Pawan Kumar Associate Director
Rabobank
Food and Agribusiness Research and Advisory
8th June 2012
POTS: Malaysia –India Palm oil Trade Fair & Seminar 2012
India Role in Meeting Oil Demand
2
Strong macroeconomic parameters Section I
Rising domestic demand Section II
Perennial short domestic supply Section III
Introduction
Where is the supply? Section IV
Section V Conclusions
3
Strong macroeconomic parameters
Section I
Rabobank International
4
Source: Euromonitor, IMF
Per capita GDP & GDP growth Net foreign direct investment (USD bln)
Growing economy attracting investments
Source: World Bank
0.0
2.0
4.0
6.0
8.0
10.0
12.0
0
500
1,000
1,500
2,000
2,500
2005
2006
2007
2008
2009
2010
2011
F2012
F2013
F2014
F2015
F2016
F2017
% G
DP
Gro
wth
Per C
ap
ita G
DP
(U
S$
)
GDP per capita (current US$)
GDP growth (annual %)
0
5
10
15
20
25
30
35
40
45
50
2005 2006 2007 2008 2009 2010 2011
5
Source: World Bank, Euromonitor
Population (mln) Age profile, 2011
…growth well supported by large young population base…
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
2006 2007 2008 2009 2010 2011 %
of
To
tal P
op
ula
tio
n
Population ages 0-14
Population ages 15-64
Population ages 65 and above (% of total)
1,000
1,050
1,100
1,150
1,200
1,250
1,300
1,350
Po
pu
lati
on
(m
ln)
6
...India projected to be the third largest economy by 2025...
0 5 10 15 20 25
Canada
Brazil
France
Russia
Germany
United Kingdom
Japan
India
China
US
7
Income growth is fastest in countries with large populations, this is driving demand growth
This is different than in the past
Source: USDA, 2011
Developing Markets Developed Markets
..being one of the fastest income growth country
Source: USDA, 2011
-40%
-20%
0%
20%
40%
60%
80%
100%
120%
140%
Argentina Brazil
China India
Iran Mexico
Russia South Africa
-40%
-20%
0%
20%
40%
60%
80%
100%
120%
140%
United States EU-27 Japan
8
Source: McKinsey Global Institute “Rise of India’s consumer market”; Nielsen Upper Middle and Rich (UMAR) Survey 2009; Businessworld Marketing “Whitebook: 2010-11”
Total No. of household (Million) Aggregate annual disposable income (INR tln)
…economic growth increasing middle class population…
5.52 3.96 2.7
11.76 14.52
13.5 3.12
14.96
30.6 1.68
3.96
20.7
2.16
6.6
21.6
0
10
20
30
40
50
60
70
80
90
100
2005 2015e 2025e
Globals
>1000
Strivers
90-200
Seekers
200-500
Aspirers 500-1000
Deprived
<90
24
44
90
49%
30% 18%
44%
43%
33%
5%
23%
34%
1%
2%
12%
1%
1%
3%
0
50
100
150
200
250
300
2005 2015e 2025e
Globals
>1000
Strivers 90-
200
Seekers 200-
500
Aspirers 500-
1000
Deprived <90
207
244
281 Core target
consumer groups
Per household annual income (INR ‘000)
9
….placing India among the most promising economies
Economic and population growth in select countries, 2011-2017(F)
Source: IMF, 2012, size of the bubble denotes population of the country
South Africa
Argentina
Australia
Kazakhstan
Thailand
-1.0%
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
-2% 0% 2% 4% 6% 8% 10% 12%
Po
pu
lati
on
Gro
wth
-C
AG
R 2
01
1-2
01
7
Income (Real GDP) Growth - CAGR 2011-2017
India
China
Russia
Indonesia
Brazil
Mexico
Canada
USA
Germany
Japan
Italy
France
10
Rising domestic demand
Section-II
11
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
- 10,000 20,000 30,000 40,000 50,000
India’s per capita consumption still much lower
Source: World Bank, USDA
Economic growth a key driver for edible oil consumption…
Edible Oil Consumption (Kg per capita) & GDP per
Capita, selected countries,2011
India’s Yearly Edible Oil Consumption (Kg per
capita) & GDP per Capita
y = 4.9236ln(x) - 21.666 R² = 0.8241
-
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
0 500 1,000 1,500
Ed
ible
Oil
Co
nsu
mp
tio
n (
Kg
per C
ap
ita)
GDP per Capita (US$)
Singapore
EU
Brazil
Argentina
India
Egypt
Indonesia
Russia
South Africa Pakistan
China
US
12
Source: Rabobank, USDA
…pushing domestic edible oil to higher level…
India’s Consumption has been growing at 5.7% since 2002/03.
