Dairy industry-uruguay-xxi-april-2010

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Dairy industry-uruguay-xxi-april-2010

  1. 1. April 2010Dairy IndustryInvestment Opportunities
  2. 2. WHY INVEST IN THE URUGUAYAN DAIRY INDUSTRY?Rising world demandChanges in world demographics (i.e., migration to cities), the rise in average income, lifestylechanges and population increases are some causes of the rise in food consumption andanimal proteins in particular. World milk production has been increasing at a slower ratethan world demand for dairy products over the past 10 years.Uruguay is one of the few countries that can supply this rising demandMilk production in the European Union (EU), India, the US and China isoriented to cover domestic market demands and the possibilities ofexpansion are limited or would be absorbed by domestic consumption.The Uruguayan dairy industry has significant competitive advantages andoffers investment opportunities both in primary and industrial productionphases. Uruguayan milk production accounts for 0.3% of total worldproduction, but Uruguay represents 2% of world exports. Like Australia andNew Zealand, Uruguay exports more than 60% of its milk production.Low costs and great potential for productivity improvementsUruguayan milk production has risen 3% annually over the past 10 years and 4% over thepast five. Dairy cows are fed mainly pastures and a moderate supply of concentrates. Pricesreceived by Uruguayan producers are lower than those received by New Zealand orAustralian producers (and lower than Argentine producers as well). Production costs areamong the lowest in the world.The expansion of Uruguayan agriculture increases the domestic availability of grains andsub-products for strategic supplementation.Manufacturing opportunities also exist in the dairy industry and include companyconsolidation, process and product innovation, and product and marketing mix.Practically unexploited world market offers great opportunitiesThe export mix consists mainly of powdered milk (53%) and cheeses (32%). Exporters focusprimarily on the Latin American market. Due to problems of scale and deficiencies inmarketing and product presentation, there is limited experience in supplying extra-regionalmarkets. Customized products and/or market niches have not yet been explored (e.g.,kosher, halal, flavored cheeses and organic products). This also occurs in the production ofingredients and nutraceuticals.2
  3. 3. Uruguay, a reliable country with preferential access to regional markets In Uruguay, foreign investors receive the same treatment as local investors. Funds may be freely transferred and profits may be freely repatriated. Uruguay belongs to Mercosur, a market of over 260 million inhabitants, and almost 400 million if we include other South American countries with which Mercosur has economic complementation agreements, such as Bolivia, Chile, Colombia, Ecuador, Peru and Venezuela. Uruguay has signedfree trade agreements with Mexico and Israel.Uruguay has a highly attractive investment and export promotion systemIn 2007, Uruguay adopted an investment promotion system that allows companies to usebetween 51% and 100% of investments as income tax payments under certain conditions.Benefits for all exports include: refund of VAT paid on supply purchases a tax exemption system (customs and other duties) for imports of supplies used in exported goods a pre-export financing systemUruguay has broad experience in the dairy industryUruguay has a long history in both milk production as well as the elaboration of dairyproducts. Over the past 20 years, milk production has doubled while income from exportshas increased ten-fold. The recent arrival of major foreign investments, such as New ZealandFarming Systems, Schreiber Foods and Bom Gosto, denotes a promising future for theindustry.Why invest in Uruguay?Significant comparative advantages based on: Well-irrigated land and temperate climate with rain averaging 1,200 mm distributed throughout the year. More than 80% of the surface area is arable and totals approximately 4 hectares per person (world average is 0.21 hectares per person). No natural catastrophes.3
