Market Update for key Nutrition Commodities

Nutrition Supplier Meeting 14-16 June 2017, Copenhagen Market Update for key Nutrition Commodities Jan Debyser Contracts Manager Nutrition Medicines and Nutrition Center UNICEF Supply Division UNICEF/UN043566/Lister

Overview Nutrition Commodities 180,000,000 Nutrition Commodities: Procurement Value US$ 160,000,000 140,000,000 120,000,000 100,000,000 80,000,000 60,000,000 40,000,000 20,000,000 Other Water & electrolytes Salt iodization Antianaemia Minerals & vitamins Anthropometric equip Supplementary food Food fortification Therapeutic food - 2012 2013 2014 2015 2016 2017 Q1 Focus on 3 strategic and essential products which make up the bulk of UNICEF nutrition procurement (and CIK), and for which UNICEF is also the biggest buyer: Therapeutic Milk, RUTF paste and MNPs

Therapeutic Milk

Therapeutic Milk 7,000,000 6,000,000 Therapeutic Milk: Procurement Value 5,000,000 US$ 4,000,000 3,000,000 F-75 F-100 2,000,000 1,000,000-2012 2013 2014 2015 2016 Q1 2017 UNICEF procurement of therapeutic milk is estimated to represent a market share of 80%

TM: split between programme and PS 100% 90% 80% 70% 60% Value Programme versus Procurement Services 50% 40% 97% 96% 98% 91% 99% 96% 30% 20% 10% 0% 2013 2014 2015 2016 2017 Grand Total Progr PS

TM: volumes and WAP 2,500,000 2,000,000 2007 Joint Statement - gradual shift from inpatient (TM) to CMAM (RUTF) 2013 price hike after introduction of smaller sachets 2013 onwards: -$ gains, lower global dairy prices 6.00 5.00 Quantity in kg 1,500,000 1,000,000 Volumes stabilizing: 1,000-1,200 MT/year 4.00 3.00 2.00 WAP in US$ per kg 500,000 1.00 - - F-100 (kg) F-75 (kg) F-100 (USD/kg) F-75 (USD/kg)

TM: country demand 14,000 Top-10 countries receiving F-100 since 2012 12,000 10,000 cartons 8,000 6,000 4,000 2,000-2012 2013 2014 2015 2016 06-Jun-17

TM: sources and 2017 tender Limited supplier base: product quality requirements Code of Marketing of Breastmilk Substitutes (WHA) compliance niche market Introduction of 400g canisters with scoops in 2017 tender: infant formula industry standard, more hygienic and better protection from degradation answer to continued and risky use of scoops with sachets, need for dosing smaller quantities targeting IF manufacturers meeting Codex standards for PIF and compliant with the Code on Marketing of BMS intention to transition from sachets to canisters complex process (communication, guidelines & protocols, training) cost increase because of increased quality requirement unavoidable but to be controlled minimum 2 manufacturers per option (sachets and canisters) to ensure competition and availability for emergency response

Therapeutic Ready to UseMilk Therapeutic Food

Ready to Use Therapeutic Food 40,000 35,000 80 70 Therapeutic Foods in MT 30,000 25,000 20,000 15,000 10,000 5,000 60 50 40 30 20 10 Number of Countries Supplied 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 6Jun17 Forecast RUTF Biscuit RUTF Paste Country Recipients 0 66 and 67 countries ordered RUTF in 2015 and 2016 UNICEF biggest buyer of RUTF Stable volume between 30-35,000 MT/year in 2012-16, huge jump in demand in 2017 25,000 MT until 6 June (Yemen, Somalia, S-Sudan, Sahel)

RUTF: tender awards for 2017 50,000 2017 45,000 40,000 10,100 35,000 35,000 9,000 30,000 25,000 30,000 25,000 5,962 20,000 20,000 15,000 10,000 25,138 15,000 10,000 25,138 5,000 5,000 - Awarded in 2016 for 2017 Additional awards May17 proposed additional awards June17 off-shore award local award procured 2017 (6 June) procured - Procured May 17 award 2017 Balance of initial award Proposed June award Initial forecast of 36,000 MT for 2017 will be largely exceeded 25,138 MT already procured by 6 June 2017. Compare to 33,418 MT procured for the whole of 2016!! 2017 initial award (31,300 MT), additional award of 9,000 MT in May, proposal for further increase of 10,100 MT New RUTF tender in Q4 of 2017

