New Industry Trends within Current market developments

Nan-Dirk Mulder, 18 May 2015

Global Animal Protein Outlook

Rabobank: A leading global F&A bank

Rabobank group global presence

5

Rabobank: Animal protein is our sweet spot

Europe North America South America Asia & Oceania

1. Short term animal protein market outlook

2. Long term global strategic changes

3. Outlook for the Russian industry

Content

50

70

90

110

130

150

170

190

210

230

250

Q1

Q3

Q1

Q3

Q1

Q3

Q1

Q3

Q1

Q3

Q1

Q3

Q1

Q3

Q1

Q3

Q1

Q3F

2007 2008 2009 2010 2011 2012 2013 2014 2015

Feed Chicken Pork Beef Eggs

Index, 2007 Q1 =100

Global market: Lower feed prices compensate loss in sales prices

5

Rabobank global protein to feed price monitor

Eggs

Broilers

Beef

Pork

Source: Rabobank analysis based on FAO/Bloomberg/national statistics, 2015

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

Chicken Eggs Pork Beef

China2007 2008 2009 2010 2011

2012 2013 2014 2015E

1,000 tonnes

CAGR: +1.4%

CAGR: +0.8%

CAGR: +4.0%

CAGR: +1.6%

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

Chicken Eggs Pork Beef

World ex China2007 2008 2009 2010 2011

2012 2013 2014 2015E

1,000 tonnes

CAGR: +2.8%

CAGR: -0.3%

CAGR: +0.4% CAGR: -0.5%

Consumption: Worldwide growth in poultry except China

6

Global animal protein demand excl. China

Source: Rabobank analysis based on USDA, 2015

China animal protein demand

AI Food

safety

100% of growth in meat demand is in emerging markets

7

Consumption change by specie 2010-2014

-2,000

-1,000

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

Beef Chicken Pork

x 1,000 tonnes

52% Second tier: 32% 4.6 million tonnes

Other: 16% 2.6 million tonnes

4%

0

2,000

4,000

6,000

8,000

10,000

12,000

Chicken Beef Pork

x 1,000 tonnes

Growing importance of trade, but volatile global market conditions

8

Global trade in meat 2000-2015

Source: Rabobank, USDA, 2015

Pork: CAGR: +5.4% , 6% of global supply

Poultry: CAGR: +5.5% , 12% of global supply

Beef: CAGR: +3.7%, 17% of global supply

Russia ban has had impact on global pork and beef markets

9

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

0

500

1,000

1,500

2,000

2,500

3,000

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

Global beef imports in 2013

Global pork imports in 2013

Global chicken imports in 2013

14% 13%

6%

1,000 tonnes 1,000 tonnes 1,000 tonnes

10% of global meat trade was sold to Russia Source: Rabobank analysis based on USDA, Rostat, 2014

Russia meat ban: 41% of 2013 import volumes are banned now

10

Total Russian meat imports by country of origin in 2013

-

100,000

200,000

300,000

400,000

500,000

600,000 Tonnes

Source: Rabobank analysis based on Rostat, 2014

Volatility in exchange rates hits US and Thai poultry trade

11

FX development 2007-2015

30

50

70

90

110

130

150

Jan

Apr

Jul

Okt

Jan

Apr

Jul

Okt

Jan

Apr

Jul

Okt

Jan

Apr

Jul

Okt

Jan

Apr

Jul

Okt

Jan

Apr

Jul

Okt

Jan

Apr

Jul

Okt

Jan

Apr

Jul

Okt

Jan

2007 2008 2009 2010 2011 2012 2013 2014 2015

EUR/USD BRL/USD CNY/USD JPY/USD RUB/USD THB/USD ARS/USD

INDEX

Source: Rabobank analysis, bloomberg, 2015

Is Russia competitive in global trade?

12

Whole broiler costs in 2013 EUR/100 kg

0

20

40

60

80

100

120

140

160

180

200

Processing Live broiler

EUR/kg

Source: Rabobank analyss based on LEI and local estimates, 2015

January 2015 prices

-

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

Whole chicken Breast meat Chicken feets Processed chicken

Global Russia

USD/kg

Avian flu has become also a global outbreak

13

Avian Influenza outbreaks: January 2014- April 2015

Source: OIE, 2015

PEDv Has Been a global Outbreak

Ukraine -First cases in spring of 2014 and the outbreak seems to be small. -Raises the risk of spreading to the EU

Canada - Few cases but pockets of Ontario have been hard hit

Japan - Has lost 200K pigs to PEDv or about 1.2% of annual production

Mexico - Outbreak in the fall of 2013 with likely the largest losses in the world

US -Discovered in the summer of 2013 and PEDv cases are still happening

Peru and Colombia - Few cases identified but it has raised fear in the minds of consumers

