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TRENDS & PROSPECTS IN THE BROILER INDUSTRY

JOVEN P. DYSenior Vice President

Bounty Agro Ventures, Inc.

WORLD BROILER

2

QUANTIFYING BROILER INPUTSQUANTIFYING BROILER INPUTS

Source: G. Butland, New Delhi

8.5 million GP - US$ 200 - 250 million350 million PS - US$ 850 -950 million 100 Million MT live bird – >US$ 60 billion200 million MT feed - > US$ 40 billion130 million MT corn/wheat – US$ 15 – 18 billion45 million ton SBM – US$ 9 – 12 billionAnimal health products – US$ 2 billion> 8 billion kms. transport for feed and birds alone

WORLD ANIMAL PROTEIN CONSUMPTION IN 2005

0

20

40

60

80

100

120

Million MT

2005 103 81 63 64

Pork Poultry Beef Eggs

Source: FAOSTAT

Although there are no official figures yet for 2006, preliminary USDA estimates show almost very small increase in consumption.

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PER CAPITA CONSUMPTION OF MEAT IN SELECTED COUNTRIES, 2006

42.929.046.3US

65.228.2Argentina

18.043.916.2EU - 25

23.114.828.0Mexico

32.228.129.8Canada

4.542.029.5Taiwan

4.013.97.5Philippines

36.911.736.0Brazil

36.0Saudi

38.3Malaysia

15.365.738.8Hong Kong

43.0Kuwait

60.3UAE

BEEFPORKBROILER

Source: USDA – FAS, Livestock and Poultry, October, 2006

9.79.39.4Brazil

60.1

1.2

1.1

1.2

2.6

7.4

10.4

16.2

2006

61.158.7World

1.21.2Japan

1.11.0Thailand

1.31.9India

2.72.5Mexico

7.57.6EU-25

10.510.2China

16.415.9US

2007(f)2005

WORLD’S TOP PRODUCERS

7.57.47.4EU-25

58.9

1.9

2.3

2.0

3.0

6.8

10.4

13.8

2006

59.756.9World

1.91.9Japan

2.41.9Russia

2.21.9India

3.12.9Mexico

7.16.6Brazil

10.610.2China

13.913.5US

20072005

WORLD’S TOP CONSUMERS

Poultry Production & Consumption (in Million MT)

Source: USDA – FAS, Livestock and Poultry, October, 2006

4

9595101Canada

685620755EU-25

6,470

90

280

350

2,454

2,500

2006

6,7376,791Total, World

11084Argentina

280240Thailand

365331China

2,5082,360US

2,5502,739Brazil

20072005

WORLD’S TOP EXPORTERS

645600522EU – 25

470434480Saudi

5,168

234

370

400

740

1,240

2006

5,3375,063Total, World

237222HK

430219China

424374Mexico

725748Japan

1,1501,190Russia

20072005

WORLD’S TOP IMPORTERS

IMPORTS & EXPORT (in ‘000 MT)

Source: USDA – FAS, Livestock and Poultry, October, 2006

AVIAN AVIAN INFLUENZAINFLUENZA

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PATH OF MIGRATORY

BIRDS

AVIAN INFLUENZANations with confirmed H5N1 cases

Source: USDA

North America

South America

Africa

Asia

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AVIAN INFLUENZA TIMELINE

2003

JuneSE Asia:

Outbreaks start but

unreported

December Thailand:

Zoo animals die; start of investigation

December: S.Korea reports

deaths in poultry

January Vietnam, Japan,

Thailand, Cambodia, Laos

FebruaryIndonesia

& China

June/Julyrecurrence

in China, Indonesia, Thailand

and Vietnam

WAVE 1

AugustMalaysia

SeptemberKorea

disease free

October Brussels: H5N1 in eagles from

Thailand

January Malaysia declared disease

free

WAVE 2

2004

2005April China

birds die in Qinghai

Lake

July Russia reports H5N1

August Kazakhstan

and Mongolia

report H5N1

OctoberTurkey,

Romania & Croatia

affected

December Ukraine

and Kuwait report

February Iraq,

Nigeria, Azerbaijan,

Bulgaria, Greece,

Italy, Slovenia,

Iran, Austria,

Germany, Egypt, India,

France, Hungary, Malaysia. Slovakia, Bosnia, Georgia,

Niger

March Switzerland,

Serbia, Poland, Albania,

Cameroon, Myanmar, Denmark, Sweden,

Afghanistan, Israel,

Pakistan, Jordan, Czech

Republic

April Burkina

Faso, UK

2006

May Sudan, Cote

d’Ivoire

July Spain

WAVE 3

Data from World Health Organization

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

Economic and social costs felt only in poultry sectors of the affected countries

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

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Economic and social costs felt only in poultry sectors of the affected countries

EFFECTS OF AI FELT WORLDWIDE . . .

