Consumer Demand for Canadian Poultry & Eggs Dr. Thomas E. Elam President
FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Consumer Demand for Canadian Poultry & Eggs Dr. Thomas E. Elam President FarmEcon LLC June 9, 2009 FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President First, the lawyer told me to say… The information contained herein is currently believed to be reliable and the views expressed within this document reflect judgments at this time and are subject to change without notice. FarmEcon LLC does not warrant that the information contained herein is fully accurate or complete, and it should not be relied upon as such. Any business decisions made based on this information and analysis are the sole responsibility of the decision maker. FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President What does that mean? Why do people eat poultry products? FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Even more important… How much poultry meat and eggs do people want to eat? FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President And as important… At what price? FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Start with the big picture What drives the world’s meat and egg economy? Only 3 things really matter much How many people are there? How much money do they have to spend? How much are they willing to spend for meat and eggs? From 1961 to 2007 Per capita meat consumption grew from 23 to 43 kg • R2 with real consumption spending per capita was 0.990 R2 with total meat consumption and total real consumer spending was 0.999 (GDP + Population effect) Per capita egg consumption grew from 4.9 to 10.2 kg • R2 with real consumption spending per capita was 0.940 FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President More Spending/Person = More Meat/Person 50 $4,500 45 $4,000 40 $3,500 35 $3,000 30 R2 = 0.990 $2,500 25 $2,000 20 $1,500 15 $100 increase in spending = 0.8 kg more meat produced $1,000 10 $500 5 $- - World Consumer Expenditures Per Capita Sources: GDP: World Bank. Population: United Nations. Meat Production: UN/FAO Global Per Capita Total Meat Production KG Meat/Capita $5,000 19 61 19 64 19 67 19 70 19 73 19 76 19 79 19 82 19 85 19 88 19 91 19 94 19 97 20 00 20 03 20 06 Consumer Expenditires $US 2000/Capita On average +10% Spending = +8.7% more meat FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President More Spending/Person = More Eggs/Person On average +10% Spending = +11.3% more eggs 5,500 12 4,500 10 3,500 8 R2 = 0.940 2,500 6 1,500 4 $100 increase in spending = 0.24 kg more eggs produced 500 2 Global Consumer Expenditures Per Capita Sources: GDP: World Bank. Population: United Nations. Egg Production: UN/FAO 06 20 03 20 00 20 97 19 94 19 91 19 88 19 85 19 82 19 79 19 76 19 73 19 70 19 67 19 64 0 19 19 61 (500) Eggs, Kg/Capita FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President But, you may ask, what about… Poultry, egg, and other meat prices? Too stable to affect global meat production/consumption May have affected shares of meats in the diet Declining real prices have added to consumption trend Consumer demographics, tastes, and preferences? Little effect on global meat and egg consumption over time Significant affects by country (next 2 slides) Promotion programs? May have affected shares, but no apparent total effect Trade? Has probably boosted global production FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Meat/GDP; 158 countries 45,000 Fish Eaters 40,000 2003 GDP $2000/Capita 35,000 30,000 1st World 25,000 20,000 15,000 3rd World 10,000 2nd World 5,000 Extensive-Subsistance - 50 100 150 2003 Kg Total Meat Consumed/Capita 2003 from FAO and World Bank, all countries with data and over 500,000 population 200 FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Meat/Aquatic/GDP; 158 countries 45,000 40,000 2003 GDP $2000/Capita 35,000 1st World 30,000 25,000 20,000 15,000 3rd World 2nd World 10,000 Maldives 5,000 Extensive-Subsistance - 50 100 150 2003 Total Meat and Aquatic Protein Consumed/Capita 2003 from FAO and World Bank, all countries with data and over 500,000 population 200 FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Why do we eat poultry & eggs in Canada? More complex than the global picture, but the basic drivers are the same Supply management ≠ consumer management Long term drivers: Real income • Drives total real consumer spending – Drives real food spending Costs of production People: How many, preferences and demographics Poultry producers’ product innovation Other factors are also very important FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President What economic forces drive poultry product consumption? Major macroeconomic drivers: GDP/income/consumer spending Population Seasonality Competing meat prices Use annual data and seasonality disappears Use total consumption and total income, and population is included FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Major drivers impacting poultry consumption growth rate Driver Decrease Increase Real Income + Real Costs + - 1991-2006: Both factors positive, promoted consumption growth 2007-Mid 2008: Real income a declining positive, real costs a negative Mid 2008-2009: Real income and real costs both negative FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Major drivers impacting poultry consumption growth rate Driver Decrease Increase Real Income + Real Costs + - 1991-2006: Both factors positive, promoted