European meat industry developments in a global context

European meat industry developments in a global context Reggio Emilia Pigmeat Conference: April 27th 212 Based on extracts from the Gira European Meat Company Panorama 21/11-215 Richard Brown (Direct Tel +44 1323 87144) 1

1. Global meat sector dynamics 2. pan-eu meat sector dynamics 3. Italian meat sector characteristics 4. Appendix: - Gira European Meat Company Panorama, - Other country PK overview - BF and PY EU industry overview 2

1. Global perspective 3

Long term Global meat consumption growth dominated by poultry, driven by its relative price Global Meat Consumption growth by Species 21-2f 35, 3, 282,556 +23,8 +11,2 +3,683 +1, 322,282 17,25 SH (' t cwe) 25, 2, 15, 16,25 6,82 18,185 64,53 119,42 BF PK 1, 121,128 97,31 5, 21 PY PK BF SH 22 Source: Gira Long-Term Meat study PY

Global meat consumption growth uite broadly based, but led by China Consumption Growth by Region 21-2(f) 35, 3, +13, +5,6 +2, +3,67 +2,8 +2,6 +2 +9,5 25, (' t cwe) 2, 15, 28, 319,7 1, 5, Source: Gira Long-Term Meat study 21 CN NAFTA BR MENA RU EU JP+KR Others 22 Global growth is largely outside EU (which has got off to a bad start against this forecast)

Significant rise in real prices across all meats boosted by emerging market price increases which surpass EU prices 2 19 All meat producer/wholesaler price indices, 2-212(f) (2 L.C.) Including China Based on 2 producer prices 18 price indices, constant prices 17 16 15 14 13 12 11 SHEEPMEAT BEEF & VEAL PIGMEAT ALL POULTRY 1 9 2 21 22 23 24 25 26 27 28 29 21 211 212 Source: GIRA GMC 211 Weighted (consumption) averages 6

Rising pig producer prices especially in emerging markets but with short-term exporter convergence Figure SYN-PK 9b Pig Producer Prices, 2-212 (21 USD/t cwe) Figure SYN-PK 9a Pig Producer Prices, 2-212 (current USD/t cwe) 4 4 3 5 3 5 3 3 2 5 2 5 2 2 1 5 1 5 11 RU RU CN CN US US BR BR EU EU CA CA 5 5 2 21 22 23 24 25 26 27 28 29 21 211 212 7 GMC Dec. 211

Pigmeat Exporters: US & EU growth. BR still lacking further market access... and facing RU bans Figure SYN-PK 7: Pork Exporters 29-212 (incl. live, ' t cwe) Others Other F.E. TW CN CEECs E.U. BR US CA 7 5 7 6 5 6 5 5 5 4 5 4 3 5 3 2 5 2 1 5 2 1 75 1 5 1 25 1 75 5 RU 25 CEECs US 29 21 211 212 2 5 2 1 5 1 Others Other F.E. JP Others Other F.E. JP E.U. US 2 1 75 1 5 1 25 1 75 5 25 7 6 5 4 3 Others CN RU JP USA Others CN CA 29 21 211 212 BR 1 5 29 21 211 212 5 RU MX CA 29 21 211 212 2 1 RU SAm 29 21 211 212 8 GMC Dec. 211

Buoyant export markets have rescued the US pigmeat chain 12, US Pork Balance T CWE 1, 8, 6, 4, 2, Production Imports Exports Consumption 12f 11e 1 9 8 7 6 5 4 3 2 1 9

2. pan-eu meat sector perspective - total meat sector - pigmeat sector 1

Slight decrease of EU meat consumption in 211-12 but slight recovery subseuently although caution is the byword EU meat consumption fell in 29, and again in 211-12, reflecting: Poor EU economic situation Tight meat supplies (due to reduced production and imports) Higher prices Total consumption situation is actually not too bad : but underlying dynamics are tough on the meat processors: Significant consumer trading down through various different mechanisms Retailer price wars which have more resonance than in past Net effect is more margin pressure on processors ' t cwe 5 EU 15 EU 25 EU 27 45 4 35 3 25 2 15 1 5 Meat consumption (kg / capita) 1 9 8 7 6 5 4 3 2 1 EU Meat Consumption, 2-212(f) Total t cwe and per capita kg cwe 2 21 22 23 24 25 26 27 28 29 21 211 212 Source: GMC, Dec 211 Sheep Poultry Pigmeat Beef & veal Sheep Poultry Beef & veal Pigmeat 2 21 22 23 24 11 25 26 27 28 29 21 211 212

