National Renderers Association

Long-term Forces Shaping Our Industryg g y

October 21, 2009

800.229.4253 hale@halegroup.com

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