Upload
emrc
View
4
Download
2
Embed Size (px)
DESCRIPTION
Citation preview
Absa AgriBusiness
Presenter nameSubject
ABSA AgriBusiness
15 June 2009
Disclaimer: Although everything has been done to ensure the accuracy of the information, the Bank
takes no responsibility for actions or losses that might occur due to the usage of this information.
Absa AgriBusiness
Discussion agenda
1. Macro economic trends – World social spend supports agriculture
2. Agricultural insights - Golden days for agriculture is back
3. Africa the new frontier
Absa AgriBusiness
Can you make a cup of coffee?
IF you answered yes, be
sure with out a market this
will be impossible
The essence of food
security therefore lies in a
efficient free market as
this will insure the effective
allocation of scarce recourses
Absa AgriBusiness
Market principles within agriculture
• Price risk trends– South African farmers price exposure to the outside world is calculated
to be 60-70% and are therefore by implication global players in a global market.
– This implies that farmers do not have any control over the following factors like international production trends, international farming subsidies, exchange rates, import and export tariffs.
– They therefore have very little control over price volatility as they are price takers, with an additional exposure to prices volatility as prices can swings from import parity to export parity and vice a versa depended on local supply and demand. Price volatility therefore has a direct effect on the potential of a farmer to repay his debt, this therefore increases the credit risk of the client. Price volatility risk can however easily be offset by forward, future or derivative instruments.
• Production risk trends– Production risk due to the vagaries of the South African climatic has
always been with us (drought, hail etc). Due to the liberalisation and deregulation of the agricultural market new risks like imported deceases, pests and substances (bird flue, melamine etc) also have an effect on production volumes and therefore increase the risk of producers to service their debt. Production volatility can however easily be managed by insurance products like drought insurance or by the use of cutting edge gene technology.
Framers therefore have to manage price and production volatility if they want to make a success of their business
Like wise Absa will have to develop new commodity focused finical solutions to manage these risk to minimize our credit risk.
SA Rainfall trends
0
200
400
600
800
1000
59/60
64/65
69/7
0
74/7
5
79/8
0
84/85
89/90
94/9
5
99/0
0
04/0
5
'10/
11
Rai
n(m
m)
Rain 3 yr Avg Long-term Avg
SA Agriculture exposure to International market
R -
R 10,000
R 20,000
R 30,000
R 40,000
R 50,000
R 60,000
R 70,000
R 80,000
R 90,000
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
0%
10%
20%
30%
40%
50%
60%
70%
80%
Imports Exports In & Ex as % of GPV
SA White maize price (R/t)
200
700
1,200
1,700
2,200
2,700
3,200
3,700
Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11
Import Parity Export Parity Domestic
Absa AgriBusiness
Market principles within agriculture
Cost curve
In the long term agriculture is experiencing a cost curve of approximately 3% per
annum (The price of Farming requisites increases faster than producer prices
however for 2008/09 season a cost curve of more than 30% is expected).
To survive this, farmers need to become more productive (increase output in
relation to inputs) this is mainly done by improving production efficiencies
through the use of technology, value adding and lowering fixed costs
(economies of scale)
This to a large extend implies that farming units will continue to
grow in size (les clients Year on Year)
World agriculture is poised to enter a new growth phase that will be
much greater than colonization and industrialization.
• During the period of industrialization after the second world war,
agricultural production expanded exponentially, compared to the growth in
population (due to the development of fertilizer and production machinery).
• Production of coarse grains, beef and mutton however peaked during mid
eighties due to availability of natural resources. Commodities like poultry
and pork continued to grow as they were able to utilize surplus coarse
grains.
• Production has once again started to increase due to advances in bio-
technology (GMOS etc.)