but (supply driven) price increases indicating surprisingly good EU demand performance in these tough economic times Rising EU meat producer prices (in real terms) since 21/2 Exceptional 211 price rises: reflecting supply tightness (both domestically and from import/export balance) Margin sueeze on processors due to difficulty in passing through producer price rises to customers EU Meat Producer Prices (24 EUR/t cwe), 2-212(f) 21 EUR / t cwe 6 55 5 45 4 35 3 25 2 Source: GMC Dec11 :PY wholesale prices and producer prices for other meats Sheep Beef & veal Average Pig Poultry EU Meat Expenditure Index (base 2), 2-212(f) 15 1 2 21 22 23 24 25 26 27 28 29 21 211 212 Expenditure index 2 21 19 17 15 13 11 9 Beef & veal Pigmeat Poultry Sheep TOTAL FMD BSE AI in NL HPAI EU Crisis Rising EU meat expenditure trend (in real terms) with dramatic rises in 27/8 and again in 211 but lower growth than in the developing world Bouyant meat marketing environment, with many different dynamics and reuiring more sophisticated marketing by processors 7 2 21 22 23 24 25 26 27 28 29 21 211 212 12

Discounters: LIDL and ALDI, entered the fresh meat market in 22/3 and have rapidly increased market share Growth of hard discounter share in fresh meat retailing, 21-21 Impact of cooperation with HD on Tönnies output and turnover, 21-21 1% 5 16 9% 45 Turnover (EUR mio.) 14 8% 7% 6% 5% 4% 3% Discounters Other full-range food stores Sef-service stores (> 2, m2) Hypermarkets (> 8 m2) Supermarkets (<8 m2) Specialty stores Others Turnover (EUR mio.) 4 35 3 25 2 15 1 Pig production (' t cwe) 12 1 8 6 4 Pig production (' t cwe) 2% 5 2 1% 21 23 25 26 21 % 21 22 23 24 25 26 27 28 29 21 Source: Gira from GfK HD share of processed meat in retail is even higher (almost 5%) indicating the further market share gains which are possible in fresh meat 4. News Tönnies key to success = immediate response to the German HDs needs for large amounts of efficiently produced case-ready meat. Heidemark/Rothkötter (PY) have also grown fast 13

Recent external EU meat trade balance shifting to exports, giving advantage to the bigger processors EU meat imports have fallen since 28 reflecting: Poor EU economic situation Tight global BF and SH meat supplies Brazilian BF traceability problems which have reduced supply availability further (After paying EU import tariff) higher FOB prices for exporters to EU in other 3rd country markets (RU, MENA etc.) Imports likely to rise again in the future as EU demand recovers but for the time being much less import pressure on EU prices and a renewed retailer focus on sustainable local meat supply Export volumes have boomed: Strong 3rd country demand Weaker Euro Carcass meat export volumes might be difficult to sustain but sustainable focus on 3rd country exports of offals and by-products Competitive advantage for processors who have scale to invest in direct (export) trade marketing. ' t cwe ' t cwe EU Meat 3rd country Imports*, 2-212(f) 2 18 16 14 12 1 8 6 4 2 EU Meat 3rd country Exports*, 2-45 EU 15 212(f) EU 25 EU 27 4 35 3 25 2 15 1 5 2 2 21 21 EU 15 EU 25 EU 27 22 22 23 23 24 24 25 25 Source: GMC Dec 11 14 26 26 27 27 28 28 29 29 21 21 211 211 212 212 Sheep Poultry Beef & veal Pigmeat *including the carcass euivalents of live animals Sheep Poultry Beef & veal Pigmeat *including the carcass euivalents of live animals