RUTF: donations in kind compared to procurement cartons 3,000,000 2,500,000 2,000,000 1,500,000 1,800,000 1,600,000 1,400,000 1,200,000 1,000,000 800,000 600,000 400,000 200,000 0 Top 15 receiving countries 1,000,000 500,000-2013 2014 2015 2016 06-Jun-17 UNICEF procurement USAID/FFP (CIK) 100% 80% 60% 40% 20% 0% Minimize importation of RUTF in countries with local production, advocate for procurement from local validated manufacturers

RUTF: raw materials RUTF raw material cost structure 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 - University of Wisconsin Nonfat dry milk price (USD per MT) http://future.aae.wisc.edu/data/weekly_values/by_area/1627 Peanuts Dairy Oil Sugar Vit & Min Other Pack Mat 1,500.00 1,300.00 1,100.00 900.00 700.00 500.00 300.00 USDA Peanut Prices (USD per MT) Runner peanuts Spanish peanuts Valencia peanuts Virginia peanuts RUTF biggest input (cost) of CMAM need to bring cost of RUTF down to expand coverage of CMAM

RUTF: WAP off-shore vs local procurement WAP SD per crt WAP local per crt 60.00 59.56 58.00 56.00 57.32 57.05 56.74 54.00 54.08 52.00 50.00 48.00 49.94 50.51 48.17 48.84 49.45 50.11 49.46 47.70 46.00 44.00 42.00 40.00 44.24 43.67 41.77 2010 2011 2012 2013 2014 2015 2016 06-JUN-17

RUTF: WAP per vendor WAP in US$/carton of RUTF per vendor category WAP in US$/carton of RUTF per vendor location 55.00 55.00 53.00 53.00 51.00 51.00 49.00 49.00 47.00 47.00 45.00 45.00 43.00 41.00 39.00 2012 2013 2014 2015 2016 06-Jun-17 43.00 41.00 39.00 2012 2013 2014 2015 2016 06-Jun-17 Franchisee Generic Patent Africa America Asia Europe Global

RUTF: priority countries since 2012 500,000 Top 15 receiving countries (cartons) 450,000 400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000-2012 2013 2014 2015 2016 06-Jun-17

RUTF: split between programme and PS 100% 90% 80% 70% 60% Quantity in cartons Programmes and Procurement Services 50% 40% 30% 20% 10% 95% 96% 99% 95% 98% 97% 0% 2013 2014 2015 2016 07-Jun-17 Grand Total Progr PS

RUTF: emergency orders 400,000 350,000 300,000 250,000 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Non-emergencies Emergencies 2012 200,000 2013 150,000 2014 100,000 2015 50,000 2016-06-Jun-17

RUTF: evolution manufacturing capacity 250,000 200,000 UNICEF RUTF procurement + CIK versus RUF/LNS global production capacity (MT) 250,000 200,000 Programme countries Non-programme countries 150,000 150,000 100,000 100,000 50,000 50,000 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 0 Europe Africa Americas Asia UNICEF procurement FFP donation

RUTF: production capacity (2017) RUTF production capacity per vendor category RUTF production capacity per vendor location 250,000 250,000 200,000 200,000 150,000 150,000 100,000 100,000 50,000 50,000 0 Franchisee Generic Patent Grand Total 0 Africa America Asia Europe Grand Total Capacity Capacity offered UNICEF Capacity Capacity offered UNICEF Actual and current capacity can be higher or lower than declared during last tender (early 2016) : Manufacturers not responding to tender Expansion and upgrades Temporary boost in capacity (e.g. extra shifts) Down time for expansions, upgrades, cleaning, quality problems Same capacity also used for production of other LNS products

RUTF: local production and scale-up

RUTF: on-continent procurement UNICEF SD strategic objective to procure 50% of RUTF from manufacturers based in programme countries 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 46% 54% RUTF procurement - manufacturer location 73% 27% 61% 62% 39% 38% 44% 56% 0% 2012 2013 2014 2015 2016 Programme countries Non-programme countries Increasing volume of product purchased in programmatic countries and steady increase in number of suppliers Target achieved in 2016: 56% of volume sourced in programmatic countries

