Global Recession – the impact on Agriculture

1. Global Recession – the impact on Agriculture Bill Cordingley Head, Food & Agribusiness Research and Advisory Americas Rabobank International

2. For the love of farming! Rabobank International

3. Subsidiary of Rabobank Group – Cooperative bank based in the Netherlands Present in 43 countries worldwide with 1,508 offices Over 60,000 staff serving over 9,000,000 clients Ranked 4th safest bank in the worldGlobal Finance, September 2008 AAA ratedStandard & Poor’s, Moody’s, since 1981Dominion Bond Rating Service, since 2001 Best Investment Bank in the NetherlandsJuly 2008 Total assets of EUR 570.5 billion Rabobank, December 2007 Net profit of EUR 2.7 billion Rabobank, December 2007 Rabobank International Rabobank International

4. The global Food and Agribusiness Research (FAR) group has 80 members in 13 countries Utrecht (Global HQ) New York Beijing New Delhi Shanghai Mexico City Hong Kong Mumbai Singapore Kuala Lumpur Jakarta Sydney Santiago São Paulo Melbourne Buenos Aires Christchurch Rabobank International

5. The GFC and global recession Rabobank International

6. What the crisis looked like • The deepest economic contraction in the last 50 years, and not just in the U.S. - The great recession! • The worst financial and banking crisis since the Great Depression of the 1930’s • Large and growing US deficit • Lack of liquidity in the financial system and rapid deleveraging adding to the credit crisis • Millions of insolvent individuals (foreclosures) • Contraction in consumption and consumer confidence at lowest levels since they started measuring • Doubling in unemployment • Fear and uncertainty prevail! Rabobank International

7. The Credit Crunch Rabobank International

8. Rabobank International

9. Income and population growth are key drivers of increased food consumption Income and population growth in selected countries BRIC countries CAGR population (06-11) GDP growth (2008) Rabobank International

10. …2009 retraction… Income and population growth in selected countries CHINDIA the savior in 2009 CAGR population (06-11) GDP growth (2009) Rabobank International

11. …2010 …a rebound – but risks to the downside! Income and population growth in selected countries CAGR population (06-11) GDP growth (2010) Source: UN, IMF, Rabobank, 2010 Rabobank International

12. U.S. Growth still an important driver for global economy US Economy 25% of global GDP 71% of GDP private consumption 5.7% for 4Q09 Boom in Q4 GDP driven by stimulus and inventory cycle Growth expected to fall back in Q2-4 Rabobank International

13. Rabobank thinks we are in for a funny shaped recovery! • Traditional talk of recovery usually a letter of the alphabet... • V, W, L, U... • But what if it’s a mathematical symbol instead? • Square root • Lack of a long-term growth driver • Jobless recovery Rabobank International

14. US Consumer shell shocked! Rabobank International

15. Worst unemployment since early 1980’s • Over 7 million US jobs lost in this recession 9.7% 10.8% Rabobank International

16. Consumer wealth battered! Income and population growth in selected countries Rabobank International

17. Very difficult busting of the credit bubble has seen mortgage debt growth flat line! • A quarter of U.S. homeowners with mortgages have negative equity in their homes. • Another quarter have <10% equity • No easy way out of this soon for home owners or the building industry Rabobank International

18. There has been a significant change in consumer mindset! Rabobank International

19. Major roadblock for consumption and thus demand through the value chain! • CPI -0.4% in 2009: first full-year decline since 1955 Rabobank International

20. Foodservice Quarterly sales, Q3 09 v Q4 08 Rabobank International

21. Impact on global Agriculture Rabobank International

22. Crisis felt throughout the agribusiness supply chain Primary Production Processing/ Trade Retail/Food Service Consumers • Strong profits and land values buffered the sector initially • Pressure on farm gate prices for most commodities • High input costs made 2009 a write off for many producers • Credit from banks available but more stringent • Softening demand • Increasing FX volatility • Trade finance availability tightened, especially for riskier destinations and counterparties • First contraction in global trade since WWII • Excess processing, shipping capacity • Inventory deleveraging • Fall in business confidence • Tightening credit lines • Running down inventories • Hand to mouth • Falling consumer confidence • - wealth effect • Change in eating patterns • - trading out • - trading down Rabobank International

23. Aggregate impact in the US significant but far from catastrophic • US net farm income down by $30 billion in 2009 • Set to recover by $7 billion in 2010 • Just $1.4 b below 10 yr average Rabobank International

24. Lower production costs in 2010, but still historically high • Crop production costs fell 6-14% in 2009, expected flat in 2010 - 2011 • Still about 30-40% higher than 1999-2009 average. Rabobank International

25. Relief due to fuel and fertilizer price declines Rabobank International

26. Divergent fortunes for two big drivers – livestock and crops Rabobank International

27. Market volatility has receded; but still remains historically elevated CBOT Corn Volatility, 2000-2009 CBOT Soybean Volatility, 2000-2009 Rabobank International

28. Farmers on average have strong equity and are reasonably well positioned to weather the downturn • However those that have used debt to build scale without achieving rapid productivity growth in recent years are facing an uncertain future with returns unlikely to rebound quickly and uncertain lenders much tougher on covenants going forward! Rabobank International

29. Conclusions • Agriculture not a bad place to be in the GFC – in relative terms • 2010 will see a slow and unsteady recovery in the global economy which will be tested by mid year as govt stimulus wears off, inventory cycle recedes and unemployment growth lags! • Moderating costs will help both crops, meat and other sectors improve returns despite the soft demand environment in 2010 • Volatility a factor for all farmers going forward – possibly new ways to look at risk in the supply chain will be necessary – partnership v’s adversarial?? • Crystal ball is cloudy for everyone – only answer is to is to eliminate catastrophic risk, remain flexible, eliminate unnecessary costs and enhance productivity consistently and diligently Rabobank International

30. Thank you The World’s Leading Specialist Food and Agribusiness Bank Rabobank International