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!