Dairy industry-uruguay-xxi-april-20

Dairy industry-uruguay-xxi-april-2010

1. April 2010Dairy IndustryInvestment Opportunities
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. 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. 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. 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. 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. 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. 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. 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 Sour

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Susu industri-uruguay-xxi-april-2010 1. April 2010Dairy IndustryInvestment peluang 2. MENGAPA BERINVESTASI DALAM INDUSTRI SUSU URUGUAY? Meningkatnya dunia demandChanges dunia demografis (yakni, migrasi ke kota-kota), kenaikan pendapatan rata-rata, lifestylechanges dan populasi meningkat adalah beberapa penyebab kenaikan protein andanimal konsumsi makanan khususnya. Produksi susu dunia telah meningkat di lebih lambat permintaan dunia ratethan untuk produk susu selama 10 tahun. Uruguay adalah salah satu dari sedikit negara yang dapat memasok produksi demandMilk ini meningkat di Uni Eropa (UE), India, AS dan isoriented Cina untuk menutupi pasar domestik tuntutan dan kemungkinan ofexpansion terbatas atau dapat diserap oleh konsumsi domestik. Industri susu Uruguay memiliki peluang investasi keuntungan kompetitif yang signifikan andoffers kedua di productionphases utama dan industri. Uruguay susu produksi menyumbang 0,3% dari total worldproduction, tapi Uruguay mewakili 2% dari ekspor dunia. Seperti Australia andNew Selandia, Uruguay ekspor lebih dari 60% dari produksi susu. Biaya rendah dan potensi besar untuk produksi susu produktivitas improvementsUruguayan telah meningkat 3% per tahun selama 10 tahun dan 4% selama thepast lima. Sapi diberi makan terutama padang rumput dan pasokan moderat konsentrat. Pricesreceived oleh produsen Uruguay lebih rendah daripada yang diterima oleh produsen orAustralian Selandia Baru (dan lebih rendah dari Argentina produsen juga). Produksi biaya areamong yang terendah di dunia. Perluasan areal pertanian Uruguay meningkatkan ketersediaan domestik andsub-produk biji-bijian untuk suplementasi strategis. Manufaktur peluang juga ada di industri susu dan termasuk companyconsolidation, proses dan inovasi produk, dan produk dan bauran pemasaran. Pasar dunia praktis asri menawarkan besar opportunitiesThe ekspor campuran terdiri dari susu bubuk (53%) dan keju (32%). Eksportir focusprimarily di pasar Amerika Latin. Karena masalah skala dan kekurangan inmarketing dan presentasi produk, ada pengalaman terbatas dalam memasok tambahan-regionalmarkets. Produk yang disesuaikan dan/atau pasar ceruk belum dieksplorasi (e.g.,kosher, halal, rasa keju dan produk organik). Hal ini juga terjadi dalam produksi ofingredients dan nutraceuticals.2 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. berorientasi ekspor produksi utama: ekspor pertanian berbasis rekening untuk 65% dari total ekspor. 7 eksportir daging terbesar di dunia (ekspor ke negara-negara 85). ke-3 di dunia ekspor daging ovine. 6 dalam ekspor beras dunia. Proses elaborasi gandum menawarkan ketersediaan besar sub produk dengan potensi foruse di suplementasi: produksi kedelai telah meningkat 48% per tahun selama 8 tahun. Produksi jagung dan gandum meningkat 18% per tahun selama 8 tahun. Data1 agroindustry susu: susu menyumbang 9,3% pertanian / peternakan bruto nilai produksi dan peringkat ketiga di belakang produksi daging sapi dan beras. Susu produksi: 1,582 juta liter. Pengiriman untuk tanaman: 89% dari produksi. 70% dari tanaman pengiriman diekspor (90 negara). Susu: 4,592. Luas permukaan: 849,000 hektar (6% dari total). Meningkatkan luas permukaan: 58% dari total. Jumlah sapi perah: 408.000. Ekspor: USD 442 juta (7,3% dari semua ekspor; ketiga dalam pentingnya mengikuti daging sapi dan beras).1 Data dari 2007-20084 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. 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. 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. 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. 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 Sour