  4. 4. Export-oriented primary production: Agriculture-based exports account for 65% of total exports. 7th largest beef exporter in the world (exports to 85 countries). 3rd in world ovine meat exports. 6th in world rice exports.The grain elaboration process offers a large availability of sub-products with potential foruse in supplementation: Soy production has risen 48% annually over the past 8 years. Corn and wheat production has risen 18% annually over the past 8 years.Dairy agroindustry data1: Dairy accounts for 9.3% of agriculture/ livestock gross production value and ranks third behind beef and rice production. Milk production: 1,582 million liters. Shipments to plants: 89% of production. 70% of plant shipments exported (to 90 countries). Dairy farms: 4,592. Surface area: 849,000 hectares (6% of total). Improved surface area: 58% of total. Number of dairy cows: 408,000. Exports: USD 442 million (7.3% of all exports; third in importance following beef and rice).1 Data from 2007-20084
  5. 5. 1. World dairy market Over the last 10 years, world production has risen 2.1% annually (see Figure 1). China has had the highest production growth and focuses on supplying its domestic market. Chinese milk production rose at a rate of 17% annually between 2002 and 2008. In turn, Uruguay ranks second in the same period with a growth rate of 4.1% (see Figure 1). Milk production in Australia andthe European Union, two major players in world trade, has declined.Figure 1: Milk production growth rates, 2002-2008 (selected countries)2 Average world growth rate = 2.1% 4,12% 4,02% 4% 3,29% 3,16% 2,04% 2,02% Annual acumulative growth 2% 0,97% 0,66% 0% -2% -0,57% -0,93% -2,79% -4% -6% -8% -7,69%Global exports of dairy products have risen over the last 10 years at around 4% annually.Nevertheless, just 7% of world milk production is exported as manufactured products. NewZealand and the EU account for 65% of world dairy trade, while Uruguay accounts for 2%(see Figure 2).2 Source: USDA – FAPRI (does not include China)5
  6. 6. Figure 2: World dairy share, 2008 (in milk equivalents)3 N. Zealand European 33% Union 32% Uruguay Australia Others 2% 11% 14% USA 8%Given the low volume of milk sold internationally, any changes to global demand or supplylead to magnified price changes. This market is estimated to be very volatile in the mediumand long term. Global demand for dairy products will continue to rise given the increasingrecognition of the nutritional value of milk and the improvement of living standards indeveloping countries. The reasons behind these long-term auspicious forecasts for the dairyindustry have not changed with the current global economic crisis. The Agricultural Outlook2008-2017 report by the OECD-FAO states that global dairy imports could increase between23% and 57% by 2017 as compared to the 2005-2007 average, and that developing countrieswill capitalize on the demand by nearly doubling exports (see Figure 3).3 Source: based on data from Dutch Dairy Commodity Board, FAO and USDA6
  7. 7. Figure 3: Estimates of increases in exports and imports of dairy products in 2017 vis à vis2005-2007 average 130% Powder milk (whole) Powder milk (skim) 110% Butter Cheese 90% 70% 50% 30% 10% -10% IMPORTS OECD Countries Developing Countries -30% EXPORTSThe continual growth in milk production in Uruguay is sustained by its solid internationalpositioning. With consumption equivalent to 219 liters per person per year (one of thehighest in the world), the entire increase in production is exported. Uruguay ranks second inexposure to international competition, as milk exports represent 65% of production (seeFigure 4).7
  8. 8. Figure 4: Dairy product exports (% of production in milk equivalent), 2006-2008 average4 80% 70% 60% 50% 40% 30% 20% 10% 0% USA EEUU Canada Canada Argentina Argentina EU Unión Australia Uruguay N. Zealand Australia Uruguay N. Zelanda EuropeaIn short, the medium and long-term perspectives are encouraging for countries with acompetitive dairy industry that will be able to increase their share in an expandinginternational dairy market. Milk production in Uruguay and its international position enableincreased business opportunities throughout the value chain. For example, a few years ago,a New Zealand company sponsored the creation of the Uruguay-based and Auckland-listedNew Zealand Farming Systems Uruguay (NZFSU). The objective of NZFSU is to capitalize onthe opportunities to acquire lands and develop and adapt the