Production volumes will continue to increase thus improving the
survival potential of agriculture in general
Maize yield
-
1.00
2.00
3.00
4.00
5.00
6.00
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
(to
n/h
a)
World yields SA yields
Maize yield
-
1.00
2.00
3.00
4.00
5.00
6.00
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
(to
n/h
a)
World yields SA yields
Agricultural Cost curve trends (Index 1980 = 100)
0
500
1000
1500
2000
2500
3000
3500
4000
4500
5000
1980 1983 1986 1989 1992 1995 1998 2001 2004 2007
Gross producer value Input cost
Absa AgriBusiness
World agriculture commodity prices to increase substantial over the medium term
There are two main driving forces at work that will have a
positive impact on agricultural commodity prices
namely:
• Global Warming
Sentiment around global warming is driving legislature
around the world to continuously push for the
implementation of so-called carbon friendly
legislation. As agriculture is the prime beneficiary this
type of legislation (due to the ability of plants to extract
carbon from the air) new markets will place upward
pressure on agricultural commodity prices. Agriculture
could however never produce enough energy to replace
all fossil fuels.
• Demand for Food and Energy
During the late nineties Capitalism replaced Communism
as economic system in the world (signs of the time where
the collapse of the Berlin wall in ’98 the repatriation of
Hong Kong in to China in ‘99)
This led to an exponential economic growth in Eastern
European, Middle East and Asian countries with a
resulting increase in the buying power of these
consumers, hence the growth in demand for food and
energy
World Crude oil price & production trends
0.00
20.00
40.00
60.00
80.00
100.00
1970 1975 1980 1985 1990 1995 2000 2005 2010
Pri
ce (
US
$/b
rr)
40.00
50.00
60.00
70.00
80.00
Pro
du
cti
on
(M
brr
/day)
Crude Oil Production Price
Iran /
Irac
Berlin w all
Hong Kong
Financial
crisis
USA Maize price (US $/ton)
-
20.0
40.0
60.0
80.0
100.0
120.0
140.0
160.0
180.0
200.0
220.0
240.0
1966 1971 1976 1981 1986 1991 1996 2001 2006 2011
Absa AgriBusiness
Agricultural economic indicators
Net Farm Income
• Net Farm Income determines the rate at which capital can be repaid. As a result, fixed investment in agriculture (property and fixed infrastructure) is to a large extent determined by Net Farm Income. Property values are however further supported by Lifestyle buyers as well as the Governments restitution and redistribution program of agricultural land.
• Net Farm Income as a portion of total agricultural debt has however continued to declined over time placing pressure not only on the security value of a farm but also on the ability of farmers to repay their debt should something go wrong. This combined with the need for more production credit, has substantially increased the risk within the farming industry.
Security
• In financing farmers there are two main criteria namely; cash flow and asset based lending. Although there has been a shift in the past few years to cash flow based financing, asset values remain important in limiting credit risk and are still being used in calculating credit exposure in terms of various ratios. The ratio of farm debt to agricultural fixed assets (farm land) has substantially improved over the past decade since the liberalisation and deregulation of the agricultural market, a clear sign that agricultural profitability has improved substantially. The debt to turnover (Gross Production Value) ratio has also improved substantially lowering the risk of cash flow based finical lending products based on the repayable of the farming enterprise
Farm income and expenditure
0
20000
40000
60000
80000
100000
120000
140000
160000
180000
69/70 73/74 77/78 81/82 85/86 89/90 93/94 97/98 01/02 05/06 09/10
Yearly Farm Debt Commitment Expenditure on InputsGross Producer Income Net Farm IncomeValue of Fixed Assets 50% margin
A g ricult ural D eb t t o asset and t urnover rat io
0%
20%
40%
60%
80%
100%
120%
1980 1985 1990 1995 2000 2005
Debt/Fix Asset Debt/GPV
Absa AgriBusiness
Discussion agenda
1. Macro economic trends – World social spend supports agriculture
2. Agricultural insights - Golden days for agriculture is back
3. Africa the new frontier
Absa AgriBusiness
12
3
45
6
7
Pool gebied
Berg gebied
Toendra / Taiga
Gematigde
Mediterreens
Droë Grassvelde
Woestyn
Subtrope
Trope
Klimaat Topografie
12
3
45
6
7
Pool gebied
Berg gebied
Toendra / Taiga
Gematigde
Mediterreens
Droë Grassvelde
Woestyn
Subtrope
Trope
Klimaat Topografie
Polar area
Mountain area
Tundra / Taiga
Moderate
Mediterranean
Dry grasslands
Desert
Subtropical
Tropical
Climatic topography
Absa AgriBusiness
Market environment – World Market growth potential (2)
Pointers
• Production growth
potential for 2050 must be
viewed against expected
growth in demand of
approximately 40 – 60 %
over the same period
• This is mainly the result of
an expected population
growth rate of between
0,9% to 1,1% and
improvements in the
economic welfare of
consumers due to
economic growth.
