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 big picture for global agriculture
Emerging markets: Brazil, China and India
Some key trends shaping the global market
Rabobank International
Some key trends shaping the global market
Chile: positioning for the future
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
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
8
Global economy
The big picture for global agriculture
Emerging markets: Brazil, China and India
Some key trends shaping the global market
Rabobank International
Some key trends shaping the global market
Chile: positioning for the future
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
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
15
Global economy
The big picture for global agriculture
Emerging markets: Brazil, China and India
Some key trends shaping the global market
Rabobank International
Some key trends shaping the global market
Chile: positioning for the future
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
� Source: MCM Consultores (BACEN)
4,5%
131210 110401 070600 050302 0908
2,35
� Note: period average
� Source: MCM Consultores (BACEN)
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
Income and population growth are key drivers of increased food consumption
Income and population growth in selected countries
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)
Income and population growth are key drivers of increased food consumption
…2009 retraction…
Income and population growth in selected countries
CAG
R p
opula
tion (
06-1
1)
GDP growth (2009)
CAG
R p
opula
tion (
06
Source: UN, IMF, Rabobank
Income and population growth in selected countries
CHINDIA now the savior
GDP growth (2009)
…Bounce back in 2010…
Income and population growth in selected countries
CAG
R p
opula
tion (
06-1
1)
GDP growth (2010)
CAG
R p
opula
tion (
06
Income and population growth in selected countries
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
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
32
Global economy
The big picture for global agriculture
Emerging markets: Brazil, China and India
Some key trends shaping the global market
Rabobank International
Some key trends shaping the global market
Chile: positioning for the future
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
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
39
Global economy
The big picture for global agriculture
Emerging markets: Brazil, China and India
Some key trends shaping the global market
Rabobank International
Some key trends shaping the global market
Chile: positioning for the future
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
Global Ranking Position: 19
Latin American Ranking Position: 1
Global Ranking Position: 10
Latin American Ranking Position: 1Latin American Ranking Position: 1
Global Ranking Position: 30
Latin 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”™