New Zealand milk productionsystem to the local environment (see Table 2).2. Why invest in the Uruguayan dairy industry?The following is a description of the value chain, to be used for the identification of businessopportunities.2.1. Industry descriptionThe average annual per person consumption of dairy products is 219 liters (in milkequivalents), which is similar to levels in more developed countries. The total value of thedomestic market is estimated at USD 400 million in terms of consumer prices (2008). Themain consumer product is liquid milk (240 million liters totaling approximately USD 120million), followed by cheeses and yogurt. The recent deregulation of the liquid milk market4 Source: FAO - USDA8
  9. 9. opens opportunities to small plants (see Appendix 1 for more information on the domesticliquid milk market).Exports of dairy products in dollar terms rose 9% annually between 1991 and 2009 and 19%during the 2002-2009 period (see Figure 5). In 2009, sales were USD 369 million, down fromthe record USD 433 million achieved in 2008.Figure 5: Dairy product exports (USD millions, FOB)5 2008 2007 2006 2005 Annual growth rate: 1991 - 2009 = 8.9% 2002 - 2009 = 19% 2004 2003 2002 50 100 150 200 250 300 350 400 450Currently, the dairy sector exports to more than 60 countries. Brazil and Venezuela accountfor 46% of export income, followed by Mexico at 20% and Cuba at 6% (see Figure 6).5 Source: Agriculture Statistics Bureau (DIEA), Office of Agriculture Programming and Policy (OPYPA) of theMinistry of Livestock, Agriculture and Fishing (MGAP).9
  10. 10. Figure 6: Major dairy export destinations, 2009 (in terms of value)6 GERMANY SENEGAL ALGERIA MOROCCO CHILE 4% 4% 3% 3% 3% OTHERS 6% SOUTH KOREA 5% CUBA 6% BRAZIL 25% MEXICO 20% VENEZUELA 21%Powdered milk (whole and skim) is the sector’s number one export product and accounts for44% of exports, followed by cheeses at 36%.Figure 7: Exports per product type, 2009 (value) MILK AND CREAM,NOT CONTAINING ADDED SUGAR WHEY SERUM BUTTER CHEESE AND CURD MILK AND CREAM WITH ADDITION OF SUGAR 0% 10% 20% 30% 40% 50%6 Source: Developed by Uruguay XXI based on Customs Bureau data.10
  11. 11. An analysis of export market destinations also shows a budding specialization with regard tothe type of products exported (see Figure 8).Figure 8: Powdered milk and cheese exports, 2008 (volume)7 35% 30% Milk powder Cheese 25% 20% 15% 10% 5% 32%19% 9% 29% 12%19% 11% 0% 0% 19% 8% 0% 0% BRAZIL VENEZUELA MEXICO CUBA SOUTH KOREA SENEGALVenezuela, Mexico, Cuba, Brazil, South Korea and Senegal account for 73% of powdered milkexports and 89% of cheese exports (see Table 1).The country’s largest dairy company, Conaprole, reports more than 50% of its income fromexports (see Table 1) and is followed by Inlacsa (Mexican shareholders), Ecolat (Venezuelanshareholders) and Bonprole (joint venture between Bongrain of France and Conaprole).Figure 9: Share of the top 10 dairy exporters, 20098 ECOLAT CLALDY 4% DULEI URUGUAY 3% 8% PETRA CALCAR PILI 6% SEYLINCO 2% 6% 6% INLACSA NIDERA 10% URUGUAYA 1% CONAPROLE 54%7 Source: Central Bank of Uruguay. Latest available data for 2008.8 Source: Data developed by Uruguay XXI based on Customs Bureau data.11
  12. 12. Table 1 Cheese exportsIn 2009, 37,000 tons of cheese were exported valued at USD 130 million. 60% of incomefrom cheese exports corresponds to semi-firm cheeses (between 36% and 46% humidity).Examples include Swiss style cheeses: Gruyerito, Danbo, Edam, Fontina and Gouda (Dutchorigin but Swiss style) (see Figure 10). Figure 10: Exports of cheese per type, share in dollar terms (2009) Other 7% Firm Soft 13% 20% Semi firm 60%13% of income from cheese exports corresponds to firm cheeses (Sbrinz, Parmesan, Goya,Emmental) and 20% to soft cheeses (Colonia, Cuartirolo). The remaining 7% includes fresh,grated and melted cheeses. Of these, mozzarella has the highest share (64%).OpportunitiesCheese consumption is increasing worldwide. The number of consumers is rising whiletraditional consumers are increasing their per capita consumption. For example, in theUnited States, some opportunities exist. Cheese consumption in the US has increased overthe past 30 years. The desire to consume new varieties of cheeses with different flavorsand textures in convenient packages has driven consumption growth. The “specialtycheeses” segment