RUTF: on-continent procurement New suppliers coming up in highburden countries: Nigeria (expected production in 2017 and 2018), Indonesia (2018?) Challenges: Quality of ingredients Taxation Cost of credit Long cash conversion Forecast Low factory utilization Quality labs

Multiple Micronutrient Powders

Multiple Micronutrient Powders (MNP) 35 UNICEF deliveries by Region 2007-2016 30 MNP boxes in Millions 25 20 15 10 5 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 CEE/CIS Latin America & the Caribbean Middle East & N-Africa S-E Asia & the Pacific Sub-Saharan Africa Exponential increase over the last 10 years (39.6 million packs or 1,188 million sachets in 2016). UNICEF biggest buyer of MNPs much smaller volumes procured by WFP, governments, NGOs, others

MNPs: increasing demand Number of countries ordering MNPs 48 47 41 33 34 8 16 12 20 24 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Ordering countries Steady increase in countries receiving product

14,000,000 MNPs: priority countries since 2012 12,000,000 10,000,000 Top 15 receiving countries (packs of 30) 8,000,000 6,000,000 4,000,000 2,000,000 0 2012 2013 2014 2015 2016

MNPs: split between programme and PS Value Programmes and Procurement Services 100% 90% 80% 70% 23% 7% 35% 35% 46% 35% 60% 50% 40% 30% 20% 77% 93% 65% 65% 54% 65% 10% 0% 2012 2013 2014 2015 2016 Grand Total ZCOM (Progr) ZPRO (PS)

MNPs: standard vs customized layout 100% Micronutrient Powder Demand by Layouts Type 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Standard layout Customised layout Increasing use of customized layout (2/3 in 2016) product labeling in local language and targeted messaging using local artwork improves compliance

MNPs: Incoterms Incoterms (% of packs) 100% 90% 80% 70% 60% 72% 52% 50% 73% 75% 50% 40% 30% 20% 10% 28% 48% 50% 27% 25% 0% 2012 2013 2014 2015 2016 DAP CPH warehouse FCA point of departure Majority of MNPs is shipped directly from manufacturers to receiving countries: 100% of MNPs with customized layout On average 65% of MNPs with standard layout -> 35% is delivered to countries from CPH warehouse

MNPs: Weighted Average Price 0.80 WAP MNP -Prices in USD per pack of 30 sachets 0.75 0.70 0.65 0.60 0.55 0.50 2010 2011 2012 2013 2014 2015 2016 WAP DAP WAP FCA WAP overall

MNPs: WAP (FCA deliveries) UNICEF MNP Unit Pack US$ delivered from factory - standard sachets UNICEF MNP Unit Pack US$ delivered from factory - customized sachets 1.10 1.10 1.00 1.00 0.90 0.90 0.80 0.80 0.70 0.70 0.60 0.60 0.50 0.50 0.40 2008 2009 2010 2011 2012 2013 2014 2015 2016 0.40 2008 2009 2010 2011 2012 2013 2014 2015 2016 DSM Europe Heinz India Renata DSM Malaysia/Fortitech Piramal WAP standard DSM SA DSM Malaysia/Fortitech Renata DSM Europe Piramal WAP customized

MNPs: 2017 tender Gradual expansion of supplier base following growing demand from 1 over 3 to currently 5 suppliers Total production capacity of current UNICEF LTA holders is around 60 million packs or 1,800 MT this covers 1.5 times the UNICEF demand. 2017 RFP (closing 13 June): Support further scale up of point-of-use fortification programmes by suppling good quality and fit for purpose MNPs for use in UNICEF programmes and by partners, in sufficient quantities, at competitive prices and when required Expected to establish time-bound LTAs with 6-7 suppliers with capacity and flexibility to absorb spikes in demand and need for customization Opportunities for more sustainability (on-continent production, waste generation,..)

Multiple Micronutrient Powders (MNP) MNP orders in sachets and USD 1,400 25,000,000 Millions of 1g sachets 1,200 1,000 800 600 400 200 20,000,000 15,000,000 10,000,000 5,000,000 procurement value in USD 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 06-Jun-17 5 component - local layout 5 component - standard layout 15 component - local layout 15 component - standard layout forecast Grand Total (USD) - Forecast for July 2017 July 2019 tender period estimated at 30 million packs (900 mi sachets) per year

Thank You 35