KAZAGRO. National Management Holding. Analytical review of poultry meat market

Transcription

1 KAZAGRO National Management Holding Analytical review of poultry meat market 1

2 Content pages INTRODUCTION 3 1. FOREIGN MARKET World market of poultry meat World consumption of poultry meat Prognosis for exports and imports Market of the Russian Federation 8 2. DOMESTIC MARKET Poultry stock, production of poultry meat Imports and exports of poultry meat Food supply, consumption of poultry meat STATE SUPPORT EXPERT EVALUATION 19 2

3 INTRODUCTION The present analytical review of poultry meat is prepared by KazAgro National management holding JSC and is destined for informing of potential investors, financial institutions, society about current situation and perspectives of Kazakhstan market of poultry meat in whole. The review presents the basic statistic data, outlines the key factors determining from the standpoint of KazAgro Holding the state of affairs in poultry meat industry and influencing investment potential of the industry. The more detailed analysis of poultry meat market and other industries of agribusiness complex of Kazakhstan may be prepared on the paid basis by Kazagromarketing JSC. 3

4 1. FOREIGN MARKET 1.1 World market of poultry meat. Poultry meat production is one of the most dynamic sectors of world agriculture, and poultry production is one of the fastest growing trends in the food industry. The growth of poultry meat production in the world is influenced by a number of factors: intensive methods of production, centralization and vertical integration of industrial production, profitability, constantly growing consumer demand and others. Poultry products are popular on all continents of the world, its consumption is not interfered by religious or ritual barriers, and poultry meat is the most affordable source of protein for all segments of the population. According to the report of the US Department of Agriculture (USDA) the volume of world poultry meat production in 2013 amounted to 85.4 million tons, increasing by 1.1 million tons compared with the previous year The average annual growth of world production of poultry meat in the period was 2.4%. Diagram 1. World production of poultry meat, thousand tons prognosis Prognosis *- according to USDA as of October 2014 The main producers of poultry meat in the world are the United States, which accounts for 19-20% of the world production of poultry meat (in 2013 the volume of poultry meat production in the United States amounted to about 17 million tons), followed by China, the share of production is 14 16%, Brazil 13-15%, the European Union is about 12%. According to the USDA forecast for global poultry meat production for is presented upward by 1,5-1,3 million tons respectively, at that it is projected decrease in production in China by 350 thousand tons. 4

5 Table 1. Prognosis of world production of poultry meat by countries, thousand tons No. Production prognosis prognosis 1 USA China Brazil European Union India Russia Mexico Argentina Turkey Thailand Indonesia Others Total according to USDA as of October World consumption of poultry meat. The share of global consumption of poultry meat in the total meat consumption takes 34.2%. According to the results of 2013 the volume of world consumption of poultry meat amounted to 83.0 million tons, compared with the previous year, consumption increased by 1.2 million tons. Diagram 2. World consumption of poultry meat, thousand tons prognosis Prognosis - according to USDA as of October 2014 According to the forecasts of the USDA world consumption of poultry meat in 2014 will increase by 1.1 million tons, and in 2015 will increase by 1.0 million tons more and will be 85.1 million tons. Dynamics of poultry meat consumption each year is steadily increasing, so for the period , the average annual growth in global consumption of poultry meat was 2.5%. 5

6 Table 2. World consumption of poultry meat by countries, thousand tons Потребление prognosis prognosis 1 USA China European Union Brazil India Mexico Russia Japan Argentina RSA Indonesia Others Total according to USDA as of October 2014 The main consumers of poultry meat in the world are the United States, China, European Union, Brazil, which accounts for about 54% of world consumption of poultry meat. At the same time a significant reduction in the consumption of poultry meat is expected in China, due to the fact that Chinese poultry farmers have faced significant financial losses due to avian influenza outbreaks. Along with it, and numerous scandals involving food safety in the country, have also influenced the consumption of poultry meat. According to the forecast of the USDA, the demand for poultry meat in China in will remain at 12.8 million tons. 1.3 Prognosis of exports and imports World exports of poultry meat in 2013 amounted to 10.2 million tons. Compared to the last year 2012 the total world exports of poultry meat increased by 1.3% or thousand tons. According to the forecasts of the USDA for , exports of poultry meat will increase to 10,5-10,9 million tons. At that the decrease in Brazil is projected by 0.9 million tons, in Mexico and in India by 0.3 million tons. Diagram 3. Volumes of poultry meat exports in the world, thousand tons prognosis - according to USDA as of October Prognosis 6