• Only a portion of
economic growth will
impact on the growth in
demand for food as food is
classified as one of the
basic needs.
1980
2004
Growth 1980 tot
2004
Expected Production
2050
%
North and Central America
Agricultural Land (Ha million) Arable Land (Ha million)
Coarse grain production (Ton million) Oil seed production (Ton million)
Meat production (Ton million)
624 279 337 13 31
621 272 478
23 50
-0.5% -2.3% 41.9% 79.4% 64.2%
611 278 579 38 73
-1.7% 2.0%
21.0% 66.0% 44.0%
Europe
Agricultural Land (Ha million) Arable Land (Ha million)
Coarse grain production (Ton million) Oil seed production (Ton million)
Meat production (Ton million)
227 141 258
5 39
487 304 466
16 53
114.4% 116.0%
80.6% 229.9%
33.3%
477 289 671 31 87
-2.0% -5.0% 44.0%
102.0% 66.0%
Russia
Agricultural Land (Ha million) Arable Land (Ha million)
Coarse grain production (Ton million) Oil seed production (Ton million)
Meat production (Ton million)
553 232 170
3 15
567 207 157
5 10
2.4% -10.8% -7.8% 56.7%
-36.9%
578 217 171
8 18
2.0% 5.0% 9.0%
65.0% 88.0%
South America and Caribbean
Agricultural Land (Ha million) Arable Land (Ha million)
Coarse grain production (Ton million) Oil seed production (Ton million)
Meat production (Ton million)
717 146 88 6
16
784 169 158
21 38
9.4% 16.0% 79.2%
220.8% 138.4%
831 235 253 46
101
6.0% 39.0% 59.9%
124.0% 168.0%
Absa AgriBusiness
Market environment – World market growth potential (3)
Pointers
• In the short term stiff
competition in terms of
production expansion will
come from South America.
• The most significant
untapped opportunity is
Africa
• As production expansion
exceed demand
expectations, prices of
soft commodities will
remain fairly depressed
forcing farmers to improve
efficiencies. This is only
possible if producers
incorporate new
technology to improve
efficiencies or use
efficiencies of scale.
1980
2004
Growth 1980 tot
2004
Expected Production
2050
%
Africa
Agricultural Land (Ha million) Arable Land (Ha million)
Coarse grain production (Ton million) Oil seed production (Ton million)
Meat production (Ton million)
1,077 178 73 4 7
1,111 211 128
8 12
3.2% 18.3% 75.9% 67.4% 79.9%
1,200 337 323 20 28
8.0% 60.0%
153.0% 172.0% 132.0%
Asia
Agricultural Land (Ha million) Arable Land (Ha million)
Coarse grain production (Ton million) Oil seed production (Ton million)
Meat production (Ton million)
1,153 458 632 18 29
1,684 573
1,038 66
108
46.1% 25.1% 64.2%
261.0% 277.1%
1,852 642
1,525 149 239
10.0% 12.0% 47.0%
126.0% 121.0%
Australia and New-Zeeland
Agricultural Land (Ha million) Arable Land (Ha million)
Coarse grain production (Ton million) Oil seed production (Ton million)
Meat production (Ton million)
483 44 16 0 3
447 49 31 1 4
-7.4% 10.0% 91.1%
504.2% 41.0%
429 59 61 2 7
-4.0% 22.0% 94.0%
223.0% 80.0%
World
Agricultural Land (Ha million) Arable Land (Ha million)
Coarse grain production (Ton million) Oil seed production (Ton million)
Meat production (Ton million)
4,117 1,332 1,486
43 123
4,917 1,616 2,298
117 236
19.4% 21.3% 54.6%
170.7% 91.8%
5,978 2,057 3,584
295 552
4.9% 15.3% 45.9%
114.0% 101.5%
Absa AgriBusiness
Thank you for the opportunity to share some ideas
Contact details
E Janovsky
Tel (011) 350 6102
Email [email protected]
Disclaimer: Although everything has been done to ensure the accuracy of the information, the Bank takes no
responsibility for actions or losses that might occur due to the usage of this information.