Every consumption is growing by 500-600 thousand tonnes.
Indian accounted for 14% of world edible oil consumption
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
0
2
4
6
8
10
12
14
16
18
Mn
to
nn
es
Consumption (LHS) Percentage of world (RHS)
13
Source: USDA
…however the GDP growth has outpaced edible oil consumption …
India’s GDP > edible Oil Consumption
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
GDP
Oil Consumption
14
Palm of the fastest growing oil with larger base
Source: USDA
Consumption (thousand tonnes) Consumption growth, 2001/02-2010/11 (%)
Palm has been the at the centre of consumption basket…
Source: USDA
0
2
4
6
8
10
12
14
16
18
Soybean Cotton Groundnut
Sunflower Rapeseed Sesame
Palm Rice Bran Others
-1%
0%
1%
2%
3%
4%
5%
6%
7%
8%
15
Accounts for 44% of the edible oil consumption of India
Source: SEA, Rabobank analysis
Consumption share 2003/04 Consumption share 2011/12
…gaining market share over the years…
Soybean 18%
Cotton 5%
Groundnut 10%
Sunflower 5% Rapeseed
16%
Sesame 2%
Palm 33%
Rice Bran 5%
Others 6% Soybean
16%
Cotton 8%
Groundnut 5%
Sunflower 7%
Rapeseed 12%
Sesame 1%
Palm 44%
Rice Bran 5%
Others 2%
16
Home consumption about 70% of the total consumption
No. of times food ordered in a month
Besides home consumption food service a big driver for oil consumption…
Source: India Brand Equity Foundation, 2008-09; Businessworld 2010-2011
5%
4%
5%
11%
20%
22%
0% 10% 20% 30%
11 + Times
9-10 Times
7-8 Times
5-6 Times
3-4 Times
1-2 Times
No. of Times Food Ordered in a Month
• India’s food services retail market expected to grow at 11-12 per cent year-on-year over the next five years to reach Rs USD 11 bn by 2014-15.
• About 67% people order food from outside at least once in a month
• Food service industry growth has attracted Venture capitalist and private equity
• New silk route- CCD
• Indivision India Partners-Blue foods Ltd
• Indian equity partners – Sagar Ratna
17
Convenience a big driver
Source: Euromonitor, organized market
Biscuit Industry (‘000 tonnes) Noodles (000 tonnes)
…among other food industry such biscuit & noodles…
0
500
1000
1500
2000
2500
3000
0
100
200
300
400
500
600
700
12%
7%
17%
13%
18
Source: Euromonitor
Pickles (‘000 tonnes) Snack & Savories (‘000 tonnes)
…Pickles and Snacks Savories…
0
20
40
60
80
100
120
0
100
200
300
400
500
600
700
9%
6%
24%
13%
19
Perennial short domestic supply
Section III
Rabobank International
20
Production only 4.5% of the global production
Edible oil production – India Edible oil deficit (Mn tonnes)
Edible oil production has struggled to grow with demand leading to rising deficits…
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
0
1
2
3
4
5
6
7
8 M
n t
on
nes
Production Yearly Growth
0
1
2
3
4
5
6
7
8
9
10
21
Source: USDA
Rapeseed remains the largest produced oil
soybean oil has gained production share over the years
…palm, the largest consumed oil but only a small portion of production…
8.82%
10.44% 0.79%
0.12%
27.96% 27.98%
15.85%
8.03%
In 2000/01
6.58%
12.19% 0.57%
0.09%
22.19%
33.42%
17.66%
7.30%
In 2005/06
6.13%
16.32%
0.69%
0.08%
19.20%
31.13%
24.27%
2.19%
In 2011/12
Oil, Coconut Oil, Cottonseed Oil, Palm Oil, Palm Kernel Oil, Peanut Oil, Rapeseed Oil, Soybean Oil, Sunflowerseed
22
Oilseed production has grown at 4.6% per annum led by cotton, soybean & rapeseed
Source: USDA
Oilseed production ( thousand tonnes) Production CAGR 2000/01-2011/12 (%)
…oilseed production growth a big challenge…
0
5000
10000
15000
20000
25000
