Jeroen Leffelaar,Rabobank International

1. Rabobank International
The outlook for groundfish:
positive or very positive?
Jeroen Leffelaar, Global Co-Head Animal Protein
15 August 2012
1
Rabobank International

2. What’s on our minds: the Euro……
EUR/USD Exchange-rate and Net Speculative position
Unemployment and
uncertainty are
increasingly
impacting individual
consumers all over
Europe
Low Euro may be
good for Europe’s
overall export
position, it impacts
cost in the white fish
industry
US, NOK and Ruble
denominated raw
material become
more expensive
Consequently
processing fish in
China is more
expensive
Source: Macbond 2012
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3. ....but also the spike of agro-commodities
Key Agro-commodities index 2000=100
500
Currently we are close
to approaching levels
of the 2007/08 season 450
400
Weather problems and
record low stock levels
have created 350
shortages of key agri-
commodities
300
Investors are quickly 250
rushing into
commodity contracts
further inflating spot 200
prices
150
100
50
0
31-12-2004 31-12-2005 31-12-2006 31-12-2007 31-12-2008 31-12-2009 31-12-2010 31-12-2011
wheat corn soybean meal soybean oil
Source: Bloomberg 2012
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4. ...to conclude: fish meal and fish oil back on the rise
Fish meal and fish oil usd/mt
2500
A lower TAC in Peru
and strong demand
from China for pig and
aquaculture feed
2000
Additionally the
salmon feed industry
is running at full
capacity 1500
1000
500
0
6.1.2005 6.1.2006 6.1.2007 6.1.2008 6.1.2009 6.1.2010 6.1.2011 6.1.2012
Fish oil,any orig,cif N.W.Eur Fishmeal, 64/65%, Bremen fca(h)
Source: Oilworld 2012
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5. All protein species are facing their constraints. Groundfish
may have a slightly different faith than others
Meat processors are
facing increasing
resistance from
retailers to pass on
the feed higher cost
Rising cost
Overall meat due to agro
consumption is commodity
stagnant at best
prices
Cost are rising for
many seafood
producers,
particularly for those Supply
in aqua culture
increase
impacting
Non-Euro price levels
denominated wild
catch may become
more expensive but
additional supply Euro crisis
may offset this
impacting demand
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6. Salmon is experiencing one of the largest growth in
supply ever
Strong supply from
Norway is
Atlantic Salmon prices NOK/kg (left axis) and yearly global supply change (right axis)
coinciding with
Chile recovering
from the ISA
50 18.0%
outbreak 15.6%
12.3%
45 16.0%
14.0%
Salmon prices are 40
down to 25 Nok/kg
12.0%
35
yearly suppy change
having been above
40 NOK/kg in early
2011 10.0%
30 6.7%
Nok/kg
8.0%
A 37% drop in price 25
due to Norwegian 6.0%
exports rising by 20
more then 30% in 4.0%
H1 2012
15
2.0%
10 0.0%
5 -2.0%
-1.7% -1.37%
0 -4.0%
2008 2009 2010 2011 2012
Source: NOS Clearing 2012
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7. In the broad groundfish market we are witnessing
gradual supply expansion
The groundfish Global groundfish production
sector across the
world is benefiting
from years of
improving
sustainability
8000
And maybe a
helping hand from
7000
global warming?
Redfish
Biomass is high and
6000
Cape hake
still increasing for
key species Pacific cod
5000
Hoki
Most of the industry Haddock
is now MSC certified
4000
and considered the North Pacific Hake
best managed wild
3000 South American Hakes
catch industry
globally Saithe
2000
Atlantic Cod
1000 Alaska pollock
0
2006 2007 2008 2009 2010 2011E 2012E
Source: Rabobank based on Groundfish forum and FAO data 2012
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8. Although Atlantic Cod production is growing
somewhat faster
Atlantic Cod production
Atlantic Cod is
probably the fastest
expanding groundfish
species in terms of 1 400
TAC Thousands
1 200
Driven by Russia and
Norway, TAC has
grown on average by 1 000
8.4% in the last four
years
800
Excellent biomass may
allow for a 15-20%
expansion of the TAC 600
in 2013
400
If the additional
volumes would be
harvested will it 200
create a price crash?
-
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012E 2013E
Norway Iceland Russia Denmark UK Spain Sweden Germany Canada Other
Source: Rabobank based on Kontali data 2012
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9. ….Probably no price crash, but some cod niche
products may be impacted
Most impacted
products are those
unique to cod such
as clip fish and
salted cod
These already have
had a price decline
The bulk of the
products which can
be seen as part of
the broader
groundfish category
(such a blocks and
fillets) will be less
impacted by the
increasing volumes
Source: Kontali Cod Report 2012
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10. Groundfish products are primarily positioned in the
“recession resistant zone”
Products such as fish
and chips, fish fingers,
high
surimi and VAP frozen
seafoods are typically
more resilient to
recessionary dynamics
At retail level
groundfish are
Value position
strongly represented
in the frozen seafood
category – typically a
better performer in
recessions
At food service level
groundfish are more
exposed to QSR then
other seafood
products - also
positive in recessions
Note on salmon: A
Low
very large part of
salmon is sold fresh
and smoked – this is
not a market with
much overlap with the Retail Foodservice
markets of the
groundfish species Sales Channel
Source: Rabobank 2012
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11. In addition market share can be won back from the
farmed fresh water species
Pangasius is on the
decline in Europe
caused by poor
quality,
sustainability issues
and poor image of
the species. This
will be very hard to
improve.
