rural economic outlook conference stillwater, ok october...
TRANSCRIPT
Page 1
China’s ‘Art of the Deal’
Rural Economic Outlook Conference – Stillwater, OK October 21, 2016
Page 2
Why China?
No matter your age, discipline, location,
employer or interests, the urbanization of the
developing world, particularly in China, will
have a profound impact on what we do
especially in agriculture
Page 3
The opportunity for American agriculture
Page 4
VISION: building a bridge through entrepreneurship
www.sidwellfarms.com www.sidwellseed.com www.enterprisegrain.com
www.agventurescapital.com
www.sidwellstrategies.comwww.sidwellins.com
Strategic investments
Strategic risk management
Page 5
Source: China Agriculture Yearbook, USDA, FAPRI, FAO
China’s production of various food & agriculture products, rank and share (%)
China is (already) one of the world’s largest food & agriculture producers
5
Page 6
But dominated by a smallholder, labor intensive production base
6
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 North 南 South
Average farm sizeU.S.: 441 ac
Oklahoma: 431 ac
Page 7
The demographics of rural China changing more than we realize
7
China’s population breakdownSource: 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 halfSource: United Nations
36.2%
15.8%
48.0%
47.0%
14.8%
38.3%
55.4%
13.9%
30.7%
~700 million “rural” inhabitants
Page 8
More “urban” is changing the demand profile
8
Urban vs. Rural per capita consumption
Source: China Statistics Yearbook
Sizeable, more urban population consuming more protein, particularly dairy and beef
0 10 20 30
Milk
Beef
Poultry
Pork
Top 20% by income Bottom 20% by income
Urban per capita consumption by income
Source: China Statistics Yearbook
X 1.5
X 2.4
X 1.8
X 1.6
Page 9
What a difference a decade makes!
2003 Today如今
Richer (disposable income per capita)
$698 X5
Food & Bev (consumer expenditure)
$103 bln X10
China’s share of LV sales
50%!
Internet users @ 718 mln!
China’s focus is spurring a significant and sustainedprivate, domestic boom in “consumption”
Page 10
Redefining magnitude!
Total Population
总人口
Middle Class 中产阶级
Share
占总人口比率
2000 1,300,000 170M 15%
2010 1,400,000 276M 23%
2015 1,400,000 403M 31%
2020 1,400,000 700M 48%
Source: Euromonitor International, Brookings Institute
Estimated 27 million people entering China’s middle class each year
Page 11
70% of global growth in demand for meat will be in Asia
-5,000
-
5,000
10,000
15,000
20,000
25,000
Poultry Beef Pork
Market growth estimate in key meat markets 2010-2020
Source: Rabobank, FAO, FAPRI, OECD
Page 12
Government responding to socioeconomic priorities
12
Theme 1: Government by Law Instead of “rule by man” Theme 2: Balanced Development
Changing from “growth at all costs”
Theme 3: The New Four Modernizations Industrialization, urbanization, agricultural modernization, and
informatization
• Aimed at streamlining oversight and eliminating duplication
• Elevated to State Council level led by Premier Li Keqiang
• Now a factor in the State Council’s annual assessment of local
government performance
• Approach is to strengthen laws and increase severity and
publicity of punishments as perceived problem solving
Food safety reform at the top of the political agenda
From 9 agencies to 1…
Page 13
Made in China, for China
China49%
ROW51%
China49%ROW
51%
50 MMT
50.05 MMT
China10%
ROW90%
China10%
ROW90%
Pork6% of global production traded
Poultry12% of global production traded
Beef12% of global production traded
China17%
ROW83%
China17%
ROW83%
12.6 MMT
12.5 MMT
5.6 MMT
5.5 MMT
Prod
ucer
Co
nsu
mer
Page 14
Producers40% of the labour force
Consumers55% of GDPvs.
The rural / urban divide in China is one of the country’s biggest challenges
1. 2016 GDP growth est. 6.5-7%
2. Stabilize CPI
3. Pollution and Food safety
1. Double farmers incomes by 2020
2. Grain self sufficiency-ish
3. Arable land no less than 120 mln hectares
Rural welfare Consumer welfare
InventoryMgmt
Trade
Urban consumers are evolving at a faster pace than production agriculture
Page 15
Henan cow-calf operation
Page 16
Chongqing feedlot
Page 17
Fujian poultry farm
Page 18
Resource constraints limit local supply response
22% of the world’s population on 7% of the world’s arable land,
heavily concentrated along the east coast
Page 19
Agronomic suitability for rainfed corn
Page 20
Agronomic suitability for rainfed soybeans
Page 21
Agronomic suitability for rainfed sorghum
Page 22
Agronomic suitability of rainfed summer wheat
Page 23
Agronomic suitability of rainfed winter wheat
Page 24
Agronomic suitability of rainfed summer rye
Page 25
Agronomic suitability of rainfed winter rye
Page 26
Agronomic suitability of rainfed canola
Page 27
Agriculture (should be) a more strategic part of the conversation
Source: www.flora.huh.harvard.edu/china/images/floramap.gif
China is slightly smaller area than the United States, but > 4 X the population
Page 28
View by night
Page 29
Regional opportunity beyond China
Source: Rabobank analysis based on OECD-FAO-FAPRI estimates
Oilseeds Coarse grain Wheat Palm oil
Asia
Oceania
Africa
-60
-40
-20
0
-60
-40
-20
0
Europe EU-27
-20
0
20
-20
0
20
-40
-20
0
-40
-20
0
0
