Balancing Supply Chain Risk & Capitalisation 2012


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Balancing Supply Chain Risk & Capitalisation 2012

  1. 1. Balancing Supply Chain Risk and Capitalization Modernization in agriculture China Agribusiness and Food Safety Investment Summit 21 June 2012 BeijingA World of Food Solutions
  2. 2. China is today the world’s largest local protein market Pork Poultry Beef 6% of global production traded 12% of global production traded 12% of global production tradedProducer 50 MMT 12.6 MMT 5.6 MMTConsumer 50.05 MMT 12.5 MMT 5.5 MMT However, China is significantly land constrained which will require choices for resources A World of Food Solutions 2
  3. 3. Although consolidation is underway, majority of industry remains fragmentedChina’s pork slaughter mechanization Changes in # of designated pork slaughterSource: China Commerce Department Source: China Commerce Department120% 25,000100% 10% 20,000 80% 21% 15,000 70% 60% 10,000 21,000 40% 69% 5,000 20% 25% 3,000 5% 0% 0 2010 2020F 2010 2020F Slaughtering by hand Half mechanized Mechanized A World of Food Solutions 3
  4. 4. This fragmentation is largely due to China’s farm structureChina’s pig farm size by year China’s poultry farm size by yearSource: MOA Source: MOA Commercial farm Specialized farm Backyard farm (+3000 heads/farm) (50~3000 heads/farm) (1~49 heads/farm) A World of Food Solutions 4
  5. 5. Driven by sheer number of ppl in agricultureand thus limited land availability per personChina’s farm size by province (acres / person)Source: China Statistics Yearbook 2.0 1.8 1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0 北 南A World of Food Solutions 5
  6. 6. Common sights in China agricultureA World of Food Solutions 6
  7. 7. Demographics of rural China changing more than we realizeAge of China’s rural half China’s population breakdownSource: United Nations Source: China Statistics Bureau 713 million “rural” inhabitants Million inhabitants 1,600 1,400 1,200 1,000 36.2% 47.0% 55.4% 800 15.8% 14.8% 600 13.9% 400 48.0% 38.3% 30.7% 200 0 2000 2010 2020 Rural Unclassified urban Urban A World of Food Solutions 7
  8. 8. This trend will only expected to accelerateSocial security coverage – urban vs. migrantSource: NBS, 2011 Report on Development of China’s Migrant Population, National Population and FamilyPlanning Commission Agriculture laborers: zeroA World of Food Solutions 8
  9. 9. Shifting demand & farmers’ planting decisions Cultivated land and rural laborers Harvested acreage by crop Source: China Statistics Yearbook Source: China Statistics Bureau 158 350 156 340 154 330million hectares Policy driven million persons 152 320 150 310 148 300 146 290 144 280 142 270 Cultivated Land Rural Agriculture Labourers (right) A World of Food Solutions 9
  10. 10. Urban consumers are evolving at a faster pace than production agricultureAnd capturing the attention of China‟s rural youth Producers 40% of the labour force vs. Consumers 55% of GDP Trade Inventory Mgmt 1. Double farmers incomes by 2020 1. 2012 GDP growth of 8% 2. Grain self sufficiency 2. CPI at 4% (3% in „10) 3. Arable land no less than 120 mln hectares 3. Food safety Rural welfare Consumer welfare A World of Food Solutions
  11. 11. Urbanization will transform the supply chainChina’s urban population boom and coming changes in consumer channelsSource: United Nations, OSI Pork Poultry Beef Urban population by city size 2010 Million inhabitants 48.9MMT 15.7MMT 5.4MMT 2020 59.6MMT 21.0MMT 7.3MMTA World of Food Solutions 11
