TRENDS & PROSPECTS IN THE BROILER INDUSTRY JOVEN P. DY. Senior Vice President Bounty Agro Ventures, Inc. WORLD BROILER

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1 TRENDS & PROSPECTS IN THE BROILER INDUSTRY JOVEN P. DY Senior Vice President Bounty Agro Ventures, Inc. WORLD BROILER 1

2 QUANTIFYING BROILER INPUTS 8.5 million GP - US$ million 350 million PS - US$ million 100 Million MT live bird >US$ 60 billion 200 million MT feed - > US$ 40 billion 130 million MT corn/wheat US$ billion 45 million ton SBM US$ 9 12 billion Animal health products US$ 2 billion > 8 billion kms. transport for feed and birds alone Source: G. Butland, New Delhi WORLD ANIMAL PROTEIN CONSUMPTION IN 2005 Million MT Pork Poultry Beef Eggs Although there are no official figures yet for 2006, preliminary USDA estimates show almost very small increase in consumption. Source: FAOSTAT 2

3 PER CAPITA CONSUMPTION OF MEAT IN SELECTED COUNTRIES, 2006 BROILER PORK BEEF UAE 60.3 US Kuwait 43.0 Hong Kong Malaysia 38.3 Saudi 36.0 Brazil Canada Taiwan Argentina Mexico Source: USDA FAS, Livestock and Poultry, October, 2006 EU - 25 Philippines Poultry Production & Consumption (in Million MT) 2005 WORLD S TOP PRODUCERS (f) WORLD S TOP CONSUMERS US China Brazil EU-25 Mexico India Thailand Japan World US China EU-25 Brazil Mexico India Russia Japan World Source: USDA FAS, Livestock and Poultry, October,

4 IMPORTS & EXPORT (in 000 MT) WORLD S TOP EXPORTERS WORLD S TOP IMPORTERS Brazil US EU-25 China Thailand Canada Argentina Total, World 2,739 2, ,791 2,500 2, ,470 2,550 2, ,737 Russia Japan EU 25 Saudi Mexico China HK Total, World 1, ,063 1, ,168 1, ,337 Source: USDA FAS, Livestock and Poultry, October, 2006 AVIAN INFLUENZA 4

5 PATH OF MIGRATORY BIRDS AVIAN INFLUENZA Nations with confirmed H5N1 cases North America Asia South America Africa Source: USDA 5

6 AVIAN INFLUENZA TIMELINE June SE Asia: Outbreaks start but unreported December Thailand: Zoo animals die; start of investigation January Vietnam, Japan, Thailand, Cambodia, Laos August Malaysia September Korea disease free January Malaysia declared disease free July Russia reports H5N1 October Turkey, Romania & Croatia affected December Ukraine and Kuwait report March Switzerland, Serbia, Poland, Albania, Cameroon, Myanmar, Denmark, Sweden, Afghanistan, Israel, Pakistan, Jordan, Czech Republic May Sudan, Cote d Ivoire 2003 February June/July Indonesia recurrence December: & China in China, S.Korea reports Indonesia, deaths in Thailand poultry and Vietnam October Brussels: H5N1 in eagles from Thailand WAVE 1 WAVE 2 Data from World Health Organization 2005 April August China Kazakhstan birds die and in Qinghai Mongolia Lake report H5N1 WAVE February Iraq, Nigeria, Azerbaijan, Bulgaria, Greece, Italy, Slovenia, Iran, Austria, Germany, Egypt, India, France, Hungary, Malaysia. Slovakia, Bosnia, Georgia, Niger April Burkina Faso, UK July Spain EFFECTS OF AI FELT WORLDWIDE... Principal transmission is still between animals and between animals and humans; pandemic is feared and countries are taking steps to prevent this Around 200 people have died since 2003 due to exposure to animals with the H5N1 virus Source: Milan Brambhatt, WB, Conference of Avian Influenza in Humans, June 29, 2006 Economic and social costs felt only in poultry sectors of the affected countries 6

7 EFFECTS OF AI FELT WORLDWIDE... Economic and social costs felt only in poultry sectors of the affected countries East / Southeast Asian countries hit by AI have thriving economies except Thailand where slowdown was noted; 40% in drop in Exports of Thailand Source: Milan Brambhatt, WB, Conference of Avian Influenza in Humans, June 29, 2006 ECONOMIC COSTS OF AI... Direct productions costs due to: losses on poultry due to disease and culling over 200 million poultry 15-20% decline in stocks in Vietnam and Thailand (effects a % decline in GDP) impact on poultry traders, feed mills (in EU, 40% decline in demand for poultry feeds), breeders additional losses due to lower egg production Indirect effects due to: shifts in market demands due to consumer fears trade restrictions to limit spread of AI Source: Milan Brambhatt, WB, Conference of Avian Influenza in Humans, June 29,