7 Despite the reduction in forecast evaluation, Brazil ranks the first place in the world in terms of exports of poultry meat. Diagram 4. Main world exporters and importers of poultry meat in 2013, thousand tons By results of 2013 the share of Brazilian chicken in the volume of world exports of poultry meat amounted to 34%. Also a major exporter of poultry meat is the United States, which accounts for about 33% of world exports of poultry meat. Table 3. Volumes of poultry meat exports by countries, thousand tons Exports prognosis prognosis 1 Brazil USA European Union Thailand China Turkey Argentina Ukraine Canada Belarus Chili Others Total according to USDA as of October 2014 Volumes of world imports of poultry meat in 2013 amounted to 8.6 million tons. Compared to the previous year the world imports increased slightly to 82.0 thousand tons. In its report, the USDA slightly reduced the predictive assessment of world imports of poultry meat in 2014 by 69.0 thousand tons to thousand tons. 7

8 Diagram 5. Volumes of world poultry meat imports, thousand tons according to USDA as of October prognosis Prognosis By results of 2013 the main importers of poultry meat are Japan, Saudi Arabia, Mexico, Iraq, the European Union and Russia. At the same time Russia mainly imports cheap chicken legs when Japan buys mainly higher quality chicken meat without bones. Table 4. Volumes of poultry meat imports in the world by countries, thousand tons Imports prognosi s 2015 prognosi s 1 Japan Iraq Saudi Arabia Mexico European Union Russia Venezuela RSA Angola Hong Kong USA Others Total according to USDA as of October Market of the Russian Federation According to the Federal State Statistics Service of the Russian Federation poultry population in 2013 amounted to million heads. Compared with the previous year poultry stock has decreased by 0.1% or 0.6 million heads. The main share of poultry stock 79.9% is located in the agricultural organizations, and the rest 18.5% - in households and 1.6% - in the peasant (farm) households. 8

9 600,0 500,0 400,0 300,0 200,0 100,0 0,0 Diagram 6. Poultry stock in RF, million heads 389,0 404,5 - based on Rosstat information According to the Federal State Statistics Service of the Russian Federation, the volume of poultry meat production in 2013 amounted to 3,831 thousand tons. Average annual growth for the period amounted to thousand tons. Diagram 7. Volumes of poultry meat production in RF, thousand tons based on Rosstat information 433,7 449,3 The main share in the structure of the Russian market of poultry meat production is taken by chilled meat (70%). The difference in prices for chilled poultry of the Russian-made and imported frozen meat reaches about 30%. A large proportion of poultry meat production accounts for Central, Volga and Southern Federal Districts - about 60% of the total volume of all-russian raw material. In the structure of consumption of meat products by the Russians the poultry takes about 60% ( ). Thus, for one Russian to 45 kg of poultry meat per year is accounted. Also it should be accounted that now there is a decline of pork supply, its replacement by chicken, turkey, duck and goose, etc. Imports of poultry meat (fresh and frozen) in Russia in 2013 amounted to thousand tons. Including from abroad thousand tons, CIS thousand tons. The main exporters of poultry meat to Russia are: Belarus thousand tons per year, Brazil thousand tons per year, the United States thousand tons per year (from the import of products is prohibited, including poultry meat). 473,4 495,2 494,

10 The largest segment of the Russian market of imported meat in natural units long before is the segment of poultry meat. From 2008 to 2012, its share in the Russian market increased from 35% to 39%. It is expected that the trend will continue in the future. Table 5. Structure of imports in RF by meat kinds Market segmentation Poultry meat 35% 37% 36% 37% 39% Pork 31% 31% 33% 33% 33% Beef 28% 26% 26% 24% 23% Others 6% 6% 6% 6% 6% Source: Tebiz Group, FAOSTAT 2012 Exports of poultry meat by results of 2013 amounted to 53.8 thousand tons, compared with the previous year exports of poultry meat increased in 2.1 times. The main importers of Russian poultry meat are Kazakhstan (which accounts for more than half of the exported poultry meat - about 54% of the total) and Hong Kong (27%). According to Rosstat, the average consumer price for poultry meat by results of 2013 amounted to 107 rubles per kilogram. At the same time, there is a decrease compared to the same period of the previous year from 117 to 107 rubles. Diagram 8. Dynamics of consumer prices for poultry meat ,94 103,01 105,14 103, ,35 48, ,26 107, average consumerprices for poultry meat, rubles per 1 kg As of November 1, 2014 average consumer prices for poultry meat in Russia amounted to rubles per kilogram. 10

