Our Food Future & Creating value from Commodities case

study

HBI550 / HBM250 TRENDS IN MARKETINGDermott Dowling

Wed 11 Sep 2013

Source: Brian Robins (June 29, 2013) http://www.theage.com.au/business/genetically-modified-crops-crucial-graincorp-chief-20130628-2p2rg.html viewed on 21/7/2013

With estimates that the global population will expand by 2.7 billion by 2050, …, pressure is mounting for farmers to lift yields by 50 per cent to keep abreast of growth in global demand.''Therefore yields have to double to around three tonnes a hectare, yet they've been flattening. 'This increase would have to occur against the backdrop of climate change and declining soil quality, ''which will make it more difficult to achieve this''.Alison Watkins, GrainCorp Chief Executive, June 2013)

Introduction

Director @CreatovateInnovation & International Business Consultancy

16 years Food & Beverage12 years Asia Pacific

Corporate experienceLion (National Foods)Foster’sFonterra

The Global Hunger Challenge

• The Green Revolution in 1960s lifted global food production by 150% over 50 years

• We need another Revolution, to feed 9.5 billion by 2050, increasing food production 75%.

• ANZ Bank estimated an additional $710b in Australian agri-exports to 2050 on Asia-led growth.

(Cornell, 2013)(Anthony Pratt, Global Food Forum, Melbourne, 18-April-2013)

http://www.youtube.com/watch?v=XdBPZ9we4rk&feature=youtu.be

Australia’s Hunger Challenge

9b by 2050

Global Irony - An Obesity Epidemic

Figure 1. Global Prevalence Rates of Undernourishment and Obesity

Source: FAO for prevalence of undernourishment; G. Stevens, G. Singh, G. Danaei, et al., "National, Regional and Global Trends in Adult Overweight and Obesity Prevalences," Population Health Metrics 10 (22): 1-16 (2012).

• Conservative projections predict: 2.2 billion adults might be overweight and 1.1 billion obese by 2030 (Kelly, et al, 2005)

Dairy CommoditiesSource: Dairy Australia Spot Price Report – Aug 13

International Market August 2013 •Early signs of a promising season in NZ and Australia, … have not dampened buying in a market that simply cannot get enough product. •The biggest mover in price terms has been WMP, up a further US$200/t this month largely on the strength of heavy Chinese demand, but also as South-east Asian buyers act to secure requirements in the absence of long-awaited price relief.

Higher Income diets more resource intensive

• Taste for protein and sugar

• As average earnings grow diets change and it puts pressure on soft commodities which will increase in price (Chunn, 2012, AFR)

Source: ANZ Bank (2012) ANZ Focus: Greener Pastures: The Global Soft Commodity Opportunity for Australia and New Zealand, P.2

Summary causes & shifts in global Food & Bev in future years Population growth

From 7b to 9.5b by 2050 Climate Change Growth in GDP in

developing world changing diet (more protein)

Limited food productivity growth

Fixed/reducing land supply Water shortages

Top 10 Global F&B Companies

Sources: Company websites & http://www.rediff.com/business/slide-show/slide-show-1-worlds-biggest-food-and-beverage-companies/20120416.htm retrieved on 23/9/12

Rank Company Est. 2012 US$bRevenue

Country of Origin

1 Nestle 1866 $98 Switzerland

2 Archer Daniels Midland Company

1923 $91 USA

3 Unilever 1930 $67(€51b) UK/Holland

4 PepsiCo 1965 $66 USA

5 Kraft 1903 $54 USA

6 Coca-Cola 1886 $48 USA

7 ABInBev 1852 AB1366 InBev

$40 USA

8 JBS 1953 $37 Brazil

9 Tyson 1935 $32 USA

10 Mars 1911 $30 USA

Top Global Retailers

Top Retailers Country of Origin Turnover 2012 US$b

1) Wal*Mart USA $444b

2) Tesco UK $112b

3) Carrefour France $101b

4) Costco US $99b

5) Kroger US $97b

6) Metro Germany $87b

7) Lidl Germany $84b

8) Aldi Germany $73b (2011)

17) Woolworths Australia $54b (2011)

18) Wesfarmers (Coles) Australia $52b (2011)

Sources: Company Websites http://www.insideretailing.com.au/IR/IRNews/Top-25-retailers-5718.aspx and http://www.deloitte.com/assets/Dcom-Australia/Local%20Assets/Documents/Industries/Consumer%20business/Deloitte_Global_Powers_of_Retail_2013.pdf Viewed on 6/5/2013

Global retailing is not easy

Number of Countries Operating•Grocery retailers

– Carrefour 38– Wal-Mart 15– Tesco 13

•Grocery suppliers– Coca-Cola 200 (approx.)– Danone 120– P&G 180

• Source: ‘Retail Doesn’t Cross Borders, HBR, Apr 12, p.109

Foreign Retailers Stumble in China

Within any particular country, such as China, what matters is local—not global—scale.Guidelines for Success1) In global retailing, depth will beat breadth.2) Be open to local joint ventures3) Go heavy on local adaptation4) Lean toward relying on local managers

 Anil Gupta and Haiyan Wang (2013)

Retailing is a Multi-Domestic Industry

Value Creation in Commodities

NZ$6.12 KgMS US$5/Kg HK$99/900gA$5.43 KgMS (0.40cPL) $A5.31/Kg A$15.05/Kg

Milk is Milk is Milk isn’t it?