Ownership of primary processing is still mainly private, with family control although coops are still important Ownership of the Top 1 EU- 27 meat companies - 21 1% 9% 8% 7% 6% 5% 4% 3% 2% 1% % 3% 6% 8% 1% 2% 15% 29% 22% 16% 45% 46% 33% 7% 4% Top 1 Top 5 Top 15 Retailer Stock market Coop/Farmer Private Family owned Source: Gira compilations Majority of meat processing is still owned by private and family firms Very little retailer ownership of slaughtering. but there is still some Municipal ownership of abattoirs has been declining for very many years Access-to-capital to finance further major consolidation be it national or international, is a challenge. Family owned firms largely find solutions to the challenge of succession issues The Stockmarket has rarely proven an effective long term form of ownership for the meat sector Vion is owned by a farmers union (ZLTO) (categorised here as coop/farmer ): but is a for-profit focused company rather than being a coop price maximiser Danish Crown transferred operating assets to a Ltd company status in 211, but is still 1% owned by the original coop. Atria and HK are Stockmarket uoted Plcs, but the original coops hold the voting majority. Brazilian mega-m&a has slowed. but some strategic infill acuisition in EU are likely

EU Pigmeat focus 4. News 16

25, EU PK balance shows small medium-term production growth for processors in spite of the pressures on the EU market after recovery from sow stall legislation and huge trade volumes EU pigmeat balance 21-211(e) 215(f) EU15 EU25 EU27 Net Production 2, Volume (' tcwe) 15, 1, Apparent consumption Total Exports 5, Total Imports 2 21 22 23 24 25 26 27 28 29 21 211 215 Source: GIRA The sum of balance tables from the 27 member states, illustrated here does emphasise the enormous volume of intra-eu Member State trade, even if the net 3rd country trade figure is deceiving and is better illustrated in the overall EU27 3rd country import and export summaries on slide 31 5. Production etc. 17

De, Fr, Es & It are the biggest EU meat producers but with Italy amongst the losers in the future to the Top 3, plus UK, Dk & NMS Total meat (3 species) GIP/net production by country 211 and change 215/211 9 8 7 6 5 4 3 2 1 DE FR ES IT UK NL DK BE AT IE PT SE FI EL PL RO HU CZ BG SK LT SI CY EE LV MT EU 15 Source: Gira EU 27 Net/GIP production (mio tons cwe) 14 199 999% Poultrymeat 253,5 1 746 GIP production 8,3 1 848 179 999% 12 82, 113, 64, 1218,8 577 159 999% 1 1 396 16, 139 999% 1 288 8 Pigmeat net production 1 224 119 999% 16, 36,2 138, 126, 17, 24, 99 999% 6 46, 774 68,4 79 999% 96, 64, 4 59 999% Beef and veal 8, net production 66, 57, 58, 45,41, 42, 1,6 37, 191 252 336 48393 39 999% 2 25, 21,1 13, 3, 13,18, 7, 133121 88 14 17 185 19 999% 11486 45 72 7, 1,4 Negative 37 18 23 7-1% DEFRES IT UKNLDKBEAT IEchange PTSE FI EL PLROHUCZBGSKLT p.a. SI CYEELVMT 215/11 Positive change p.a. 215/11 5,6 5,2 3,9 1,8 1,3 5,5 3,5 1,2 3,2 1,3 2,3 2,4 1,6 3,4 2,,7 1,6,2 1,6,3,8 1,9 1,3,9 1,6,8,9,9,8 1,5 1,1 1,2 1,,9,6,2,3,5,4,4,4,5,3,6,4,5,4,4,2,3,3,2,2,4,5,2,2,2,1,3,1,1,1,,2 Consumption (Kg/Capita) Change 211/6 in total meat consumption) 5% 4% 3% 2% 1% % -1% -2% -3% -4% -5% Change p.a. 215/11 in total meat production 5. Production etc. 18

Pigmeat distribution is dominated by the importance of further processing with (low) cost ingredient focus Pigmeat domestic market distribution channels by country 21(e) 1% 9% 8% Share in volume (%) 7% 6% 5% 4% 3% 2% 1% % AT BE DK FI FR DE EL IE IT NL PT ES SE UK CY CZ EE HU LV LT MT PL SK SI BG RO Catering Further processing Traditional stores Modern retail Direct sales & other retail The chart is an estimate shown for illustrative purposes only, of the segmentation of the domestic markets. The distribution shares vary considerably in the different countries. However, the definitions and data are not fully comparable: Gira has had to estimate, so readers should exercise considerable caution should they choose to draw conclusions from these data. Further processing dominates the usage of pigmeat (including bacon, as well as the obvious hams, charcuterie, sausages, meatballs, elaborated etc) 5.3 Production etc. - Pigmeat 19