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 0.1 – 0.2% 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, 2006

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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

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PRODUCTION(million metric tons)

0.0

5.0

10.0

15.0

20.0

25.0

30.020

04

2013

2004

2013

2004

2013

2004

2013

2004

2013

Asia &Oceanic

LatinAmerica

USA &Canada

Europe MiddleEast &Africa

PRODUCTION(million metric tons)

0.0

5.0

10.0

15.0

20.0

25.0

30.020

04

2013

2004

2013

2004

2013

2004

2013

2004

2013

Asia &Oceanic

LatinAmerica

USA &Canada

Europe MiddleEast &Africa

Future Regional Production

8.4m 45%

1.4m 13%

4.1m 26%

2.3m 43%

2.8m 17%

• 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.

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Poultry Systems in Selected South East Asian Countries, 2005

65%15%20%Vietnam

10%20%70%Thailand

90%10%Lao PDR

63.4%11.8%21.2%3.5%Indonesia

98%< 1%< 1%Cambodia

BackyardSmall Commercial

Large Commercial

IntegratorCountry

PHILIPPINE PHILIPPINE BROILER BROILER

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CHICKEN PRODUCTION IN THE PHILIPPINES

NATIVE -13%

LAYERS -17%

OTHERS - 3%

BROILER -67%

COMMERCIAL–35%

INTEGRATOR –35%

KEY INDUSTRY PLAYERS(Ranked According to Production Volume)

Foster6. Foster Foods

None5. Universal Robina Corp.

Cook’s4. Vitarich Corporation

Swift3. Swift Foods

Bounty Fresh2. Tyson / Bounty Agro Ventures

Magnolia, Supermanok1. San Miguel Pure Foods

BrandCompany

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“Small is Beautiful”

Critical Units:

1. Contract Growing

2. Dressing Plant

3. Sales

0

20

40

60

80

100

120

140

2002 2003 2004 2005 2006

1st Q 2nd Q 3rd Q 4th Q

453 473 494 482 438

CHICKEN PRODUCTION IN THE PHILIPPINES, ’02-’06

(BAI, PABI DATA)

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CHICKEN IMPORTS (in MT), 2002-2006

0

5,000

10,000

15,000

20,000

25,000

30,000

2002 2003 2004 2005 2006

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 2001.

Final Year Volume: 216,940 MTCorn

40%40%Frozen Chicken (Cuts)

OUTINFinal Year Volume: 23,490 MTPoultry

50%35%Corn1005

40%40%Frozen Chicken (Whole)0207

Tariff RatesProductHS Code

14

30

35

40

45

50

55

60

65

70

75

80

85

90

95

J F M A M J J A S O N D

Live

Dressed

2006 COMPARATIVE LIVE & DRESSED CHICKEN PRICES

68%

14%

10%

3% 3% 2%

Fish/Seafd

Pork

Poultry

Pr Meats

Beef

Others

PHILIPPINE ANIMAL PROTEIN CONSUMPTION

Source: USDA FAS GAIN Report

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CONSUMPTION OF CHICKEN MEAT IN THE PHILIPPINES

4.312.97.6Philippines

BEEFPORKBROILER

FOOD BUDGET SHARES FOR SELECTED COUNTRIES

22.7111.5514.833.6214.042.3124.5416.8012.32Brazil

15.3411.0512.392.8511.804.7524.9210.8921.36France

9.7314.1114.661.778.591.1919.5811.3928.71US

28.568.9916.382.765.233.3118.6416.1128.57Thailand

48.359.8111.101.766.7114.5014.4929.7311.91Philippines

Food as % of

Expenses

OtherFruits, Veg

Fats, Oils

DairyFishMeatBreads, Cereals

Bev & Tobacco

Country

Source: USDA – FAS, 2006

BROILER BROILER PRODUCTIONPRODUCTION

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GRAND PARENT FARMS PARENT STOCK FARMS BROILER FARMS

FEEDMILLS HATCHERIES ANIMAL HEALTH GROUP

QUALITY ASSURANCE

PRODUCT DEVELOPMENT

PROCESSING PLANTS

SALES & MARKETING

INTEGRATED POULTRY PRODUCTION

THE PRODUCTION CYCLETHE PRODUCTION CYCLEGrand Parent

At week 24, they start to lay until week 68Growing period is from day 1 to week 23