has been the main driver of per capita consumption.This is a market niche that needs to be exploited. The highest growing market niche islinked to ethnic groups, e.g., Latin-style cheeses. Another high growth area is the artisancheese segment. Although small, the potential for growth of this segment is high.The type of food given to the Uruguayan dairy rodeo, in addition to the low volume ofproduction and the character of some locally produced cheeses (Gruyerito and Coloniatypes) could mean new business opportunities. The intense yellow color of the cheeseproduced by cows fed with natural pastures is a positive attribute, given the consumerperceives it as a value added product.12
  13. 13. 3. Industrial sector in growth phaseThe industrial sector consists of 36 companies, which are mainly highly concentratedcooperatives that receive milk from producers (see Figure 11).Figure 11: Reception of milk in plants for the top 10 companies (2009)9 CALCAR 6% PILI S.A CLALDY INLACSA S.A ECOLAT 4% 8% URUGUAY 4% 7% DULEI S.A 2% BONPROLE S.A 2% GRANJA POCHA S.A CONAPROLE 1% 65% COLEME 1%Milk shipments to plants have risen 4% annually over the last 20 years, while industrialcapacity has grown at a slightly greater pace. The volume of milk for consumption has fallenin absolute terms, and the entire increase in shipments to plants has gone towards theelaboration of manufactured products.9 Source: Data developed by Uruguay XXI based on data from the Dairy Activity Financing and SustainableDevelopment Fund (FFDSAL).13
  14. 14. Figure 12: Reception of milk in industrial plants per destination (millions of liters) 10 Millions of liters Elaboration of products Liquid consumptionProcessing capacity is 8.4 million liters per day. Capacity increases have accompanied anincrease in shipments to plants and, above all, are able to supply springtime productionpeaks. The effective use of installed capacity is estimated at between 63% and 76% for thelast few years.11On average, production facilities could absorb an annual increase of 300 million liters (20%of 2008 milk shipments to plants) without having to increase installed capacity. This figure isslightly less than the annual production target set by New Zealand Farming Systems Uruguayfor 2014 (see Table 2). It should be noted that this is not the only new undertaking in theprimary level.The dairy industry accounts for approximately 6% of the grossproduction value of Uruguayan industry (OPYPA, 2008). Theindustry employed 4,600 people in 2008 and employment hasbeen rising over the past few years. The added value of thesector is estimated at 20% of the production value, which isbelow the industry average. Investments have generally beenmade to increase reception and primary processing capacity.Yet, there are no industrial sites devoted to competitively adding value to raw materials forproduction aimed at regional sales. As a result, value added products make up a small shareof the overall product mix. The most recent investments have been made by Claldy (whey plant), Inlacsa and Conaprole(a new powdered milk plant and improvements to other plants), Pili (whey nanofiltering anddrying plant) and General Mills (a casein and whey plant that waslater acquired by US-based Schreiber Foods in addition to the Duleicheese plant and the Belficor whey plant). This company, which has10 Source: Agriculture Statistics Bureau (DIEA) of the Ministry of Livestock, Agriculture and Fishing (MGAP).11 Note: Assuming constant daily plant shipments for the highest production month (generally October orNovember).14
  15. 15. invested USD 30 million in the purchase of these plants, plans to employ 100 people and toeventually produce 450,000 liters of milk per day. Several other local plants have beenacquired by foreign companies over the last six years, including Ecolat, Inlacsa, QueseríaHelvética and Frigorífico Modelo. Brazilian company Bom Gosto announced that it would begin to build its first plant in Uruguay in May with a USD 30 million investment. The plant will receive 600,000 liters of milk per day to produce powdered milk and butter. The production mix has not changed substantially as compared to 1998, except for the loss in the share of liquid products (UHT andacidified milk) and the increase of caseins and caseinates (see Figure 13).Figure 13: Production mix, 2008 (% in milk equivalent)12 Casein/ates Others 4% 1% Acidified 2% (UHT) 8% Butter / fat 3% Cheese 39% Milk powder 43%12 Source: Agriculture Statistics Bureau (DIEA) of the Ministry of Livestock, Agriculture and Fishing (MGAP).15
