Meat-ing the challenge: expanding integrated protein supply chains across Asia Marcos JankVice President, Corporate Affairs & Business DevelopmentBRF Asia-PacificSingapore

USDA Agricultural Outlook Forum 2017Livestock and Poultry Luncheon

2

BRF from farm to fork: an integrated supply chain for maximum safety

Largest Brazilian buyer of corn and soy meal

Genetics expertise

14,000 contract farmers

Integration:sanitary control and larger productivity

34 units in Brazil

16 units overseas: Europe, Argentina, UAE, Singapore, Thailand, Malaysia, HK, Turkey

2.3 million tons of foodannually

27 Distribution Centers

2,300 items (SKUs)

Technical Assistance

Genetics

Feed

Processing Distribution

Domestic mkt

International mkts

More than 240,000 points of sales

Present in 120 countries in 5 continents

Contract Farmers

Comprehensive and integrated chain, from farm to fork

8th biggest food company in the world (US$ 12 billion market cap)

#1 chicken exporter in the world (14% of the world total)

#1 Halal poultry company in the world (by volume)

# 1 agri-food company in Brazil (US$ 12 bn net sales in 2014)

4th largest Brazilian exporter5th largest brazilian employer company (115,000 employees)

Top of Mind brands in Brazil, Argentina and Middle East

Listed on NYSE and Bovespa BM&FListed on the 100 most innovative companies in the world by Forbes

Superior corporate governance and Investment Grade by Moody’s/S&P/Fitch

3

UAE (Abu Dhabi)

• BRF’s largest international plant• US$160 million FPP plant supplying UAE and GCC countries• Originally built with 72,000 MT/year capacity, with expansion plan

to over 100,000 MT/year by end 2016• Employs 1,400 workers

• JV with SATS • Value-added processing, as well as distribute BRF brands (Sadia

and Perdigao) to retailers, food service and ship chandlers

• BRF acquired the #3 largest chicken exporting company in Thailand for US$ 360 million

• Fully integrated operations: feed mill, slaughterhouses and processing plants

• Offers strong expertise in cooked chicken products

Malaysia

• Halal hub platform for BRF to export to regional and global halal markets

• Leverage Malaysia’s strong halal positioning and sophisticated consumer base to innovate for the halal world

• JV with PPB (Wilmar) for FPP production

Mode of set-upDetails Country

BRF’s production footprint in Middle East and Asia:

Greenfield(Nov 2014)

JV(Apr 2015)

Acquisition(Dec 2015)Thailand

Singapore

JV(Dec 2016)

Moving East Strategy: domestic market trade investments local presence innovation

4

Uneven distribution of consumption and resources

One dot represents 100,000 people

51% of world’s population19% of GDP18% of available land23% of renewable water

51% of world’s population19% of GDP18% of available land23% of renewable water

Consumption(% world)

28% poultry20% beef31% dairy37% sugar

Consumption(% world)

28% poultry20% beef31% dairy37% sugar

SOUTH AND SOUTH-EAST ASIA: Bangladesh, Bhutan, Brunei, Cambodia, China, Honk Kong, India, Indonesia, Lao, Macao, Malaysia, Myanmar, Nepal, Pakistan, Philippines, Singapore, Sri Lanka, Thailand, East Timor, Vietnam

5

MEATS - Per Capita Consumption (kg per capita/year)

Source: USDA, OCDE

4 8 10 11

25 27 31 32 35

47 51 53 55 57

61 64 67

73

97 100

107

116 Poultry Beef Pork

6

-300-250-200-150-100

-500

50100150200250

SouthAmerica

NorthAmerica

East Europeand Russia Oceania West Europe

LeastDevelopedCountries Africa Middle East Asia

1990 1995 2000 2005 2010 2015 2020 2025

Note: “Million tonnes equivalent” for cereals, oilseeds, animal proteins, biofuels and cotton. Source: OCED and FAO Agricultural Outlook 2016-2025

World Food Security (1990-2025)Net intra-regional trade

Food supluses and deficits

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Food chains: different drivers, different speeds

Elaboration: BRF (Marcos Jank). LDC: Least Developed Countries.

• Labor intensive agriculture

• High number of verysmall farms

• Self-sufficiency policy• Social concerns:

inflation,urbanization

• Labor intensive agriculture

• High number of verysmall farms

• Self-sufficiency policy• Social concerns:

inflation,urbanization

Food Security Safety & Quality Value AddedValue Added New Trends

• Quality• Healthy & safe food• Global players• Value chain

coordination• Consolidation• Economies of scale• Traceability

• Variety and branding• Differentiation• Taste• Labeling• Speed to market• Convenience• Food service• Infrastructure

• Variety and branding• Differentiation• Taste• Labeling• Speed to market• Convenience• Food service• Infrastructure

• Individualized & emotional needs

• Environment issues• Animal welfare• “Buy local”• GM/antibiotics free • Organic, veggie, bio• Land use changes

• Individualized & emotional needs

• Environment issues• Animal welfare• “Buy local”• GM/antibiotics free • Organic, veggie, bio• Land use changes

