www.codevasf.gov.br Investment Opportunity in Poultry in the Valley of the São Francisco and Parnaíba Rivers INTEGRATED SUSTAINABLE BUSINESS PROJECT
Dec 15, 2015
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Investment Opportunity in Poultry in the Valley of the São Francisco and Parnaíba
Rivers
INTEGRATED SUSTAINABLE BUSINESS PROJECT
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Project Team
PRESIDENT OF THE REPUBLIC MINISTER OF NATIONAL INTEGRATIONLuiz Inácio Lula da Silva Geddel Vieira Lima
CODEVASF DIRECTORY
President: Orlando Cezar da Costa Castro
Cabinet Chief: Manoel Geraldo Dayrell
Director of the area of Integrated Development and Infra-Structure: Clementino Souza Coelho
Executive Secretary: José Eduardo Borella
Director of the area of Irrigation Companies Management: Raimundo Deusdará Filho
Executive Secretary: Frederico Calazans Machado
Director of the Area of Hydrografic Basins Revitalization: Jonas Paulo de Oliveira Neres
Executive Secretary: Silas Macedo
Executive Manager of Strategic Administration: Alexandre Isaac Freire
Executive Secretary of Administrative Management and Logistic Support: João Honório Carvalho Ramos
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Agenda
• Introduction
• Business Model
• Profitability Analysis
• Irrigation Projects (CODEVASF)
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INTRODUCTION
• Project DescriptionThis project is a governmental initiative, aiming to attract investments to the Valley of the São Francisco and Parnaíba Rivers (Web page: http://www.fundace.org.br/pins).
• PENSAAgribusiness Intelligence Center. PENSA researchers are responsible for the business models proposition, economic and marketing analysis and for the interaction with potential investors tailoring the analysis to their particular needs (Web page: http://www.pensa.org.br).
• CODEVASFSão Francisco and Parnaíba Develoment Company, which the mission is to develop economically and socially the Valley of the São Francisco and Parnaíba Rivers (Web page : http://www.codevasf.gov.br).
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Poultry: An Opportunity
• Brazil is the third largest producing country and the first exporting country of poultry in the world.
• According to ABEF (Brazilian Poultry Exporter Association), there was an increase in Brazilian exports of 35% from 2004 to 2005.
• Poultry strengthen small holder production. It is a non- seasonal activity that generates wealth for the grower.
• Poultry industry generates surpluses for the country. It demands high quantities of grain and corn.
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Poultry at the Valley of the São Francisco River
• Water available for implementing the poultry houses, slaughterhouses and all the
needed infra structure;
• The Brazilian Northeast state capitals are equally distant from the target production
area (West of Bahia State);
• Grain supply is located in the region;
• Good quality water available;
• Energy available;
• Qualified labor available;
• Contaminants absence on the surroundings;
• Good road conditions for shipping to all over the Brazilian Northeastern and Center-
West.
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Business Model
Sourcing Strategies:
1.Vertically Integrated Production
2.Contracted Poultry Raisers (quasi-integration)
Vertically Integrated Poultryhouse
Contracted Poultry Raisers
Contracted Poultry Raisers
Processing PlantProcessing Plant
RetailersRetailers
WholesalersWholesalers
Food Service
CONSUMER
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Inputs ProcessingPlant
Distribution Channels
Regional Consumer
National Consumer
Suppliers•Chicks
• Feeding • Vet Products
Poultry raisers(20.000 poultries /
Cycle)
Anchor Firm(21.000 poultry /day)
• Chicken •Production of poultry
food
Contract for buying the poultry
Contracts for delivering the poultry
Financing Organizations(Banks)
Coordinating Agents (CODEVASF; AIBA)
PENSA
Poultry Production
Input delivery guaranteed
Contract for buying input
Contract for feeding the poultry
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Implementation of Poultry Houses
Year 0 Year 1 Year 2 Year 3 Year 46 6 10 12 14
Total 6 12 22 34 48
Number of Poultry Houses
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Poultry Plant Processing Capacity
• One-day chicks – to supply the contracted poultry raiser: $0.44/chicken; $0.44/chicken; • Poultry Food – to supply the poultry raiser: $2.03/chicken;$2.03/chicken; Vet products – to supply the poultry raiser: $0.02/chicken;$0.02/chicken;• Chicken – bought from the poultry raiser: $0.35/chicken;$0.35/chicken;
Processing Plan Processing Plan
Poultry raiserPoultry raiser
• Manure: $0.05/chicken;$0.05/chicken; 27% cost 27% cost
Other costs27%
Poultry Food
52%
chicks11%
Vet Products
1%
Purchased Chicken from the poultry raiser
9%
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Corn Demand and Land Availability
• Assumptions:– 1 poultry house demands
411,000 kg of corn/year.– 1 ha of corn yields 3,600 kg
per year.