  16. 16. 4. Primary sector with major growth potential The notable growth of the Uruguayan dairy industrys supply chain over the last 20 years has positioned it among the top exporting countries. This performance has been sustained by the competitiveness of the chain’s primary link where milk is produced at low international prices. Total milk production was 1,750 million liters in 2009, including dairy farm production and consumption (Figure 14). In the same period, the number of producers fell 18%, from 5,522 to 4,507. This reflects a global trend in agriculture to the extent that market pressures and changes in business practices promote consolidationtowards larger establishments with better operational efficiencies.It should be noted that, on average, producers ship approximately 80% of their productionto industrial plants. The rest is used by the dairy farms themselves mainly for sub-productsand fresh milk. This group of around 1,000 artisan producers industrializes its ownproduction.Figure 14: Milk production and number of producers (millions of liters, number)13 Number of producers Millions of liters Production ProducersThe surface area used for milk production was around 1 million hectares in the 1991-2002period (see Figure 15). As of 2002, surface area was lost, mainly to rising agriculture uses.13 Source: Cattle Monitoring Bureau (DICOSE) of the Ministry of Livestock, Agriculture and Fishing (MGAP).16
  17. 17. Between 2002 and 2009, surface area for dairy production fell by 200,000 hectares to800,000. The number of cows has risen slightly since 2005 to 420,000 by 2009.As a result of these changes, average dairy farm surface areas have fallen 12% over the past10 years from a peak of 211 hectares in 1999 to 184 in 2008. The number of dairy cowsincreased 15% in the same period, from 78 to 89 on average per farm.Figure 15: Total surface area for dairy and number of cows14 1100 500 Area lechera Dairy production region Nº vacas of cows Number 1000 450 900 400 Thousands of hectares Thousands of cattle heads 800 350 700 300 600 500 250 2002 2003 2004 2005 2006 2007 2008 2009pThe growth in the average size of dairy farms has caused milk production to be veryconcentrated. Currently, farms larger than 500 hectares represent 5% of all dairyestablishments and account for 28% of milk production.The growth in production is based on a significant technological change. Per hectareproductivity rose 59% between 1998 and 2007. In this period, per cow productivity rose 21%and the number of dairy cows per hectare increased 26%. The number of milking cows withregard to total cows (a measure of the efficiency of dairy herd management) increased 7%.Nevertheless, the ratio between total cows and the dairy herd has remained constant(Appendix 1, Table 2).In Uruguay, dairy cows are pasture-fed. Productivity increases stem from the progressivesubstitution of improved, high-yield pastures for natural pastures. About 60% of the surfacearea for dairy cows consisted of improved pasture in 2009. The use of concentrates hasfallen, while the use of silos and silage for supplementation has increased.14 Cattle Monitoring Bureau (DICOSE) of the Ministry of Livestock, Agriculture and Fishing (MGAP).17
  18. 18. Although productivity is rising, it is worth noting that atcurrent levels, there is a significant technological gap in certainsized farms. This gap offers attractive investmentopportunities. As seen in Appendix 1, Table 3, there is asignificant per hectare productivity gap amongst the varioussizes of farms. Although the information available does notshow the causes for this gap, the most important factors arelikely due to a lack of scale, land ownership (mainly leases),scant investment and apprehensiveness toward newtechnologies.Although productivity is rising, it is worth noting that atcurrent levels, there is a significant technological gap in certainsized establishments. This gap offers attractive investmentopportunities. As seen in Appendix 1, Table 3, there is asignificant per hectare productivity gap amongst the various sizes of farms. Although