8 ECONOMIC COSTS OF AI... Prevention and control costs purchase of poultry vaccines and medication hiring workers for culling and clean up set up of surveillance and diagnostic systems compensation of poultry owners Cost to the community affected by AI unemployment decline in labor productivity cost of hospitalization and medical treatment effect on travel and tourism 20% decline in tourism, transportation and key services = decline in 2% world GDP = $800 B/year Source: Milan Brambhatt, WB, Conference of Avian Influenza in Humans, June 29, 2006 ASIAN POULTRY 8

9 Future Regional Production m 45% PRODUCTION (million metric tons) (million metric tons) 4.1m 2.8m 26% 17% m 13% m 43% Asia & Latin USA & Europe Middle Asia & Latin USA & Europe Middle Oceanic America Canada East & Oceanic America Canada East & Africa Africa Asia is by far the greatest opportunity for volume growth China 3.8 mmt (38%) India 2.5 mmt (154%) Latin America Brazil 2.2 mmt (25%) Mexico 0.7 mmt (34%) Europe Western Europe steady or declining Russia 0.7 mmt (68%) Source: Gordon Butland Poultry Production in Southeast Asia has been growing consistently throughout the years. 9

10 Poultry Systems in Selected South East Asian Countries, 2005 Country Integrator Large Commercial Small Commercial Backyard Cambodia < 1% < 1% 98% Indonesia 3.5% 21.2% 11.8% 63.4% Lao PDR 10% 90% Thailand 70% 20% 10% Vietnam 20% 15% 65% PHILIPPINE BROILER 10

11 CHICKEN PRODUCTION IN THE PHILIPPINES OTHERS - 3% LAYERS -17% COMMERCIAL 35% BROILER -67% NATIVE -13% INTEGRATOR 35% KEY INDUSTRY PLAYERS (Ranked According to Production Volume) Company 1. San Miguel Pure Foods 2. Tyson / Bounty Agro Ventures 3. Swift Foods 4. Vitarich Corporation 5. Universal Robina Corp. 6. Foster Foods Brand Magnolia, Supermanok Bounty Fresh Swift Cook s None Foster 11

12 Small is Beautiful Critical Units: 1. Contract Growing 2. Dressing Plant 3. Sales CHICKEN PRODUCTION IN THE PHILIPPINES, (BAI, PABI DATA) 1st Q 2nd Q 3rd Q 4th Q

13 CHICKEN IMPORTS (in MT), ,000 25,000 20,000 15,000 10,000 5, In 2006, industry players were given the chance to import leg quarters under a special importation agreement to alleviate short supply. MINIMUM ACCESS VOLUMES (MAV) continued implementation of Minimum Access Volume (MAV) mechanism beyond June 30, 2005 DA expected to maintain its final year MAV commitments until a new WTO agreement is reached volume under MAV (in-quota) shall continue to be exempt from special safeguards which has been in place since HS Code Poultry 0207 Corn 1005 Product Final Year Volume: 23,490 MT Frozen Chicken (Whole) Frozen Chicken (Cuts) Final Year Volume: 216,940 MT Corn Tariff Rates IN OUT 40% 40% 40% 40% 35% 50% 13

14 2006 COMPARATIVE LIVE & DRESSED CHICKEN PRICES J F M A M J J A S O N D Live Dressed PHILIPPINE ANIMAL PROTEIN CONSUMPTION 10% 3% 3% 2% 14% Fish/Seafd Pork Poultry Pr Meats Beef Others 68% Source: USDA FAS GAIN Report 14

15 CONSUMPTION OF CHICKEN MEAT IN THE PHILIPPINES BROILER PORK BEEF Philippines FOOD BUDGET SHARES FOR SELECTED COUNTRIES Country Bev & Tobacco Breads, Cereals Meat Fish Dairy Fats, Oils Fruits, Veg Other Food as % of Expenses Philippines Thailand US Brazil France Source: USDA FAS, 2006 BROILER PRODUCTION 15