• Conclusions:– 1 poultry house demands
an annual production of 115 ha of corn.
– The proposed model is composed of 48 poultry houses that will demand corn out of 5,520 ha yearly.
~1ha
1 poultry house = 1 ha
1 poultry house demands 115 ha of corn
48 = 5,520 ha of corn
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Quasi-Integration Assumptions
• Needed area for building the poultry houses: 9,612m²;
• Warehouse dimensions: 11.4m x 147m = 1,676m²;
• Poultry house capacity : 20,000 chickens;
• Density : 12 chickens/m²;
• Average mortality: 4%;
• Number of poultry raisers: 48;
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Quasi-Integrated Production
Year
Profit per Producing Unit
(with one family member) (with two family members)
1 17,031.07 21,971.07
2 19,125.86 24,065.86
3 20,032.55 24,972.55
4 20,817.13 25,757.13
5 21,492.40 26,432.40
6 22,069.92 27,009.92
7 22,560.11 27,500.11
8 22,972.37 27,912.37
9 23,315.17 28,255.17
10 23,596.14 28,536.14
11 23,561.34 28,501.34
12 23,103.31 28,043,31
13 22,665.62 27,605.62
14 22,251.80 27,191.80
15 21,860.55 26,800.55
16 21,490.64 26,430.64
17 21,140.91 26,080.91
18 20,810.25 25,750.25
19 20,497.63 25,437.63
20 20,202.06 25,142.06
Annual Annual AverageAverage 21,529.8421,529.84 26,469.8426,469.84
The family profit is generated from:
a) Selling chicken to the processing plant;
b) Selling the manure for agricultural fertilizing;
c) Number of family members who work in the poultry house;
Regarding (c), family may employ one or two family members:
1. own farmer plus a hired assistent (with one family member);
2. own farmer plus a family member (with two family member);
* All calculations in the proposed business model considered the use of one family member.
The family profit is generated from:
a) Selling chicken to the processing plant;
b) Selling the manure for agricultural fertilizing;
c) Number of family members who work in the poultry house;
Regarding (c), family may employ one or two family members:
1. own farmer plus a hired assistent (with one family member);
2. own farmer plus a family member (with two family member);
* All calculations in the proposed business model considered the use of one family member.
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• * These two people should be at the poultry house throughout the year.
• **Just needed for the chick reception and for the chicken shipment to the processing plant.
Labor for the Poultry House
Description Labor R$/chick % costs
Labor* 02 0.07 31%
Labor for shipping** 15 0.03 11%
TOTAL 17 0.10 42%
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Vertically coordinated
poultry raisers
- Raise the poultry following quality standards defined by the anchor company; - Follow the contract according to what has been agreed with the anchor company;
Anchor Company
- Establishment of special production requirements;- Technology transfer to the poultry raisers; - Poultry Food, chick and vet product supplies;- Purchase the agreed quantity from poultry raisers;- Product logistics from the poultry farm to the processing unit; - Poultry processing; - Establishment of Marketing channels;
AIBA (Bahia Irrigating Growers
Association )
- The association will help promoting the poultry in the region and attracting potential growers;- Help intermediating contacts with the financial organizations (banks) to make available special funds for the poultry raisers;
Players’ Role Definition
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Poultry Raiser Assumptions
• Area is smaller than 1 ha inside a farm of 7 ha;
• Technologic level : medium;
• Poultry house investment: R$ 151,704.08;
• Poultry house capacity : 20,000 chicken;
• Production cycle : 42 days (plus 12 days for sanitary protection);
• Price received by chicken : R$0.35;
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Processing Plant Assumptions
• Product will be marketed in Brazil;
• Marketing Channels: 80% retailing and 20% wholesaling;
• Processing capacity: 21,000 chickens/day;
• Input costs (animal food, chicks, vet products): R$2.49/chicken;
• Investment: R$11,058,329.00;
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Future Exporting Routes
• Future logistic route options for investors interested in production exportation:
– Salvador port, using the east-west railroad and FCA;
• Construction of the first part of east-west railroad is planned to debut in 2009.
– Itaqui Port, using road and railroad;
• The white railroad is already under construction and must be concluded in 2011.
Carajas Rail Road
Centro-Atlantica Railroad
North-South Railroad
East-West Railroad (Forectas)
North South Rail Road (forecast)
Hidrovia
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Benefits for the Social and Economic Development
Source: Pensa
Input Firms
• 27,676 tons of food . Yearly.