theinformation available does not show the causes for this gap, the most important factors arelikely due to a lack of scale, land ownership (mainly leases), scant investment andapprehensiveness toward new technologies.Likewise, relative to dairy farms in other countries, productivity levels of Uruguayan dairyfarms are not high. For example, among other reasons, NZFSU decided to set up in Uruguaydue to the per hectare productivity gap between New Zealand and Uruguay. The companyidentified an opportunity for growth without needing an expansion of land.The genetic quality of Uruguayan herds is well recognized and heifers are exported to Peru,Brazil, Venezuela and recently China. For more than 30 years, semen from American andCanadian bulls has been used. Recently, semen from Australia and New Zealand has beenadded.Land prices are low in comparison to the region and the world (USD 2,300 per hectare onaverage), enabling more investments in dairy activities. In fact, one of the factors that NZFSUvalued positively with respect to its decision to invest in Uruguay was that the cost ofacquiring and developing was less than 30% of the cost in New Zealand. The abundance ofwater and the possibility of irrigating pastures to increase the production of dry material offer a new opportunity of technological change. Irrigation and the agricultural used of lands also offer the possibility of producing milk under confined conditions. To date, two undertakings may implement this method. No further information is available at this time, however. Milk production is concentrated mainly in the south of the country. The departments of Colonia, San José and Florida account for 84% of nationalproduction and 55% of dairy farms and have most of the county’s production facilities.18
  19. 19. Table 2 New Zealand Farming Systems Uruguay (NZFSU), a company consisting of New Zealand capital, currently operates 31 dairy farms and plans to have a total of 49 by 2012. The total investment to date has been morethan USD 200 million. NZFSU has been sponsored by PGG Wrightson Limited (PGGW), NewZealand’s largest agriculture supply company.“NZFSU was established to capitalize on the opportunities to acquire dairy farms in Uruguay,where the New Zealand production system, once adapted to the local conditions, canproduce results comparable to those achieved in New Zealand.”NZFSU considered that the acquisitionof establishments in Uruguay andtheir later development/conversionto the New Zealand system could bedone at a third of cost of acquiring adairy establishment in New Zealand.Milk production in New Zealand isperformed mainly with the intensiveuse of pastures (i.e., the production oflarge quantities of high quality forageper hectare and the widespread useof genetically superior cows). Thissystem could be applied on lands with great potential and low cost that, in accordance withNew Zealand standards, is being underutilized in dairy production.The “conversion” of dairy farms and lands acquired in Uruguay for the New Zealand systemwill be done by a series of measures including: seeding new species of improved pastures,applying phosphate fertilizers, optimizing subdivisions to monitor pasture growth andimprove yield, improving access to water for animals, increasing animal numbers to takeadvantage of the increase available forage, using animals with high genetic value andapplying phosphates and nitrogen to maintain grazing areas.As of June 2009, NZFSU operated 36,000 hectares with 53,000 heads of cattle, of which11,300 were milking cows. The project was in advanced stages with nearly 70% of theinvestment program in place.At the end of 2008 work began on the issuance of local market bonds and in July 2009,NZFSU successfully placed USD 30 million, which was acquired mainly by institutionalinvestors. With this financing, infrastructure, irrigation and electrification tasks will becompleted.19