Korea - Significant outbreak in 2013/14 through about a quarter of the industry

Slowdown in poultry expansion in 2013, emerging markets keep lead

Pork: +0.4%

Projected production Growth 2015

Chicken: +1.1%

Brazil

Canada

China EU-27

Australia

India

US

Japan

Mexico

Argentina

Russia +0.2%

+2.4% +0.0%

+2.5%

+1.4%

-0.2% +9.1%

+1.3%

+3.9%

+2.0%

15 Source: Raboban analysis based on USDA, 2015

Thailand

+1.0%

Indonesia

+3.8%

South Africa

+0.2%

Ukraine

-4.9%

Turkey

+1.7%

Beef: -1.1%

Colombia

+4.6%

+7.8%

-0.6%

+2.0%

+3.8% +2.0% +4.1%

+6.3%

+0.5%

+0.7%

+12.3%

+0.0%

+0.2%

+0.2%

+4.5%

+3.4%

+6.1%

+0.6%

Global meat and poultry production growth in 2015

-5.6%

-0.2%

+1.2% -1.0%

+3.7%

+1.0%

+0.0%

-0.5% -7.0%

-2.0%

-2.6%

-0.9%

+3.3%

+0.4%

+0.0%

1. Short term animal protein market outlook

2. Long term global strategic changes

3. Outlook for the Russian industry

Content

Fast growth in animal protein: 35% more in 2030

Global demand for animal protein

-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

1980 1990 2000 2010 2020 2030

Seafood Eggs Sheepmeat Poultry Pork Beef

+39%

+35%

+20%

+19%

+17%

Change:30/14 Seafood:+20% Eggs: +38% Poultry: +50% Pork: +35% Beef: +20%

Source: Rabobank, FAO, OECD, FAPRI

X 1,000 tonnes

-5,000

-

5,000

10,000

15,000

20,000

25,000

30,000

Eggs Poultry Beef Pork

1,000 tonnes

First tier: 59% Second tier: 20% Rest::21%

4% 2%

70% of global meat and egg demand growth is in Asia, 4% in Russia

Global market volume change 2014-2024

Source: Rabobank, FAO, FAPRI, OECD

Economic development drives food market change

ECONOMIC CONSOLIDATION Food as nutrition/well-being

ECONOMIC REINVENTION

Food as stimulation

ECONOMIC TAKE-OFF Food as a need

ECONOMIC DEVELOPMENT Food as a social occasion

Income: < $ 5,000

Income: $ 5,000 - $15,000 Income: $15,000 - $40,000

Income: > $40,000

Time free

Location Bound

Time bound

Location free

Source: Rabobank analysis, 2015

Ongoing social concerns to change value chains

Buy local

Animal welfare

Environmental friendly

Food Safety and confidence

Source: Rabobank Analysis, 2014

Chinese industry is struggling due to food safety scandals and disease outbreaks

8,000

9,000

10,000

11,000

12,000

13,000

14,000

15,0001,000 tonnes

-3%

-5%

Lost demand3 million tonnes

20,000

22,000

24,000

26,000

28,000

30,000

32,000 1,000 tonnes

-7%

Lost demand2.6 million tonnes

China chicken consumption China egg consumption Antibiotics scandal

H7N9 outbreaks

QSR food scandal

Source: Rabobank/USDA, 2014 Source: Rabobank/USDA, 2014

Need for a fast modernizing of (Asian) animal protein industry

High feed prices/limited resources

Food safety

Higher incomes and welfare

Modern distribution

Modern value chain Larger companies Vertical integration Efficiency Yield Value chain management Sustainability

Animal disease threat

More modern compound feed demand

Need to rethink supply chain models

23

Grains and

oilseeds Feed Breeding Farming Processing Customer

Grains and

oilseeds Feed Breeding Farming Processing Customer

Grains and

oilseeds Feed Breeding Farming Processing Customer

Grain and

oilseeds Feed Breeding Farming Processing Customer

Horizontal specialisation model

Semi-Vertically integrated value chain

Full vertically integrated value chain: feed to poultry

Multisector –Fully vertically integrated value chain: grains to poultry

Source: Rabobank, 2015

Russia – China partnership fit with global food security investment trend

Globalization in the animal protein industry

Source: Rabobank, 2015

Globalisation of the industry: Emerging industries take the lead

Top 20 Global meat companies 2015

-

2,000

4,000

6,000

8,000

10,000

12,000

Poultry Pork Beef

1,000 tonnes

Source: Rabobank

1. Short term animal protein market outlook

2. Long term global strategic changes

3. Outlook for the Russian industry

Content

Pork and poultry prices go high, but high grain prices affect margins

Russia meat prices 2011-2015 African flu:

EU pork ban Russia

Import ban

Source: Rabobank analysis based on Rostat, 2014

70%

80%

90%

100%

110%

120%

130%

140%

150%

160%

Feed index Chicken Beef Pork

Industry uncertainty keeps investments low

Exchange rate

uncertainty

Sanctions on exporters

to Russia

Availability of credits

Export tax removal and feed prices

Economic downturn

Russia 2000-2013: The world’s fastest growing protein industry

29

0

10,000

20,000

30,000

40,000

50,000

60,000

2003 2013

1,000 tonnes

+2.6%

+0.1%

+1.5%

+2.5%+4.9%+6.0%

+0.5%+1.6%

+0.4% +2.2%

+1.7%

Global pork production 2003-2013

CAGR

Russia: +4.9%

Global: +1.9%

Global chicken production 2003-2013

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

2003 2013

1,000 tonnes

+1.5%

+3.0%

+4.9%

+2.3%

+16.7%+8.7%

+2.7%+10.6%

+8.6% +3.3%

+3.7%

CAGR

Russia: +16.7%

Global: +3.6%

Source: Rabobank analysis based on USDA, Rostat and local statistics, 2014

Long term outlook remains positive

Russian meat industry

New markets: Value, regions, niche

Ad

just

ed in

du

stry

st

ruct

ure

More efficient

Mo

re intern

ation

al

Source: Rabobank analysis

Economic downturn: Consumers more price driven

‘Expensive’

‘Cheap’

Sales channel Meat species Meat products

Restaurants

QSR

Premium retail

Discount retail

Veal

Beef

Pork

Poultry

Ready meals

Steaks

Breast meat

Minced meat

Sausages

Legs

Eggs

Grains/vegetables

Source: Rabobank Analysis,2008

The fast growth in food service and modern retail will drive industry change

Russia retail: 20% CAGR in modern distribution

Russia fast food market 18% CAGR in sales value

Source: Rabobank analysis based on Euromonitor, 2014

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

2007 2008 2009 2010 2011 2012 2013

Traditional grocery Forecourt retailers Convenience stores Hypermarkets Supermarkets

ModerndistributionCAGR: +20.0%

Groceryretail:+16.6%

RUB bn

46%

61%

-

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

Burgers Pizza Bakery products

Chicken Middle Eastern

Other

2007 2008 2009 2010 2011 2012

Million RUR

CAGR:+20.2%

CAGR:+10.4%

CAGR:+15.3%

CAGR:+13.2%

CAGR:+5.72%

CAGR:+8.4%

Improve value chain to achieve better performance with lower costs

Retail/ QSR

Exports

Cost efficiency

Grains & Oilseed

Feed Farming Processing Customer

Yield, efficiency,

availability

Efficiency

Quality

Food safety – tracking & tracing

Skills

Management Value added Branding

Vertical efficiency and distribution

Market

access

Global export markets: 2/3 is not far from Russia including China

34

Global import markets by region and CAGR 2007-2014

0

500

1,000

1,500

2,000

2,500

2000 2007 2014

1,000 tonnes

CAGR:+8%

CAGR:+1%

CAGR:+9% CAGR:

+8%

CAGR:-11%

CAGR:0% CAGR:

+13%CAGR:+8%

CAGR:+6%

Source: Rabobank analyss based on USDA, 2015

Long term: Russia’s internationalisation opportunities

Export dark

chicken

Export whole

chicken

Eastern export

platform

Sourcing: Russia –

Asia partnerships

New market access:

inter-nationalisation

Poultry exports Internationalisation

China, rest of Asia, Africa

Middle East, Central Asia

Japan Korea

China Middle East

Far East Central Asia Middle East Africa

Source: Rabobank analysis, 2014

Building up an export position: an integrated approach necessary

Low cost production/availability low cost cuts

Veterinary/sanitary level – Nationwide/region

Market access

Distribution network

Developing an export strategy: A joint government and industry approach

Industry production standards

Agriculture

development

focus

Availability

of land and

grains

Distance to

Asia’s growth

markets

Russia’s key strengths

Recent RUR

depreciation

Conclusions Global outlook remains bullish but focus will shift more to emerging markets especially in Asia

from a market and from an investment perspective

Western markets will operate under more under mature (conditions with growing emphasis on

consumer concerns. Industry need to consolidate further

Industries in emerging markets are challenged by fast value and volume growth in combination

with limited resources and need to reconsider their business models from a value chain and

from a sourcing perspective

The global industry to move further from a national to regional and global structures and value

chain models will evolve in line with local industry conditions

Key industry challenges: Consumer concerns, volatility, disease pressure and market power

Russia to remain a key global growth market although short term dynamics are disturbed by

trading down impact and weaker investment conditions, but long term fundamental remain

Russian industry to become more international via exports and internationalisation strategy:

Aisean including China partnership will offer strong long term potential

Questions? nan-dirk.mulder@rabobank.com

Nan-Dirk Mulder, 18 May 2015

Thanks for your attention