• 6.55 million chicks per year.
• Total expected revenues: R$ 16. 17 million.
Poultry Production(Local Poultry Raisers)
• 48.
•Average net profit generated at the poultry production level: R$ 1.03 million.
Processing Plant(Anchor)
•Investments: R$ 11.06 million.
• Total capacity 50,000 chickens /day.
• Effective capacity : 21.000 chickens / day.
•Annual turnover (from the 3o. Year on: R$ 33.3 million.
•500 direct jobs.
• 2,000 indirect jobs.
* Considering the internalization of only one sallary by the colonist.
20 www.codevasf.gov.brSource: Pensa
EXTRA REVENUES FOR LOGISTIC FIRMS
Stage R$Poultry Food and Chick suppliers to the poultry
house339,531.01
Poultry house to the processing plant 210,318.31
Marketing Channel Distribution 583,571.76
TOTAL 1,133,421.09
TAX GENERATION
Federal Taxes 3,973,797.24
State Taxes 5,710,339.90
City Taxes 12,094.61
TOTAL 9,696,231.76
Benefits for the Social and Economic Development
21 www.codevasf.gov.brSource: Pensa
• Production Diversification;
• Value-adding activities through agro-industrialization;
• Potential increase in animal protein consumption in the region;
• Introduction of a new partnership production model, with quasi-integration
contracts;
• Reduced poultry costs:
– Cost per kilo without the quasi-integration project: R$1.60;
– Cost per Kilo with the quasi-integration project: R$1.18;
- 26%- 26%
Benefits for the Social and Economic Development
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Standard Economic Analysis
Poultry production Processing plant
POULTRY
Processing Cost
Summary Inputs
investments
Graphs
Cash Flow
Detailed Production Cost
Cash Flow
Input Production
Consolidated Cash Flow
Consolidated analysis
I nP u T s Production Cost
Simulations
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Revenues X Costs: Processing Plant
Source: SigConsult / PENSA
Revenues X CostsProcessing Plant
0
100
200
300
400
500
600
700
dez/01 dez/02 dez/03 dez/04 dez/05 dez/06 dez/07 dez/08 dez/09 dez/10 dez/11 dez/12 dez/13 dez/14 dez/15 dez/16 dez/17 dez/18 dez/19 dez/20
MIll
ion
R$
Months Gross Accumulated Revenues (R$) Overall accumulated costs (R$)
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Detailed Planned Turnover
Source: SigConsult / PENSA
P roduc t Mix T urnover
C hiclen back2,89%
B reast fillet2,14%
F rozen C hiken49,71%
B aking C hiken2,70%
C hicken wings1,55%
Outros1,90%
C hicken B reast8,22%
R efrigerated C hiken2,17%
almost ready C hicken11,28%
C hicken 7,28%
"B anda de F rango"10,15%
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Processing Plant Capacity
Source: Pensa
Total capacity. Part of it is not ready for freezing purposes. Installed capacity with freezing equipment. Installed capacity with freezing equipment minus expected losses. Current capacity used by the firm.
Total capacity. Part of it is not ready for freezing purposes. Installed capacity with freezing equipment. Installed capacity with freezing equipment minus expected losses. Current capacity used by the firm.
50
30
21
9
0
10
20
30
40
50
60
Installed Installed (with freezers) Effective Used
SLaughter Capacity
Thousand chickens/day
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Net Present Value Evolution of an Individual Poultry Raiser
Source: Pensa
Retorno Investimento
Net Present Value
R$ (200,000.00)
R$ (150,000.00)
R$ (100,000.00)
R$ (50,000.00)
R$ -
R$ 50,000.00
R$ 100,000.00
R$ 150,000.00
R$ 200,000.00
jan/01
jan/02
jan/03
jan/04
jan/05
jan/06
jan/07
jan/08
jan/09
jan/10
jan/11
jan/12
jan/13
jan/14
jan/15
jan/16
jan/17
jan/18
jan/19
jan/20
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Processing Plant Net Present Value Evolution
Source: Pensa
Retorno Investimento
Accumulated NPV(21,000 chickens per day).
