though not free of risk
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DOC, Feed, health product
Loan 60-80% of total capital needs • Mortgage • Leasing • Live birds stock collateral
Integrator/off-taker
Finished birds
Veterinary Security Company
Guarantee company
20-40% Farmer‟s
own capital
Insurance Company
Govern-ment
Credit / bank
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Upstream agriculture finding other accesses to capital
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Consumer
69%
Agriculture
31%
Consumer
57%
Agriculture
43%
2000 2010
Total: USD35 .1bln
Total: USD174.8 bln
Consumer,
133
Agriculture,
187
0% 20% 40% 60% 80% 100%
2010
Number of F&A listed companies in 2000
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Ways to address
Selection of customers, for all cuts
Exports, particularly to Japan
Higher efficiencies and top performance
First differentiation, then lowest cost
Branding thought differently
Perspectives from the field
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Enablers discouraging food safety investments
Strict regulations with flexible enforcement at local level
Compliance costs for various market participants
Lack of capital in the supply chain
Fragmented supply chain requires large distributor networks
Underdeveloped monitoring systems at retail/delivery points
Lack of risk adjusted price
Lack of IP protection and property rights
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“In China, for China” strategy from the start
Heilongjiang
Inner Mongolia
Xinjiang
Tibet
Qinghai
Yunnan
Guangxi
Hunan
Guizhuo
Guangdong
Fujian
Jiangxi Zhejiang Sichuan
Gansu
Hubei
Anhui
Jiangsu
Shandong
Henan
Shanxi
Shaanxi
Hebei
Liaoning
Jilin
Hainan
Shanghai
Tianjin
Taiwan
Meat Processing (Halal Certified)
Vegetable Processing
Meat Processing
Vegetable Processing
Vegetable Processing
Vegetable Processing
Poultry Vertical Integration (Halal certified)
Poultry Vertical Integration
Diversified Food Processing
Nearly 25 years of operational excellence in Greater China
OSI in Asia-Pacific
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We believe poultry industry will lead the way
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Modern broiler farms
Modern feedmill
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OSI Asia, Pacific, Middle East and Africa
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Australia
Brady Sidwell VP, Corp. Development & Strategy OSI Group One Island East 18 Westlands Road, Quarry Bay Hong Kong www.osigroup.com.cn