The EU is a major net exporter of pigmeat to 3rd countries: important, but this is threatened by lower cost competitors EU-27 pigmeat imports by 3rd country origin 21-212 EU-27 pigmeat exports by 3rd country destination 21-212 Pigmeat imports (' t cwe) 4 35 3 25 2 15 1 5 21 211 212 Source: Gira from Eurostat 5.3 Production etc. - Pigmeat Others Brazil Chile Canada USA Pigmeat exports (' t cwe) 2 18 16 14 12 1 8 6 4 2 21 211 212 Source: Gira from Eurostat Others CIS - Baltics CEECs Africa/Middle East USA Central/South America Other Far East China South Korea The EU pigmeat market is still effectively protected from (all but minimal) imports by TRQ and various SPS barriers. Some selective relaxation may come through FTA s but Gira is assuming that the short-medium imports will be small and so the domestic industry does face a significant import threat 3rd country exports are important at 1% of production. Current market conditions are buoyant with high prices, giving advantage to bigger companies. However import politics are dangerous and volatile (RU, CN) Japan Russia 2

The TopCos have increased kill share in a slowly concentrating European pigmeat industry Top 15 EU pigmeat processors have increased EU27 share to 38%, up from 34% in 26 but in some countries the outright leaders have lost some share Slow process of consolidation and more international development than for the other species Share of EU-27 Top 15 26/21 1% 9% 8% 1% 9% 8% Leaders' market share in the top 5 production countries (% cwe) 26/21 58% 63% 22% 27% 52% 68% 27% 21% 95% 98% % Kill 7% 6% 5% 4% 66% 62% % Kill 7% 6% 5% 4% Other Producers N 5 producer N 4 producer N 3 producer N 2 producer 3% 3% Leader 2% 34% 38% 2% 1% 1% % 26 21 % Other EU27 Source: Gira estimates Top 15 Source: Gira estimates Percentages given on the top of each column correspond to the share of top 5 companies compared to total country's net production 5.3 Production etc. - Pigmeat 21

3. Italian meat industry structure 22

Italy - PK: A traditionally fragmented sector; relying on added-value through PDO Likely production downturn in spite of differentiated heavy pig focus pigmeat import pressure 213 sow housing feed costs Fragmented slaughtering: between a few large, efficient plants & over 1, small firms Need for processing capacity consolidation M&A activity has been limited in a sector characterised by the predominance of coops the share of top producers has remained constant over the past decade Gruppo Ghinzelli is by far the largest pigmeat producer, with 11 plants in all. Slight growth Italcarni is the main cooperative competitor, all slaughtering concentrated in a single site The Veronesi Group owns the No.5 pig slaughterer Montorsi as well as the leading poultry company in Italy, Aia ' t cwe 2 5 2 1 5 1 5 - Others IT: Pigmeat balance 21-211(e), 215(f) IT: Top 5 companies share in pig slaughter (in cwe) 21 Gruppo Ghinzelli Italcarni Prosus Martelli Montorsi Net production Apparent consumption Exports Imports Source: GIRA 4. News Source: Gira estimate 23

Concluding perspectives on Italian (pig)meat sector Differentiated heavy pig with large domestic market and growing FP export Little or no sector growth Sow stalls Pressure on PDO products in current recession Fragmentation throughout chain, PDO constraints on concentration Labour cost & availability issues compared to Germany Import pressures : CAP reform? FTA?... TRQ relaxation? Domestic focus in an internationalising industry Weak domestic IT economy Ever increasing intra-eu meat trade driven by price, and local differences in supply & demand for different cuts Scale advantages for other competitors to benefit from exports and the rising prices in 3rd countries (e.g. CN, RU, MENA) Sector initiatives to enhance efficiency 2. Executive Summary 24

Thank you for your attention 25