Presentation on theme: "1 www.codevasf.gov.br Investment Opportunity in Poultry in the Valley of the São Francisco and Parnaíba Rivers INTEGRATED SUSTAINABLE BUSINESS PROJECT."— Presentation transcript:
1 www.codevasf.gov.br Investment Opportunity in Poultry in the Valley of the São Francisco and Parnaíba Rivers INTEGRATED SUSTAINABLE BUSINESS PROJECT
2 www.codevasf.gov.br Project Team PRESIDENT OF THE REPUBLIC MINISTER OF NATIONAL INTEGRATION Luiz 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
3 www.codevasf.gov.br Agenda Introduction Business Model Profitability Analysis Irrigation Projects (CODEVASF)
4 www.codevasf.gov.br INTRODUCTION Project Description This 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). PENSA Agribusiness 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). CODEVASF São 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).
5 www.codevasf.gov.br 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.
6 www.codevasf.gov.br 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.
7 www.codevasf.gov.br Business Model Sourcing Strategies: 1.Vertically Integrated Production 2.Contracted Poultry Raisers (quasi-integration) Vertically Integrated Poultryhouse Contracted Poultry Raisers Processing Plant Retailers Wholesalers Food Service CONSUMERCONSUMER
8 www.codevasf.gov.br Inputs Processing Plant 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
9 www.codevasf.gov.br Implementation of Poultry Houses Year 0Year 1Year 2Year 3Year 4 66101214 Total 612223448 Number of Poultry Houses
10 www.codevasf.gov.br Poultry Plant Processing Capacity $0.44/chicken;One-day chicks – to supply the contracted poultry raiser: $0.44/chicken; $2.03/chicken;Poultry Food – to supply the poultry raiser: $2.03/chicken; $0.02/chicken; Vet products – to supply the poultry raiser: $0.02/chicken; $0.35/chicken;Chicken – bought from the poultry raiser: $0.35/chicken; Processing Plan Poultry raiser $0.05/chicken;Manure: $0.05/chicken; 27% cost Other costs 27% Poultry Food 52% chicks 11% Vet Products 1% Purchased Chicken from the poultry raiser 9%
11 www.codevasf.gov.br 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
12 www.codevasf.gov.br 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;
13 www.codevasf.gov.br Quasi-Integrated Production Year Profit per Producing Unit (with one family member)(with two family members) 117,031.0721,971.07 219,125.8624,065.86 320,032.5524,972.55 420,817.1325,757.13 521,492.4026,432.40 622,069.9227,009.92 722,560.1127,500.11 822,972.3727,912.37 923,315.1728,255.17 1023,596.1428,536.14 1123,561.3428,501.34 1223,103.31 28,043,31 1322,665.6227,605.62 1422,251.8027,191.80 1521,860.5526,800.55 1621,490.6426,430.64 1721,140.91 26,080.91 1820,810.2525,750.25 1920,497.6325,437.63 2020,202.0625,142.06 Annual Average 21,529.8426,469.84 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.