SGD$19.40/800g SGD$18.45/800gY 27.90 / 1L P 410/900g A$18.30/Kg A$17.40/Kg A$4.80/L A$11.20/Kg

S$3.95 / 4x110ml

A$7.62

Raw fresh milk Commodity Ingredient Branded Consumer Good

Branded Consumer SegmentedFormat Value addLife Stage Functional Segmented value addFormat Value add

Processing value add

Anlene – Expert bone health brand

From bulk milk powder in bags to highly concentrated value added milks…

• First launched in Taiwan in 1991, • US$300 million sales (2008) ++• Anlene is now the established market leader

in over 10 countries across Asia, and the Middle East.

• Core target: women aged 40+, bone health is very relevant.

• Fonterra spent > US$50m on bone health research and US$15m directly on Anlene

• Funded & involved with 18 clinical trials relating to bone health.

Sources: New Nutrition Business, 2008 & http://www.fonterra.com/global/en/our+products/our+brands/anlene viewed on 22.7.13

Conclusion

The future is “uncertain” and certain We all need to eat and by 2050 that’s 9.5b of us! Consolidation of manufacturers (faster) and retailers (more

challenging) Internationalisation brings opportunity but has its challenges

Must glocalise It is a significant step up from the home market Australia has significant productivity challenges to

overcome in global food manufacturing & processing vs. NZ & Asia

Expect more competition, faster innovation and new rules and regulations to navigate

Global Food Challenge = Australia’s International Opportunity

References1. ANZ Bank (2012) http://www.anzbusiness.com/content/dam/anz-superregional/AgricultureInsightsGreenerPastures.pdf , Issue 4, retrieved on 21

July 2013.2. Chunn, Jeremy (2012) Hard returns from soft commodities PUBLISHED: 25 SEP 2012 16:01:00 | UPDATED: 27 NOV 2012 03:56:46;

AUSTRALIAN FINANCIAL REVIEW, http://www.afr.com/p/hard_returns_from_soft_commodities_XIKM0mM6eLppdpUT79EjiK viewed on 3.5.20133. Cornell, Andrew (2013) Our next boom. Australian Financial Review Magazine, 31 May, pp: 18-21.4. FAO for prevalence of undernourishment; G. Stevens, G. Singh, G. Danaei, et al., "National, Regional and Global Trends in Adult Overweight and

Obesity Prevalences," Population Health Metrics 10 (22): 1-16 (2012).5. T. Kelly, W. Yang, C-S. Chen, K. Reynolds, and J. He, "Global Burden of Obesity in 2005 and Projections for 2030 ," International Journal of

Obesity 32: 1431-37.6. Marcel Corstjens and Rajiv Lal (2012) Retail Doesn’t Cross Borders: Here’s Why and What to Do About It Harvard Business Review, April,

pp.: 104-111.7. Marcel Corstjens and Rajiv Lal (2012) Retail Doesn’t Cross Borders: Harvard Business Review, April, pp.: 104-111.8. K. Dunstan (2011) The Age “Our lost heritage is enough to drive a person to drink” http

://www.theage.com.au/opinion/society-and-culture/our-lost-heritage-is-enough-to-drive-a-person-to-drink-20110922-1kn4u.html#ixzz27GS2ENT5 viewed on 23.9.12

9. The Economist (2011) We are 7 billion http://www.economist.com/blogs/dailychart/2011/10/world-population retrieved on 23/9/1210.http://www.rediff.com/business/slide-show/slide-show-1-worlds-biggest-food-and-beverage-companies/20120416.htm retrieved on 23/9/1211.http://www.globalharvestinitiative.org/index.php/2012/06/notable-food-security-quotes-from-the-rio20-and-g20-conferences/ viewed on 1.10.1212.http://www.insideretailing.com.au/IR/IRNews/Top-25-retailers-5718.aspx and

http://www.deloitte.com/view/en_AU/au/industries/consumerbusiness/e2781160f279d210VgnVCM3000001c56f00aRCRD.htm viewed on 2.10.12 13.Nielsen top 100 brands report 2010 viewed on AFN website 26.9.12, Company Websites, Google14.Pratt, Anthony (2012) Global Food Forum, Melbourne, April

http://www.theaustralian.com.au/business/in-depth/australia-the-clean-green-food-bowl-of-asia/story-fni2wt8c-1226623265405 viewed on 23.4.1315.Robins, Brian (2013) GrainCorp Defends GM Crops, The Age, Business Day, June 28.

Bibliography

• Company websites: Major Retailers & Consumer Packaged Goods companies as listed• Dairy Australia, J. Droppet (2013) Spot Price International Commodity Report, August• http://siteresources.worldbank.org/EXTPOVERTY/Resources/336991-1311966520397/Food-Price-

Watch-March-2013.htm viewed on 23.4.13• http://www.theaustralian.com.au/business/in-depth/australia-the-clean-green-food-bowl-of-asia/s

tory-fni2wt8c-1226623265405 viewed on 23.4.13• Stevens et al., "National, Regional, and Global Trends.“

http://www.pophealthmetrics.com/content/10/1/22 viewed on 29.4.2013• http://www.fonterra.com/global/en/Our+Products/Our+Brands viewed on 22.7.2013• https://www.new-nutrition.com/ viewed on 22.7.2013•  Anil Gupta and Haiyan Wang (2013) Why Foreign Retailers Stumble in China, 6 September,

http://www.businessweek.com/articles/2013-09-06/why-foreign-retailers-stumble-in-china#r=hpt-fs viewed on 9.9.2013

Dermott Dowling

Director

T: +61 400 040 195

dermott@creatovate.com.au

www.creatovate.com.au