11 2. DOMESTIC MARKET 2.1 Poultry stock, production of poultry meat With the support of the state in the country in the field of agribusiness there is an increase in the number of poultry. By results of 2013, in the country there were 34.2 million heads of poultry, which is almost two times lower than in 1990, when the poultry population was about 60 million heads. According to the Committee for Statistics of the Ministry of national economy of RK, the largest population of poultry in the republic is in Almaty region million heads (28.4% of the total number of poultry in the republic). The second result has Kostanay region, where the poultry population is 4.3 million heads (12.5%), North- Kazakhstan region million heads (10.6%), East Kazakhstan region - 3, 3 million heads (9.6%), Akmola region million heads (9.5%), Karaganda region million heads (9.5%), in the other regions of Kazakhstan it is even less. Diagram 9. Poultry stock in RK, million heads 70,0 60,0 50,0 40,0 30,0 20,0 10,0 0,0 59,9 29,5 30,1 Source: the Committee on Statistics of the Ministry of national economy of RK 32,7 32,8 32,9 33,5 34, At the same time 62.7% of the total number of poultry is located in agricultural enterprises, the remaining 36.3% in population households (compared with 2012, the number of poultry in households decreased by 4.9%) and 1% in peasant (farm) households. Table 6. Poultry stock in RK (by households), at the end of the year, thousand heads Agricultural enterprises , , , , , , ,5 Peasant of farm households 342,0 278,3 290,0 299,7 304,8 328,8 353,6 Population households , , , , , , ,1 All households , , , , , , ,1 Source: the Committee on Statistics of the Ministry of national economy of RK 11

12 The main producers of poultry meat in the country are agricultural enterprises, by results of 2013 the share in production was 94.4% or thousand tons. Table 7. Production of poultry meat in RK (by households), thousand tons Agricultural enterprises 55,7 55,7 70,3 94,0 94,4 115,7 128,3 Peasant of farm households 0,2 0,2 0,2 0,1 0,1 0,1 0,2 Population households 8,4 9,4 9,0 8,8 7,5 7,2 7,4 All households 64,3 65,3 79,5 103,0 102,0 123,1 135,8 Source: the Committee on Statistics of the Ministry of national economy of RK In 2013, the volume of poultry meat production in Kazakhstan increased compared with 2012 by 10.5% and amounted to thousand tons, compared with 2010 (103.0 thousand tons) growth of poultry meat production amounted to about 32%. The average annual growth of poultry meat production in the period , was 14.4 thousand tons. Diagram 10. Production of poultry meat in RK, thousand tons 150,0 103,0 102,0 100,0 79,5 64,3 65,3 50,0 123,1 135,8 0, Source: the Committee on Statistics of the Ministry of national economy of RK The main regions for the production of poultry meat are the Almaty region, the share of which occupies more than half of the total production in the country thousand tons (54.4%) and East Kazakhstan region thousand tons (23, 5%) and Karaganda region thousand tons (6.5%). The average live weight of one poultry head in Kazakhstan is 2.2 kg, while in Pavlodar region average weight per head reaches up to 2.5 kg, in South-Kazakhstan region it reaches 3.6 kg, in Atyrau region - to 7.9 kg (turkey). 2.2 Imports and exports of poultry meat Data of customs statistics shows an increase in the imports of poultry meat in the period from 2009 to The volume of imports on the market increased in 1.8 times and amounted to thousand tons in 2012 against thousand tons in The share of imports (the capacity of the market) for the period increased from 58% to 61%. It should be noted that the current upward trend in imports of poultry meat witnesses the growth of consumption volume on the domestic market. 12

13 Diagram 11. Imports and exports of poultry meat in RK for 2013, tons Source: Customs committee of the Ministry of finance of RK In 2013, poultry meat imports decreased by 11.6% and amounted to thousand tons. Including within the Customs Union poultry meat imports totaled 27.2 thousand tons. While the share of imports (by market capacity) decreased from 61% to 56%. The main suppliers of poultry meat are the United States, which accounts for 70% of total imports, or thousand tons, Russia thousand tons (15%), Ukraine thousand tons (11%). Diagram 12. Capacity of poultry meat market in RK, thousand tons Source: the Committee on Statistics of the Ministry of national economy of RK Exports of poultry meat by results of 2013 amounted to 2.3 thousand tons, increasing for nearly 60% compared with Since 2011, there is a dynamic growth in exports of poultry meat, which is connected with the activation of the export activity of the enterprise Ordabasy-kus in South-Kazakhstan region, specializing in the production of turkey meat. In 2013, almost the entire volume of the exported poultry meat in the country 99% or tons was delivered to Russia. The remaining 19 tons were sent to Tajikistan. 13