  20. 20. APPENDIX 1.Table 1: The dairy industry in figures (2007/08) Surface area (hectares) 847,000 (4.5% of productive surface area) Dairy herd 744,000 cattle (408,000 cows) Average number of cows 63 Average surface area (hectares) 184 Average productivity per cow per year 3,877 liters Milk production 1,582 million liters Shipments to industrial plants 98% Dairy sector gross production value USD 466 million Dairy sector gross added value USD 855 million Cheese 40% Milk utilization Whole powdered milk 24% Liquid consumer milk 19% Skim powdered milk/ Butter 10% Powdered milk ………. 63,523 Cheese………………..... 53,737 Major industrialized projects (tons) Butter………….….…….. 21,312 Caseins…………….……... 1,409 USD 442 million (7.3% of national total) Exports Powdered milk………….48,378 tons Cheese………………………28,580 tons Butter………………….........9,799 tons UHT milk……..……7,174 million liters Percentage of exported milk 63% Venezuela 34% Mexico 24% Major markets (value) Cuba 11% Brazil 8% Per capita consumption 219 liters (equivalent) Total: 23,984 Labor force (direct employees) Primary production: 19,320 Processing: 4,66420
  21. 21. Table 2: Main technological indicators15 1998 2007 Per hectare productivity (liters/hectare) 1,175 2,370 Per cow productivity (liters/cow) 3,192 3,875 Cows per hectare 0.38 0.48 Milking cows/total cows ratio 65% 69% Cows/total dairy herd ratio 56% 55% Improved pastures (% of total area) 40% 60% Silo and hay supplement (kg/hectare) 471 1,239 Concentrate supplement (grams/liter) 150 138Table 3: Productivity per farm size (2007)16 Farm size Productivity Liters per cow Liters per hectare < 50 hectares 14.7 1,943 between 50 and 199 hectares 16.7 2,436 between 200 and 499 hectares 18.2 2,312 between 500 and 999 hectares 19.1 2,594 between 1,000 and 2,499 hectares 19.2 2,334 < 2,500 hectares 18.2 1,932 National average 18.0 2,37015 Based on data from the Agriculture Statistics Bureau (DIEA) of the Ministry of Livestock, Agriculture andFishing (MGAP).16 Based on data from the Agriculture Statistics Bureau (DIEA) of the Ministry of Livestock, Agriculture andFishing (MGAP).21
  22. 22. APPENDIX 2Institutions National Milk Institute (INALE), created by law 15,640, is the Ministry of Livestock, Agriculture and Fishing (MGAP)’s arm to establish public policy. National Agriculture and Livestock Research Institute (INIA) and School of Agronomy (University of the Republic) research technologies for the primary production phase. Animal Health Bureau of MGAP is in charge of sanitary policies. Technology Laboratory of Uruguay (LATU), a private organization with government participation, promotes technological development of industry and issues sanitary certificates for export. Dairy Industry Chamber of Uruguay (CILU) has practically all dairy product manufacturers as members. This institution is a member of the Pan-American Dairy Federation (FEPALE). Business associations: National Association of Milk Producers (CONAPROLE suppliers). Milk Producers Business Association. Milk Producers Chamber.APPENDIX 3Public policiesThe dairy industry is regulated by laws that seek to attend to the special characteristics ofthis agriculture sub-sector. The first, which dates back to 1935, is the law that created theConaprole cooperative. The latest is law 18,242 dated 27 December 2007 that implementsstandards regarding production, development and regulation of the dairy industry. The lawcreated the National Milk Institute (INALE), a non-state entity subject to private law thatfocuses on the dairy sector. The objective of INALE is to link public and private organizationsto create a new set of public policies for the sector to empower it and place it on a solidfooting for the future.As of today, any company can participate in the supply of milk. Producers receive a singleprice that is freely set for milk shipped to plants. The consumer price for liquid milk is set bythe Executive Branch. As a base price for the calculation, the national average price thatproducers receive is used. This is estimated by the Agriculture Ministry based on informationsupplied by dairy companies regarding prices paid for raw materials (milk) to producers.22