  12. 12. Clear direction, but flexible enforcement 3rd Five Year Plan 12th Five Year Plan 1966-1970 2011-2015 1.Urbanization rate reaching 51.5% Spare no efforts to develop 2.Value-added output of emerging strategic agriculture, solve problems industries accounting for 8% of GDP 3.Inviting of foreign investment in modern concerning peoples food… agriculture, high-tech, and environment protection industries 4.Moving coastal regions from being the "worlds In order to support agriculture, to factory" to hubs of research and development, enhance infrastructure, continue to high-end manufacturing, and the service sectorimprove production quality, increase 5.Increased momentum for large-scale hydropower plants in southwest China production variety and quantity, to 6.Length of high-speed railways reaching 45,000 build an economy of self-reliance, km and to develop transportation, 7.Length of highway networks reaching 83,000 km commerce, culture, education and 8.36 million new affordable apartments for low- scientific research income people 2015 annual meat output target Category Output (million Percentage (%) tons) among total Pork 53.6 63% Poultry 17.8 21% Beef 6.9 13.9% Mutton 5 Others 1.7 2.1% As per the National Meat Development Plan released by 12 the State Council under China’s 12th 5 Year Plan China has nearly 3,000 country-level districts A World of Food Solutions
  13. 13. Regulation in China has many complexities Australia & New China United States United Kingdom Singapore Zealand Ministry of Health USDA FSIS FSA FSANZ AVA State Food and Drug FDA DEFRA Administration State / local Ministry of Agriculture agencies The China challenge Ministry of Commerce General Administration ofQuality Supervision, Inspection, and Quarantine State Administration for Industry and Commerce Ministry of Science and Technology National Institute of Nutrition and Food Safety OSI Weihai A World of Food Solutions 13
  14. 14. Capital constraints in China agriculture Working capital advances by offtakers has become increasingly needed to fill the capital gap in order to secure raw materials The contract model has emerged as lower capital solution to supply chain development though not free of risk Govern- Guarantee Credit / bank ment company Finished birds Loan 60-80% of total capital 20-40% needs Farmer‟s Integrator/off-taker DOC, Feed, health product • Mortgage own • Leasing capital • Live birds stock collateral Security Insurance Veterinary Company Company A World of Food Solutions 14
  15. 15. Upstream agriculture finding other accesses to capital 2000 2010 Agriculture Agriculture 31% 43% Total: Total: USD35 .1bln USD174.8 bln Consumer Consumer 69% 57%Number of F&A listed companies in 2000 Consumer, Agriculture, 2010 133 187 0% 20% 40% 60% 80% 100% A World of Food Solutions 15
  16. 16. Perspectives from the fieldEnablers discouraging food safety investments Strict regulations with flexible enforcement at local level Compliance costs for various market participants Lack of capital in the supply chain Fragmented supply chain requires large distributor networks Underdeveloped monitoring systems at retail/delivery points Lack of risk adjusted price Lack of IP protection and property rightsWays to address Selection of customers, for all cuts Exports, particularly to Japan Higher efficiencies and top performance First differentiation, then lowest cost Branding thought differently A World of Food Solutions 16
  17. 17. “In China, for China” strategy from the startNearly 25 years of operationalexcellence in Greater China Heilongjiang Jilin Xinjiang Liaoning Meat Processing (Halal Certified) Inner Mongolia Vegetable Processing Tianjin Hebei Poultry Vertical Integration Shanxi Shandong (Halal certified) Qinghai Gansu Jiangsu Shaanxi Henan Meat Processing Tibet Anhui Shanghai Hubei Vegetable ProcessingOSI in Asia-Pacific Sichuan Zhejiang Jiangxi Hunan Guizhuo Fujian Poultry Vertical Integration Yunnan Taiwan Guangxi Guangdong Diversified Food Processing Vegetable Processing Vegetable Processing Hainan A World of Food Solutions 17
  18. 18. We believe poultry industry will lead the way Modern broiler farmsModern feedmillA World of Food Solutions 18
  19. 19. OSI Asia, Pacific, Middle East and Africa Brady Sidwell VP, Corp. Development & Strategy OSI Group One Island East 18 Westlands Road, Quarry Bay Hong Kong AustraliaA World of Food Solutions A World of Food Solutions 19