Day old chicks from eggs that hatched are selected to get the hy brid male and female line for transferto the Parent stock farms

At week 24, they start to lay until week 68Day old chicks from eggs that hatched are then transferred to the Contract Growing farmsGrowing period is from day 1 to week 23

BroilerDay old chicks become full grown broilers at an average of 35 days

Processing

Harvested broilers are brought to the dressing plant where they are processed

Hatchery Feedmill

Two major facilities supportthe farm operations namelythe Hatchery and Feedmill

Key support groups are :

Animal NutritionDiagnostic LabAnimal Health

First egg laid GParent 162 daysHatching period 21 daysFirst egg laid Parent 162 daysHatching period 21 daysDOC delivered to CG 366 daysDOC to Broiler 35 daysTotal Cycle 401 daysOr 1 year, 1 month and 5 days

Parent

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INDEPENDENT BREEDERS

INTEGRATORS

BREEDER FARMS

HATCHING FACILITY

CONTRACT GROWERS

DRESSING PLANTS

COMMERCIAL GROWERS

VIAJEROS

EXPORT

HRI

Supermarkets

Wet Market Distributors

Small Retailers

L

O

C

A

L

M

K

T

Int’l Mkt

Day-old chicks

Grown Broilers

Day-old chicks

Grown Broilers

Dressed Birds

BROILER PRODUCT FLOW

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)

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BROILER PRODUCTION PARAMETERS

1.551.50 – 1.80 ALW, kg

95%95%Harvest Recovery %

1.902.00Feed Conversion Ratio

STANDARDSPHILIPPINE AVERAGE

PARAMETER

* 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

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5

6

7

8

9

10

11

12

13

Actual '03 8.25 7.80 7.70 7.70 7.80 8.20 8.20 9.50 8.90 9.60 9.60 9.40

Actual '04 9.87 10.56 10.44 10.62 11.23 11.34 10.53 10.30 9.75 9.27 8.84 8.95

Actual '05 8.96 8.43 9.13 9.66 9.48 9.42 9.63 9.85 9.61 9.21 9.45 9.94

Actual '06 10.9 11.51 11.5 11.45 11.62 11.12 11.11 12.14 11.17 10.37 10.64 11.05

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

CORN

5

6

7

8

9

10

11

12

Actual '03 6.90 6.90 6.90 7.50 7.50 7.75 7.75 8.97 8.97 8.88 8.40 8.88

Actual '04 9.86 9.88 10.70 10.33 10.29 10.21 10.13 10.14 11.41 11.42 11.41 9.94

Actual '05 9.11 9.70 9.94 9.94 9.94 9.41 9.42 9.41 9.43 9.54 9.03 9.67

Actual '06 10.07 10.04 9.73 9.43 9.38 9.02 10.06 10.07 10.25 10.27 10.3 11.17

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

INDIAN/CHINESE WHEAT

20

13

14

15

16

17

18

19

20

21

22

23

24

Actual '03 14.12 13.70 13.70 13.90 13.90 13.90 13.90 14.85 14.95 14.95 14.55 16.10

Actual '04 17.77 18.47 19.39 20.13 20.25 21.94 21.86 22.25 21.52 19.81 18.47 17.92

Actual '05 18.25 17.99 18.76 16.85 17.05 17.13 17.06 16.74 16.65 16.22

Actual '06 15.74 14.97 14.9 14.69 14.24 16.74 15.73 15.22 13.34 13.80 13.70 13.14

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

ARGENTINE SOYA

22

24

26

28

30

32

34

36

38

40

42

44

Actual '03 28.20 24.50 24.30 24.30 24.00 24.50 24.50 24.70 24.00 26.10 26.10 27.95

Actual '04 31.36 32.18 35.71 38.38 40.65 40.44 39.32 38.28 36.84 35.09 35.40 36.06

Actual '05 35.47 34.6 34.75 35.34 34.63 34.04 33.5 31.18 29.26 28.75 29.53 28.6

Actual '06 28.59 28.19 28.46 28.62 29.23 29.24 28.75 29.63 30.21 29.73 30.12 33.75

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

COCONUT OIL

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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

3,3941,615TOTA

7AGRI FRUIT

1,993399ROYAL CARGO

145100TAVI

708606SFI

540510SMFI

JAN-JUN 20052004COMPANY

EXPORTS IN ‘000 KILOS

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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 protocolsStrengthening surveillance

Domestic poultryWild birdsImports and smugglingHumans

Strengthening of Poultry Industry CoordinationNational Poultry BoardEstablishment of Indemnification Fund for AI

Source: Ruben Pascual presentation for UA&P

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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