(20,000,000.00)
(10,000,000.00)
-
10,000,000.00
20,000,000.00
30,000,000.00
40,000,000,00
50,000,000.00
jan/01se
t/01
mai/02jan/0
3se
t/03
mai/04jan/0
5se
t/05
mai/06jan/0
7se
t/07
mai/08jan/0
9se
t/09
mai/10jan/1
1se
t/11
mai/12jan/1
3se
t/13
mai/14jan/1
5se
t/15
mai/16jan/1
7se
t/17
mai/18jan/1
9se
t/19
mai/20
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Financial Analysis
• IRR poultry production (20 years): 19.76%;• NPV poultry production: R$ 175,094.94;
• IRR processing plant (20 years): 31.13%;• NPV processing plant: R$ 38,104,650.46;
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Sensitivity analysis – Poultry Farmer
0.1897 0.2134 0.2371 0.2609 0.2846
80% 90% 100% 110% 120%
0.28 80% 17.87% 15.64% 13.43% 11.21% 8.97%
0.32 90% 21.09% 18,82% 16,59% 14,38% 12,18%
0.35100
% 24.37% 22.04% 19.76% 17.53% 15.32%
0.39110
% 27.74% 25.33% 22.98% 20.70% 18.46%
0.42120
% 31.23% 28.72% 26.29% 23.93% 21.63%
Poultry house cost – R$/chicken
Price received by poultry
farmerR$/chicken
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Sensitivity Analysis - Processing Industry
Processing Industry Cost – R$/chicken
Average Revenue
R$/chicken
Proportion of sales to retailers or wholesalers 3.1091 3.4978 3.8864 4.2750 4.6637
Retail Wholes. 80% 90% 100% 110% 120%
5.22 90% 10% 65.86% 49.89% 35.36% 22.26% 9.95%
5.09 80% 20% 61.01% 45.33% 31.13% 18.28% 5.66%
4.95 70% 30% 56.20% 40.83% 26.96% 14.26% 0.79%
4.82 60% 40% 51.44% 36.40% 22.83% 10.11% -5.55%
4.68 50% 50% 46.74% 32.03% 18.72% 5.69% #DIV/0!
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Feeding Cost for the Processing Unit – R$/chicken
Average Revenue
R$/chicken
1.6219 1.8247 2.0274 2.2301 2.4329
80% 90% 100% 110% 120%
4.07 80% 12.85% 5.56% -3.39% #DIV/0! #DIV/0!
4.58 90% 29.17% 22.16% 15.40% 8.60% 1.03%
5.09 100% 45.98% 38.35% 31.13% 24.29% 17.74%
5.59 110% 63.66% 55.41% 47.54% 40.06% 32.99%
6.10 120% 82.03% 73.27% 64.83% 56.74% 49.02%
Sensitivity Analysis - Processing Industry
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Risk Considerations
• Price Risk:
Poultry price : according to local agents, the minimum price a local chicken farmer
would receive is R$0.28/chicken (20% lower considered in the financial analysis);
Inputs: international corn demand (biofuel);
Processing Plant: chicken consumption in the Brazilian northeast is growing fast
and the prices might go up;
• Credit risk:
Interest of “Banco do Brasil” and other regional banks for the project;
• Operational Risk:
Investors who were contacted are knowledgeable on poultry industry;
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Barreiras Norte
• Started in 1999;• Location: Barreiras (BA);
• Total irrigable area : 2,093 ha; – 758 ha for small holders.– 1,335 ha for medium growers.
• Production:– The main crops cultivated are mangos and bananas (65% of the
project).– Other crops are corn, manioc, beans, and pastures. – There are 1,500 ha to be explored inside the project.
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São Desidério/Barreiras Sul
• Started in 1978;• Location: Barreiras (BA);
Characteristics: • Irrigable land : 2,238 ha;
– 2,099 ha for small holders.– 139 ha for medium grower.
• Production: Mango, coconuts, corn and manioc are the most produced crops;
• There is an area of 770 ha to be exploited inside the project;
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Responsible Team
CODEVASF
Director of the area of Integrated Development and Infra-Structure
Clementino de Souza Coelho
Board Assistant of the area of Integrated Development and Infra-Structure
Alvane Ribeiro Soares
First Secretary of the area of Integrated Development and Infra-Structure
Guilherme Almeida Gonçalves de Oliveira
PENSACoordinator: Prof. Dr. Marcos Fava NevesExecutive Manager of the Project: Luciano Thomé e CastroExecutive Manager of the Project : Ricardo Messias RossiExecutive Assistant of the Project: Vinicius Mazza da SilvaExecutive Assistant of the Project : Marina Darahem Mafud
Technical TeamResponsible Researcher: Fabio Matuoka MizumotoAssistant Researcher: Camila Dias de SáContributor: Ciro Orihuela Masili
Translation: Central de Traduções
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For further Information:
E-mail: [email protected]
Mail Address:Av. Pres. Vargas, 2001- Conj. 143/144, Jardim AméricaRibeirão Preto - SP - CEP: 14.020-260Tel.: +55 (16) 3911 6088
INTEGRATED SUSTAINABLE BUSINESS PROJECTS