20
40
0
20
400
20
40
0
20
40
Malaysia-Indonesia
india
-200
india
-200 -20
0China
North America
0
20
40
60
South America60
-60
-40
-20
0
20
40
South America60
-60
-40
-20
0
20
40
60
-60
-40
-20
0
20
40
-60
-40
-20
0
20
40
Projected trade (mln MT)
2006 2016
2006 2016
2006 2016
2006 2016
2006 2016
2006 2016
Balance in 2006 (mln MT)
Balance in 2016 (mln MT)
Projected grain and oilseed trade balance and trade flows
Size of arrow indicative of traded volume
Asian trade balance
Source: Rabobank
Grain Oilseeds
China 2.5 -19.3
Indonesia -7 -1.2
Japan -25.8 -7.5
Korea -12.8 -1.7
Malaysia -5.5 -1
Phil’pines -3.9 -0.4
Taiwan -6.6 -2.4
Thailand 8.1 -1.1
Vietnam 2.6 0.1
Total -48.4 -34.5
Page 30
OSI Group: Nearly 30 years investing in China’s priorities
30
CHINA
TAIWAN
Hebei
Shanghai
Yunnan
Guangdong
Shandong
Fujian
Henan
Beef, Chicken, Pork, Fish, etc
VegetablesINDIA
Poultry Vertical Integration
OSI’s global footprint
Europe APMEA Americas
Weihai
OSI Group 福喜集团• Privately held
• Chicago based
• Est. in 1909
• 16 countries
• 54 processing facilities
• 20,000 employees
OSI China 福喜中国• 6,600 employees in China
• 10 facilities
• 3 poultry vertical integrations
producing 300 mln birds per
Page 31
OSI Weihai Poultry
OSI Weihai Feedmill 饲料厂
OSI Weihai Further Processing Plant 深加工厂
OSI Weihai Poultry Slaughter Plant 屠宰厂
OSI Weihai Broiler Farm 肉鸡场
Page 32
SunOSI Poultry Development Company
SunOSI Fujian Feedmill饲料厂
SunOSI Fujian Broiler Farm (under
construction) 肉鸡场（正在建设中）
SunOSI Fujian Poultry Slaughter Plant 屠宰厂
SunOSI Fujian Broiler Farm (under
construction) 肉鸡场（正在建设中）
Page 33
DaOSI Poultry Development Company
DaOSI Henan Feedmill饲料厂
OSI Henan Further Processing Plant 深加工厂
DaOSI Henan Poultry Slaughter Plant 屠宰厂
Page 34
Chinese Idiom: 杀鸡儆猴 (shā jī jǐng hóu)
Shanghai Regulators Fine OSI and Unit More
Than $3.6 Million in Meat ScandalU.S. meat supplier and its unit also face being banned from
China’s food industry for two to five yearsWall Street Journal – October 3, 2016
China imposes record fine of approx.
US$975 million (€863 million) under its
Anti-Monopoly LawFebruary 14, 2015
China Fines Foreign Auto Makers for Price-FixingLocal Arms of Audi and Chrysler Penalized by Pricing RegulatorsSeptember 12, 2014
Chinese police detain, assault Hong
Kong journalists for covering protestSeptember 14, 2016
Page 35
The rule vs. the exception
Chinese Acquisitions of Foreign Firms Already at Full-Year RecordMay 10, 2016
China’s New Hope hunts for $1bn food, agricultural assetsOctober 7, 2016
New Hope Group chairman and billionaire founder Liu Yonghao, in Sydney this week to open his
company’s first Australian office, plans to invest more than $1 billion in Australia’s farm, food
processing and property sectors in the next three years.
China is now buying more companies than the USOctober 5, 2016 – South China Morning Post
Page 36
Agriculture becoming a key target sector for acquisitions
36
Page 37
Global reshuffling in the agrochemical and seed sectors
Based on 2014 revenue; Monsanto figures for fiscal year through Aug. 2015
Source: Company reports, Bloomberg
Page 38
Trade vs. investment a moving target for policy makers
Australian Magnate, Chinese Developer Team Up on Bid for
Cattle-Ranch Empire
The deal is subject to approval by Treasurer Scott Morrison, who
earlier this year blocked another offer for the cattle-ranch empireOctober 9, 2016
Australia to Reject Chinese Deal to Buy Cattle Ranch Empire
S. Kidman controls pastoral leases that straddle three Australia statesApril 29, 2016
ChemChina-Syngenta $43 Billion Deal Approved by U.S. Security PanelAugust 22, 2016
China Will Resume Limited Imports of U.S. Beef After a
Ban Long Seen as PoliticalSeptember 23, 2016
P.R.C. MOU signed Friday for 5.1 mmt of U.S. beans and ongoing
P.R.C. interest in U.S. Nov cargoesOctober 14, 2016
Page 39
Increased communication critical to managing relationship
Page 41
What does this mean for agriculture in the U.S. and Oklahoma?
• The pace and scale of Chinese investment in agriculture globally will increase
• Interest in food and agriculture companies that service the U.S. industry will
increasingly be targeted, both American and foreign-owned
• As our borders open further to trade, so to will the pursuit of Chinese
companies to own and develop partnerships in our local supply chains
• Growing our export business while “protecting” strategic assets will thus
become increasingly complicated, especially for policy makers
• A partnership or minority interest approach may be an effective “middle
ground” to managing the conflict while realizing the opportunity
• Localizing State-to-State and Company-to-Company relationships will (continue
to) prove more productive than piggybacking efforts at the federal level
• Leveraging our combined State’s relationships through closer cooperation
among our universities, our State agencies and our local companies has
exciting possibilities!
Page 42
Bridging the gap
Page 43
Contact details
Brady Sidwell
President / Principal
Enterprise Grain Company
Sidwell Seed
Sidwell Strategies
AgVentures Capital
209 2nd Street
P.O. Box 68
Kremlin, OK 73753
Tel: (580) 874-2286