14 Diagram 13. Exports of poultry meat in RK, tons Source: Customs committee of the Ministry of finance of RK, Agency for statistics of RK, Kazagromarketing JSC 2.3 Forage supply, consumption of poultry meat Despite the fact that Kazakhstan is the world's large grain producer and one of the world's largest exporters of flour, its forage industry is underdeveloped. Forage produced by enterprises does not satisfy the requirements in terms of quality to requirements of existing poultry plants. Most poultry farms produce their own feed, because of differences in the formulation of poultry feeding on plants. Despite the growing production of poultry meat in the country, its consumption is increasing much more rapidly. The average annual growth of poultry meat production in the period was 14.4 thousand tons, when the growth of poultry consumption was 29.0 thousand tons per year. By results of 2013 sales of poultry meat in the domestic market amounted to thousand tons, decreasing by 3.3% compared with the previous year. While the share of imports accounted for 56% or thousand tons. According to statistics data for 2013 consumption of poultry meat per capita in the country was 3.9 kg per year, but in the structure of the food basket, according to the minimum standards of consumption of basic food for the population of the Republic of Kazakhstan, including meat, poultry consumption is 5 kg per year. Thus, the actual consumption is below the minimum target of 22%. Diagram 14. Consumption of meat and meat products per capita in Source: the Committee on Statistics of the Ministry of national economy of RK Attachment 1 to the Rules of calculations of the subsistence minimum Minimum standards of consumption of basic foods for different social groups of the Republic of Kazakhstan ,2 9 3,5 6,3 6,9 5 3,9 3,2 3,7 3 Beef Pork Mutton Poultry Horse meat Cooked sausage Sub products of the 1 st category Minimum food consumption standards, kg/year/person (liver) Consuption of food by population in 2013, kg/year/person 2,4 0,4 0,7 14

15 Average retail prices for poultry meat in the Republic of Kazakhstan for the period from 2010 to October 2014 show a stable growth trend. During this period, the retail price in the markets of the country increased by 29.3%. According to Kazagromarketing JSC retail price per kilogram of poultry as of the month of October 2014 amounted to 521 tenge. Average annual rate of price increase for the period (October) was 7.5%. Diagram 15. Average annual retail prices for poultry meat in RK, kg/tenge Chinken (kg) Chinken leg (kg) Source: Kazagromarketing JSC 15

16 3. STATE SUPPORT OF INDUSTRY AND PROGRAMS FINANCED BY KAZAGRO HOLDING The main objectives of state policy in the poultry breeding industry are to develop own poultry production and import substitution. At the moment, the policy of state regulation of poultry industry development is implemented in the following forms: 1) State support in form of subsidies aimed at cheaper cost of forage and purchase of breeding eggs, hatching eggs and breeding day-old chickens; 2) Use of financial instruments supporting terms for renewal of main fixed assets equipment; 3) Special tax regime comprising 70% of the VAT exemption for agricultural enterprises of the industry; 4) Training of qualified personnel, the expansion of training under Bolashak program, provision of free courses for professional training, advanced training under program Employment In order to create conditions for the growth of production and reduce dependence on imports of poultry products, the Ministry of Agriculture of the Republic of Kazakhstan developed master plan for the development of the poultry industry for To achieve the objective the following tasks will be solved: Modernization of existing capacities to transfer for production of cooled poultry meat; Poultry meat production increase based on construction of new and expansion of existing poultry plants; Modernization of poultry plant of egg direction to increase production of egg powder; Increase of economic availability of breeding products and poultry production. In addition to the existing mechanisms of state support in the form of subsidies for the production of 1 kg, for the purchase of breeding eggs, hatching eggs and breeding day-old chicks, as well as exemptions from VAT implementation of objectives set out in the Master Plan will be carried out through the provision by the state of investment subsidies needed to reduce capital intensity and payback period of investment projects in the construction and modernization of poultry farms. Thus, the investment subsidy in 20% of the cost of investment project will be issued for construction of new poultry plants with production capacity of 20 thousand tons to 50 thousand tons of poultry meat a year, and the expansion of existing poultry plants to 26.8 thousand tons, and in amount of 20% for modernization of existing poultry plants to transfer to the production of chilled poultry meat. According to the calculations of the Master Plan in 2020 the proportion of chilled meat in the structure of poultry meat market will be 85%. 16