consumption growth 2007-Mid 2008: Real income a declining positive, real costs a negative Mid 2008-2009: Real income and real costs both negative FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Major drivers impacting poultry consumption growth rate Driver Decrease Increase Real Income + Real Costs + - 1991-2006: Both factors positive, promoted consumption growth 2007-Mid 2008: Real income a declining positive, real costs a negative Mid 2008-2009: Real income and real costs both negative FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Estimates of “Real GDP” elasticity for Canadian poultry and meat 1961-2007 Product Broiler Turkey Eggs** Beef Pork Real GDP Elasticity* 1.202 0.437 0.223 0.178 0.442 $1 Billion Real GDP Consumption Impact (Tons) 828 46 61 133 316 R2 0.99 0.90 0.90 0.37 0.90 * % consumption increase for 1% increase in real GDP ($CA 2000) ** 1988-1998 impact of “cholesterol” -26,500 tons per year (-8%) (t = -7.8) FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Meat shares reflect GDP elasticity 0.437 100% 1.202 60% 0.442 40% 20% 0.178 0% 19 61 19 64 19 67 19 70 19 73 19 76 19 79 19 82 19 85 19 88 19 91 19 94 19 97 20 00 20 03 20 06 20 09 Share 80% Beef + Veal Pork Broilers Turkey FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Other possible factors… Population demographics/diversity? HRI vs. retail sales channel? Labor force trends? Food scares and diet information? Relative food safety records of meats? Product image? Changes in basic product form and mix? Product costs/prices? FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Macroeconomic outlook 2010-2011 Best case – recovery begins in Q4 2009 with 24% real consumer spending growth in 2010/2011 Worst case – recession lingers into 2010 Unemployment not likely to drop until 2010 Likely to see a U-shape, not a V-shape, recovery in GDP, income, and food spending Risks of higher inflation and interest rates in 2010 forward FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Feed cost outlook 2010-2014 No return to 2005 feed costs Feed costs linked to energy prices by biofuels A recovering economy can drive energy and feed costs higher U.S. ethanol RFS increases from to 10.5 bg in 2009 to 12.0 bg in 2010 Feed cost volatility likely to be much higher than anytime in the past FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President 400 700 350 600 300 Corn price driven by RFS demand floor and ethanol tax credit 500 400 300 Corn price driven by energy value + ethanol tax credit 250 200 150 200 100 100 50 0 0 Corn, Central Ill. Elevator Bid Regular Gasoline, Wholesale, NY Gasoline, Cents/Gallon 800 1/ 2/ 20 2/ 08 2/ 2 3/ 008 2/ 20 4/ 08 2/ 2 5/ 008 2/ 20 6/ 08 2/ 2 7/ 008 2/ 20 8/ 08 2/ 20 9/ 08 2/ 10 200 /2 8 /2 11 00 /2 8 / 12 200 /2 8 /2 0 1/ 08 2/ 20 2/ 09 2/ 2 3/ 009 2/ 20 4/ 09 2/ 2 5/ 009 2/ 20 09 Corn, Cents/Bushel The corn-ethanol price link FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President U.S. Broiler Feed Costs 2005-2008 Corn Price, Central Ill. ($/Bu.) + $0.50 Soybean Meal Price ($/ton , 47%) +$20 Other Costs ($/ton) Broiler Feed Costs (¢/lb, Live) Broiler Feed Costs (¢/lb, RTC) Lowest Month Broiler Feed Costs (¢/lb, RTC) Highest Month Broiler Feed Cost (¢/lb, RTC) Broiler Feed Costs (¢/lb, RTC) Range 2005 $2.40 $211 $400 15.72¢ 23.46¢ 21.68¢ 25.59¢ 3.91¢ 2006 $2.91 $197 $400 16.14¢ 24.09¢ 22.25¢ 27.79¢ 5.54¢ 2007 $4.01 $256 $400 20.16¢ 30.09¢ 27.77¢ 35.56¢ 7.79¢ How well will the Canadian supply management system cope with almost 4x historic cost volatility? Added $0.50/bu. for corn and $20/ton for soybean transportation and handling Based on 1.9:1 FCR, 55% corn, 35% SBM, 10% Other 2008 $5.40 $357 $450 26.56¢ 39.64¢ 32.05¢ 47.32¢ 15.27¢ FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Feed cost range for 2010-2014 What will energy prices do? Corn has a RFS-driven floor at about $US 3.00-$3.50 cash Midwest Ceiling is set by how high oil might go and what government does with biofuels program Protein and by-product feeds follow corn Probably the biggest challenge the industry faces over the next 5 years FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President The very, very, bottom line: Recent issues in global poultry consumption: First, higher real costs = higher poultry and egg prices Second, the 2008/2009 recession has decreased incomes and caused weak demand Both are negatives for poultry production and consumption 2010 - improved incomes, slightly higher costs FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President But more importantly… Why is GDP tightly linked to poultry and egg demand? What basics created that link? Quality products Safe products Production system controls Competitive pricing vs. other proteins Innovation in production and processing Being close to the customer and consumer Excellent animal husbandry and disease prevention Environmental stewardship And more… FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Global meat production shares… Not a result of economists’ equations! 100% 80% 60% 40% 20% Chicken Turkey Pig Bovine Sheep and Goat Other 06 20 03 20 00 20 97 19 94 19 91 19 88 19 85 19 82 19 79 19 76 19 73 19 70 19 67 19 64 19 19 61 0% FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Finally… Increases in poultry product consumption are not guaranteed, even with real economic growth Income is opportunity, not sales Continual improvement is essential Don’t forget the basics!
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