16 INTEGRATED POULTRY PRODUCTION GRAND PARENT FARMS PARENT STOCK FARMS BROILER FARMS FEEDMILLS HATCHERIES ANIMAL HEALTH GROUP QUALITY ASSURANCE PROCESSING PLANTS PRODUCT DEVELOPMENT SALES & MARKETING THE PRODUCTION CYCLE Grand Parent Growing period is from day 1 to week 23 At week 24, they start to lay until week 68 Day old chicks from eggs that hatched are selected to get the hy brid male and female line for transfer to the Parent stock farms Parent Growing period is from day 1 to week 23 At week 24, they start to lay until week 68 Day old chicks from eggs that hatched are then transferred to the Contract Growing farms First egg laid GParent 162 days Hatching period 21 days Broiler First egg laid Parent 162 days Day old chicks become full grown broilers at an average of 35 days Hatching period 21 days DOC delivered to CG 366 days DOC to Broiler 35 days Processing Total Cycle 401 days Or 1 year, 1 month and 5 days Harvested broilers are brought to the dressing plant where they are processed Two major facilities support the farm operations namely the Hatchery and Feedmill Hatchery Feedmill Key support groups are : Animal Nutrition Diagnostic Lab Animal Health 16

17 BROILER PRODUCT FLOW INTEGRATORS Dressed Birds EXPORT Int l Mkt BREEDER FARMS HATCHING FACILITY CONTRACT GROWERS DRESSING PLANTS HRI Day-old chicks INDEPENDENT BREEDERS Day-old chicks COMMERCIAL GROWERS Grown Broilers VIAJEROS Grown Broilers Supermarkets Wet Market Distributors Small Retailers L O C A L M K T PHILIPPINE BROILER INDUSTRY DEVELOPMENT (TRENDS AND ISSUES) increased production by commercial sector competition among big supermarkets driving margins in the sector; although only about 10% of supply is sold in this channel industry remains highly viable with expanding line of value added chicken products (nuggets, hotdogs, chicken based ham, tocino, sausages, marinated chicken) 17

18 BROILER PRODUCTION PARAMETERS PARAMETER Feed Conversion Ratio Harvest Recovery % ALW, kg PHILIPPINE AVERAGE % STANDARDS % 1.55 * How big we grow birds depends on market preference. ELEMENTS OF BROILER COST Feed Cost Day old chick Cost Growers Fees Vaccines and Medication Operating Expenses (salaries, incentives of CG personnel) FEEDS REMAIN THE BIGGEST COST COMPONENT OF BROILER PRODUCTION Except for corn, 2006 RM prices are generally lower than 2005 prices 18

19 CORN Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Actual ' Actual ' Actual ' Actual ' INDIAN/CHINESE WHEAT Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Actual ' Actual ' Actual ' Actual '

20 ARGENTINE SOYA Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Actual ' Actual ' Actual ' Actual ' COCONUT OIL Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Actual ' Actual ' Actual ' Actual '

21 AI and the PHILIPPINES Detection of H5 avian influenza strain in a duck farm in Calumpit, Bulacan in July, 2005 Australian Animal Health Laboratory tests revealed that the strain is low pathogenic avian influenza (LPAI) Japan bans all poultry imports from the Philippines following announcement of detection of AI strain in Bulacan Philippines has remained AI free since the July, 2005 incident Japan lifted its ban on poultry products from the Philippines last May 24, 2006 Philippines has been granted clearance to pursue poultry exports in Japan starting June 7, 2006 THE BROILER INDUSTRY AND THE EXPORT MARKET BEFORE DETECTION OF THE LPAI STRAIN IN BULACAN, THE PHILIPPINES HAS BEEN EXPORTING TO JAPAN, KOREA AND THE MIDDLE EAST EXPORTS IN 000 KILOS COMPANY SMFI SFI TAVI ROYAL CARGO AGRI FRUIT TOTA ,615 JAN-JUN , ,394 21

22 CHALLENGES IN GEARING FOR BIGGER EXPORT BUSINESS No equivalency in accreditation systems (Halal) Set up of traceability system (for EU markets) Very few plants are GMP and HACCP accredited Inadequate disease surveillance system Inadequate meat inspection system Production costs remain high despite good efficiencies Lack of storage and freezing facilities High cost of freight and storage Development of export quality value added products NEXT STEPS IN AI PREVENTION Intensification of AI Protection Program Review of AIPP protocols Strengthening surveillance Domestic poultry Wild birds Imports and smuggling Humans Strengthening of Poultry Industry Coordination National Poultry Board Establishment of Indemnification Fund for AI Source: Ruben Pascual presentation for UA&P 22

23 BE A PARTNER OF THE BROILER INDUSTRY... contract grower contract breeder trucker / hauler toll partner hatchery, dressing plant, feed mill, processed meats vaccines and medicines supplier feed raw materials supplier trade distributor 23