  23. 23. APPENDIX 4Strategic DiagnosticPrimary PhaseStrengths: Natural and human resources with very good aptitude for milk production. Extremely competitive based on low production costs and good milk quality. High integration. Continual productivity growth. Favorable attitude towards technological changes. High level of mechanization and use of bulk goods. Good public image. Government support for smaller producers.Opportunities: Consolidate foreign trade possibilities for dairy farms to ensure access at the best possible prices. Close the technological gap that exists for a large majority of dairy farmers to enable continued growth. Take advantage of spillover caused by agriculture expansion: new areas, sub-product uses. Implement irrigation systems to increase forage production and reduce risks of fluctuation.Industrial PhaseStrengths: Abundant raw materials of superior quality relative to the region at internationally low prices. Geographic concentration of milk supply that offers reduced collection costs and facilitates the use of bulks. Low seasonal variability that decreases capacity downtime. Strong supply chain integration. Export tradition.Opportunities: Development of differentiated products. Access to regional raw materials when health barriers expire. Creation and/or strengthening of non-traditional supply sources. Consolidation of numerous geographically concentrated small companies.23
  24. 24. Uruguay in a nutshell (2009)17Location South America, bordering Argentina and BrazilCapital Montevideo 2 176,215 km . 95% of the territory has soil suitable for agriculture andSurface area livestock activities.Population 3.3 millionPopulation growth 0.3% (annual)GDP per capita USD 9,458GDP per capita (PPP) USD 13,019Currency Uruguayan peso ($)Literacy rate 98%Life expectancy at birth 76 yearsForm of government Democratic republic with presidential systemPolitical divisions 19 departmentsTime zone GMT - 03:00Official language: SpanishLocation South America, bordering Argentina and BrazilMain Economic Indicators 2004-2009 2005 2006 2007 2008 2009Annual GDP growth rate 7.5% 4.3% 7.5% 8.5% 2.9%GDP (PPP), USD millions 32,048 34,602 38,235 42,543 43,551GDP, USD millions (current) 17,367 20,035 24,262 32,207 31,606Exports (USD millions), goods and services 5,085 5,787 6,933 9,292 8,551Imports (USD millions), goods and services 4,693 5,877 6,775 10,218 7,755Trade Balance (USD millions) 393 -90 158 -926 796Trade Balance (% of GDP) 2.3% -0.4% 0.7% -2.9% 2.5%Current Account Surplus / Deficit (USD millions) 42 -392 -220 -1,503 259Current Account Surplus / Deficit (% of GDP) 0.2% -2.0% -0.9% -4.7% -0,8%Overall fiscal balance (% of GDP) -0.4% -0.5% 0.0% -1.4% -2.2%Gross capital formation (% of GDP at current prices) 16.5% 18.6% 18.6% 20.2% 19.1%Gross national savings (% of GDP) 17.6% 16.9% 19.0% 17.9% 17.1%Foreign direct investment (USD millions) 847 1,493 1,329 1,840 1,139Foreign direct investment (% of GDP) 4.8% 7.5% 5.4% 5.7% 3.6%Exchange rate peso / USD 24.5 24.1 23.5 20.9 22.5Reserve assets (USD millions) 3,071 3,097 4,121 6,329 8,373Unemployment rate (% of EAP) 12.2% 11.4% 9.7% 7.9% 7.7%Annual inflation rate 4.9% 6.4% 8.5% 9.2% 7.5%Net foreign debt (USD millions) 8,938 9,157 9,662 8,254 11,12317 Note: GDP data was taken from the IMF; data on foreign trade, FDI, exchange rate, international reservesand foreign debt was provided by the Central Bank of Uruguay (BCU); population growth, literacy,unemployment and inflation data comes from the National Statistics Institute (INE).24
  25. 25. Investor Services About UsUruguay XXI is the country’s investment and export promotion agency. Among otherfunctions, Uruguay XXI provides no cost support to foreign investors, both those who areevaluating where to make investments as well as those currently operating in Uruguay. Our Investor ServicesUruguay XXI is the first point of contact for foreign investors. Services we provide include: Macroeconomic and industry information. Uruguay XXI regularly prepares reports on Uruguay and the various sectors of the economy. Tailored information. We prepare customized information to answer specific questions, such as macroeconomic data, labor market information, tax and legal aspects, incentive programs for investments, location and costs. Contact with key players. We provide contacts with government agencies, industry players, financial institutions, R&D centers and potential partners, among others. Promotion. We promote investment opportunities at strategic events, business missions and round tables. Facilitation of foreign investor visits, including organization of meetings with public authorities, suppliers, potential partners and business chambers. Publication of investment opportunities. On our website, we periodically publish information on investment projects by public entities and private companies.25

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