After years of
growth Tilapia
consumption in the
US declined in 2011
It is hard to imagine
that China will
continue to
dominate the export
of Tilapia given its
internal demand,
increasing pressure
on resources (land,
feed, water)
Long term: Either
exports will decline
or global tilapia
prices will increase
significantly
Source: Intrafish, Kontali Monthly Groundfish supplement 2012
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12. In the last 5 years groundfish has returned as the leading
white fish source
14
Millions tonnes
In the 1990 the
groundfish industry
was declining as TAC 12
had to be cut to
ensure long term
sustainability. There 10
was a growing, but
very small fresh water
white fish industry.
8
Between 2002 and
2008 while the 6
groundfish supply
stagnated pangasius
and tilapia expanded
greatly. At that time 4
expectations were
that the market will be -0.5% p.a.
dominated by farmed 2
products.
High commodity costs, 0
declining image and
production constraints
have greatly reduced
the growth rate of
white fish aquaculture Groundfish Fresh water white fish
in the last 5 years. At
the same time strong • Groundfish recovering
wild biomass has • Market declining • Fresh water species • Fresh water low
allowed for increasing • No fresh water species presence yet booming
catches of groundfish
growth
Source: Rabobank based on FAO, Kontali and Groundfish form figures
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13. In the future China may become an important market for
groundfish products
China currently is a
growing consumer
of surimi but
otherwise not a
market for
groundfish
VAP seafood and
frozen seafood can
not be sold at a wet
market
Modern retail can
supply both a frozen
and a fresh VAP
seafood category
which in the west
has been the realm
of the groundfish
Traditional Chinese
QSR has no breaded
and battered
groundfish fish.
Rapidly expanding
western fast food
chains could be a
platform for and
expansion of these
product
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14. Population growth and urbanization
China’s cities will gain 182 million consumers in the next 10 years
bringing the urban share to ~60%
China’s population forecast in 2020 Current urbanization rate by province
Source: United Nations, Rabobank Source: China Statistics Yearbook 2009
2020 57.5% 42.5% 1,431 mln Heilongjiang
Jilin
2015 Xinjiang Beijing
Liaoning
53.8% 46.2%
Inner Mongolia
1,396 mln Tianjin
Hebei
Ningxia Shanxi Shandong
Qinghai
2010 Gansu
Henan Jiangsu
47.3% 52.7% Shaanxi
Shanghai
1,354 mln Tibet Hubei Anhui
Sichuan Chongqing Zhejiang
Jiangxi
2000 1,267 mln Guizhou Hunan Fujian
36.2% 63.8% Urbanization Rate
<40%
Guangxi Guangdong
Yunnan Taiwan
40-50%
0 500 000 1 000 000 1 500 000
50-60%
Urban Rural Hainan
>60%
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15. China’s consumer channels are adopting Western model
QSR and food retail dominate this change
QSR revenues in China China’s supermarket growth
Source: China Statistics Yearbook (Billion RMB) Source: Rabobank, Company data (Trillion RMB)
50
45.46
45 3.0
40.43
40
2.5
35 32.46
30 2.0
25 23.51
22.39
1.5
20 18.55
14.51
15 1.0
10
0.5
5
0 0.0
2003 2004 2005 2006 2007 2008 2009 2003 2004 2005 2006 2007 2008 2009
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16. Key takeaways
 Its a volatile environment in Europe also impacting the seafood industry
– Consumer spending in the EU under pressure
– In general production costs are increasing while the end products price are falling (for example
salmon and shrimp farmers world wide)
– Groundfish sector may be exposed to increasing fuel cost and the consequences of moving
Long term outlook exchange rates
groundfish sector is
positive
 The groundfish sector is also experiencing increasing supply, but we do not believe a price crash
A sustainable sector similar to that of salmon is likely to occur
with good biomass – Groundfish end products are largely found in recession resistant parts of the seafood market
Potential additional
demand in emerging
– Salmon is not a real competitor
markets – Competition with fresh water white fish is reducing. We do not believe that Pangasius and Tilapia
will erode prices and continue to grow at historical levels in Europe or the US
Short term demand – Key markets Spain and Portugal are holding up to date. Increasing demand from Brazil
could be impacted
rather by worsening
global economic  Long term positive view on the sector
conditions and
exchange rates than – Strong commitment to sustainable fishing has paid off with excellent biomass conditions
additional quota
– Also in the long run cost competiveness of Tilapia and Pangasisus is unlikely to improve versus
the wild caught groundfish, therefore allowing groundfish to recapture market share
– Potential additional demand for groundfish:
 Asia and China are largely unexplored markets for this industry
 Market penetration of modern retail and Western food consumption patterns may unlock
significant opportunities for groundfish in Asia
 Increasing internal demand may limit export of competing white fish products from China
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