Productivity Integrated food chains SegmentationCustomization

EuropeUS

JapanSingapore

AfricaIndia

Myanmar

BrazilThailandMalaysiaMexico

ChinaRussiaLATAM

8

-125

-100

-75

-50

-25

0

25

50

75

(US$ Billion)

Source: WTO. Note: China: Mainland China + Hong Kong + Macau

Top global trade surpluses and deficits in the agri-food sector

Brazil

ArgentinaAustraliaUSA

Korea

Japan

China

9

0

5

10

15

20

25US$ Billion

EU (21%)

China (24%)

Asia ex-China (20%)

LAC (9%)

Others (5%)

Mid East (8%)USA (7%)Africa (7%)

Brazilian Agri-Food Export Destinations

Source: MAPA (Agrostat).

1010

Evolution of Food Self-Sufficiency in China

38

58

71

75

79

89

98

105

49

85

107

91

96

100

101

100

35 40 45 50 55 60 65 70 75 80 85 90 95 100 105 110

Soy

Cotton

Corn

Sugar

Dairy

Beef

Pork

Poultry

2005 2020 2030 2050

Agr

icul

ture

Live

stoc

k

Sources: from Strategic Agricultural Development Research Panel of the Chinese Academy of Sciences (CAS). Roadmap for China’s Agro-technology Development up till 2050, Science and Technology Press, Beijing, 2009.

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China’s receptivity to the top agri-commodity exports (based on tariffs or access)

% indicated = Tariff rates faced by Brazil into China; Nil = no exports in 2015. Source: TradeMap using UN ComTrade data

Free access Restricted Highly Restricted

Wood pulp

Coffee

Sugar (50%)Soybeans

Wheat Rice

Chicken(14%)

Beef(12%)

Pork(18%)

Corn(54%)

No imports

Cotton

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Market access for animal protein more complex than feed

Limited

Closed

OpenChicken: Access remains an issue in Asia

Note: Assessment of market access based on tariffs and NTMs for frozen chicken and soybean meal

Soybean: free access

Open Limited Closed

Sources: 1. USDA reports on Livestock & Poultry, Grains and Oilseeds (2014 data) 2. OECD-FAO Agricultural Outlook 2014.Note: For soybeans, crush volume is approximated for consumption volume.

97

23

21

15

15

3

46

30

14

13

11

6

0 10 20 30 40 50 60 70 80 90 100

Soybeans

Soybean meal

Beef

Corn

Chicken

Pork

World

Asia

% imports/consumption

Value per tonne (USD):• Grains 300 a 500 • Meats 2.000 a 5.000

13Sources: USDA annual GAIN reports, 2006-2015, TradeMap trade data derived from UN ComTrade

5.52%

6.78%

6.20%5.87%

3.39%

3.97% 3.85%

4.43%

3.65%

3.20%

0%

1%

2%

3%

4%

5%

6%

7%

8%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

% Import/ Consumption in China (by volume) Year Soybeans2006 66%2007 76%2008 71%2009 82%2010 81%2011 73%2012 77%2013 80%2014 82%2015 87%

Increasing import access into China for soybeans and beef, but decreasing for poultry. Access for meats remain very low.

Corn

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Refrigerator Ownership x Meat ConsumptionGrowth of household refrigerators ownership is favouring the consumption of perishable products, including meat

Fonte: Rabobank, FAO, OCDE. Elaboração: M. Jank BRF

3 611 16

10

40 44

2

14

28 42

21 14

2

2

3

7

5

6

39

24

33 33

58

88

98 98

0

10

20

30

40

50

60

70

80

90

100

0

10

20

30

40

50

60

70

80

90

100

India Indonesia Philippines Vietnam China Singapore Brazil

Beef

Pork

Chicken

% Household with refrigerator

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Top priority issues is a challenging trade-off

How to achieve?

…with import restrictions and self-sufficiency policies?

Food Security Food Safety & Quality

AffordabilityLow Inflation Sustainability

Trade is still very limited… New protectionism: tariffs and subsidies complex non-tariff barriers

Trade: economic efficiency and sustainability

Feed (grains) vs. Animal Protein better carbon/water/energy footprints

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Conclusions

AGENDA OLD NEWDrivers Food security Food safety, quality, value added, new trends

Relationship CommoditiesSpot markets

Contracts, traceability, certification, private standardssustainability (water & carbon footprint, climate change),

Markets Traditional/wet refrigeration, modern retail, food service, QSR, brands

Geographies Developed countries

Emerging economies: Asia, East Europe, Africa, LAC

Trade WTOMega-regionals

Bilaterals (spaghetti bowl) and strategic partnerships“New” mercantilism

Protectionism Tariffs andTRQs

Complex Non-Tariff Barriers (NTBs): sanitary (SPS), technical (TBT), burocratic (plant approvals), environment

Food companies

Commodity exporters

Consolidation, local players in 3rd countriesglobally integrated supply chains

Thank you

marcos@jank.com.br

April 2016