17 Diagram 16. Increase of chilled poultry meat production up to 2020, thousand tons 120% 100% 80% 60% 40% 20% 0% % 23% 22% 15% 40% 90% 88% 67% 75% 77% 78% 85% 60% 10% 12% 33% cooled meat frozen meat Source: Master plan for development of poultry breeding industry in RK for According to the forecast of the Ministry of Agriculture of RK in connection with the projected growth of Kazakhstan's population to 18.5 million people, consumption of poultry meat by 2020 in the country will increase to 400 thousand tons per year. At that, the domestic poultry meat production will amount to 280 thousand tons, including chicken thousand tons, turkey meat - 22 thousand tons, other kinds of poultry meat thousand tons. Diagram 17. Projected increase of poultry meat market, thousand tons thous. tons 144 thous.tons production imports Source: Master plan for development of poultry breeding industry in RK for Thus, it is supposed that with increase in the production of chilled poultry meat, Kazakhstan producers will be able to reduce the amount of poultry meat imports from the United States, Russia and Ukraine to thousand tons. At that, level of import dependency will be reduced from 56% to 30%. Lending programs of KazAgro Holding In order to reduce import dependency and the development of export potential of the agricultural sector of the country, a subsidiary of the Holding KazAgroFinance JSC finances investment projects in 14 directions, including the construction of new and expansion of existing poultry farms. Totally under this direction, 13 projects were financed for production of poultry meat with a total production capacity of 86.7 thousand tons of meat per year. Of these,

18 currently 8 projects were commissioned with a total production capacity of about 50.0 thousand tons of poultry meat a year. Table 8. Main terms of financing for establishment of network and development of existing poultry plants from assets of the National Fund Item Construction and maintenance works Fixed assets Circulating assets Instrument loan Loan/leasing loan Term Up to 12 years Up to 5 years Co-financing from 15% of total project sum Rate 6% per annum Annual effective rate Up to 6,5% per annum Collateral required required/- required Payment of main debt не реже 1 раза в год Fee payment не реже 1 раза в квартал Grace period Up to 2 years Complete information on funding terms and requirements for potential borrowers are posted on the website of KazAgroFinance Joint Stock Company, http: Experience in financing of projects to establish poultry plants shows an economic benefit and good profitability. For example, we present economic parameters based on a model project with production capacity of tons of poultry meat a year. Table 9. Payback of poultry plant construction without investment subsidies with investment subsidies Total project cost Discounting rate (WACC) 9,15% 9,15% IRR 24,1% 28,1% NPV Simple payback period, years 4,2 3,8 Discounted payback period, years 5,2 4,3 As can be seen, the return on projects for establishment of poultry plants, taking into account the investment subsidies is reduced from 5.2 years to 4.3 years, which makes this kind of business one of the most profitable. 18

19 4. EXPERT EVALUATION Implemented state programs to support agribusiness create a favorable investment climate for development of the poultry business. Meat poultry breeding is one of the most promising areas of agribusiness. The presence of a significant volume of imports, projected growth in domestic consumption, opening additional niche for almost 100 thousand tons by 2020, provides opportunities for entry of new market participants. The introduction from 2014 of investment subsidies is intended to speed up the current pace of growth in domestic production, to increase the flow of private investment, to improve the attractiveness of new poultry plants for bank lending. An important factor in competitiveness for new and existing poultry plants will be the scale of production conditioning the level of expenses for product unit. Given the high competition in the market, for new participants it is recommended to run largescale productions with capacity of 20 thousand tons of meat per year. Larger businesses can also independently decide the matter of organization of breeding poultry production for domestic needs, which will reduce dependence on imports of breeding youth cattle and the resulting currency risks. When choosing a location for new productions it should be taken into account the presence of a stable food base, preferably in the regions that are less prone to drought. In general, meat poultry breeding is one of the most promising sectors of agriculture, having a large market potential and attractive return. 19

20 The information contained in this review is accurate at the time of the study, is for informational purposes and is not an offer or recommendation for the adoption of certain investment and other business decisions. Information and opinions contained in this review are based on information obtained from public sources, published on the websites of stock exchanges, ministries, Committee for statistics of the Ministry of national economy of RK, central banks, information agencies and other companies. 20