14 www.codevasf.gov.br * 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 DescriptionLaborR$/chick% costs Labor*020.0731% Labor for shipping**150.0311% TOTAL170.1042%
15 www.codevasf.gov.br 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
16 www.codevasf.gov.br 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;
17 www.codevasf.gov.br 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$11,058,329.00;
18 www.codevasf.gov.br Future Exporting Routes Future logistic route options for investors interested in production exportation: – Salvador port, using the east-west railroad and FCA; Construction of the first part of east-west railroad is planned to debut in 2009. – Itaqui Port, using road and railroad; The white railroad is already under construction and must be concluded in 2011. Carajas Rail Road Centro-Atlantica Railroad North-South Railroad East-West Railroad (Forectas) North South Rail Road (forecast) Hidrovia
19 www.codevasf.gov.br Benefits for the Social and Economic Development Source: Pensa Input Firms 27,676 tons of food. Yearly. 6.55 million chicks per year. Total expected revenues: R$ 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.br Source: Pensa EXTRA REVENUES FOR LOGISTIC FIRMS StageR$ Poultry Food and Chick suppliers to the poultry house 339,531.01 Poultry house to the processing plant210,318.31 Marketing Channel Distribution583,571.76 TOTAL1,133,421.09 TAX GENERATION Federal Taxes3,973,797.24 State Taxes5,710,339.90 City Taxes12,094.61 TOTAL9,696,231.76 Benefits for the Social and Economic Development
21 www.codevasf.gov.br Source: 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$1.18; - 26% Benefits for the Social and Economic Development
22 www.codevasf.gov.br Standard Economic Analysis Poultry production Processing plant POULTRY Processing Cost Summary Inputs investments Graphs Cash Flow Detailed Production Cost Cash Flow Input Production Consolidated Cash Flow Consolidated analysis I nP u T s Production Cost Simulations
25 www.codevasf.gov.br Processing Plant Capacity Source: Pensa Total capacity. Part of it is not ready for freezing purposes. Installed capacity with freezing equipment. Installed capacity with freezing equipment minus expected losses. Current capacity used by the firm. 50 30 21 9 0 10 20 30 40 50 60 InstalledInstalled (with freezers)EffectiveUsed SLaughter Capacity Thousand chickens/day
26 www.codevasf.gov.br Net Present Value Evolution of an Individual Poultry Raiser Source: Pensa Retorno Investimento Net Present Value R$ (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/01jan/02jan/03jan/04jan/05jan/06jan/07jan/08jan/09jan/10jan/11jan/12 jan/13jan/14 jan/15jan/16 jan/17jan/18jan/19jan/20
30 www.codevasf.gov.br Sensitivity Analysis - Processing Industry Processing Industry Cost – R$/chicken Average Revenue R$/chicken Proportion of sales to retailers or wholesalers3.10913.49783.88644.27504.6637 RetailWholes.80%90%100%110%120% 5.2290%10%65.86%49.89%35.36%22.26%9.95% 5.0980%20%61.01%45.33%31.13%18.28%5.66% 4.9570%30%56.20%40.83%26.96%14.26%0.79% 4.8260%40%51.44%36.40%22.83%10.11%-5.55% 4.6850% 46.74%32.03%18.72%5.69%#DIV/0!
31 www.codevasf.gov.br Feeding Cost for the Processing Unit – R$/chicken Average Revenue R$/chicken 1.62191.82472.02742.23012.4329 80%90%100%110%120% 4.0780%12.85%5.56%-3.39%#DIV/0! 4.5890%29.17%22.16%15.40%8.60%1.03% 5.09100%45.98%38.35%31.13%24.29%17.74% 5.59110%63.66%55.41%47.54%40.06%32.99% 6.10120%82.03%73.27%64.83%56.74%49.02% Sensitivity Analysis - Processing Industry
32 www.codevasf.gov.br 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;
33 www.codevasf.gov.br Considered Irrigation Projects at Codevasf
34 www.codevasf.gov.br 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.
35 www.codevasf.gov.br 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;
36 www.codevasf.gov.br 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 PENSA Coordinator: Prof. Dr. Marcos Fava Neves Executive Manager of the Project: Luciano Thomé e Castro Executive Manager of the Project : Ricardo Messias Rossi Executive Assistant of the Project: Vinicius Mazza da Silva Executive Assistant of the Project : Marina Darahem Mafud Technical Team Responsible Researcher: Fabio Matuoka Mizumoto Assistant Researcher: Camila Dias de Sá Contributor: Ciro Orihuela Masili Translation: Central de Traduções
37 www.codevasf.gov.br For further Information: E-mail: firstname.lastname@example.org@fundace.org.br Mail Address: Av. Pres. Vargas, 2001- Conj. 143/144, Jardim América Ribeirão Preto - SP - CEP: 14.020-260 Tel.: +55 (16) 3911 6088 INTEGRATED SUSTAINABLE BUSINESS PROJECTS