30000
35000
40000
Sunflower
Soybean
Rapeseed
Peanut
Palm
Cotton
Copra
-10.0%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
23
Source: USDA
Cotton seed Rapeseed
Soybean Sunflower
…yield growth also declining…
-10% 0% 10% 20% 30% 40%
0.0
0.5
1.0
1.5
2.0
2001/2
…
2002/2
…
2003/2
…
2004/2
…
2005/2
…
2006/2
…
2007/2
…
2008/2
…
2009/2
…
2010/2
…
2011/2
…
2012/2
…
To
nn
es/H
a
Yield (LHS) Yield growth
-20%
-10%
0%
10%
20%
0.8 0.8 0.9 0.9 1.0 1.0 1.1
2001/2
…
2002/2
…
2003/2
…
2004/2
…
2005/2
…
2006/2
…
2007/2
…
2008/2
…
2009/2
…
2010/2
…
2011/2
…
2012/2
…
To
nn
es/H
a
Yield Yield growth
-40.0%
-20.0%
0.0%
20.0%
40.0%
60.0%
0 0.2 0.4 0.6 0.8
1 1.2
2001/2
0…
2002/2
0…
2003/2
0…
2004/2
0…
2005/2
0…
2006/2
0…
2007/2
0…
2008/2
0…
2009/2
0…
2010/2
0…
2011/2
0…
2012/2
0…
To
nn
es/H
a
Yield (LHS) Yield growth (RHS)
-20%
-10%
0%
10%
20%
30%
0
0.2
0.4
0.6
0.8
2001/2
0…
2002/2
0…
2003/2
0…
2004/2
0…
2005/2
0…
2006/2
0…
2007/2
0…
2008/2
0…
2009/2
0…
2010/2
0…
2011/2
0…
2012/2
0…
To
nn
es/H
a
Yield (LHS) Yield growth (RHS)
24
Yields-Major area of improvement
Source: USDA, ten year average
Cotton yields (tonnes/Ha) Rapeseed yields (tonnes/Ha)
Soybean yields (tonnes/Ha) Sunflower yields (tonnes/Ha)
…even though yields are much lower than global players…
0.0
0.5
1.0
1.5
2.0
2.5
3.0
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
Canada China EU India World
0.0
0.5
1.0
1.5
2.0
2.5
3.0
0.0
0.5
1.0
1.5
2.0
25
Oilseed acreage has grown at 2% per annum primarily driven by soybean
Source: USDA, Ministry of Agriculture-India
India major oilseed acreage (thousand Ha) India net areas sown - all crops (thousand Ha)
…expansion looks difficult proposition…
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
2000/2
001
2001/2
002
2002/2
003
2003/2
004
2004/2
005
2005/2
006
2006/2
007
2007/2
008
2008/2
009
2009/2
010
2010/2
011
2011/2
012
Cotton Peanut Rapeseed
Soybean Sunflower
126000
128000
130000
132000
134000
136000
138000
140000
142000
144000
26
But since 2007/08 there has been focus on oilseed MSP
Source: Ministry of Agriculture-India, Rabobank
MSP increase 1997/98-2007/08 MSP increase 2007/08-2011/12
…and traditionally other food crops have had higher degree of support…
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
27
Competing with food crops for acreage a big battle
Source: NCDEX, Ministry of Agriculture, HIS, Rabobank
(gross margins based on 2011 cost and prices)
…leading to higher profitability…
0%
10%
20%
30%
40%
50%
60%
70%
80%
Wheat Corn Rice Soybean Rapeseed Sunflower Peanut Sugarcane
Gross margins
28
Palm oil import grown at 5 percent annually since 2000/01
Source: USDA, Rabobank
Indian vegetable oil import (Thousand tonnes) Palm import (thousand tonnes)
…as a result dependence on oil imports have increased…with palm being the major imported oil
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
10000
Coconut Cotton Palm
Palm kernel Rapeseed Soybean
Sunflower
29
Where is the supply
Section IV
Rabobank International
30
0
50
100
150
200
250
300
350
FFB Soybean
US
D/
ton
ne
Palm oil has inherent pricing advantage
Oil yields Strategic advantage-palm
With production cost advantage palm remains the cheapest edible oil …
Oil realization of $213 from a tonne of FFB costing $75
Oil
realization of
$240 from a
tonne of
bean costing
$380
Realization to be
supported by meal
to cover the cost
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5 O
il Y
ield
(T
on
nes/H
ecta
re)
•Oil realization assumed Soy oil USD1200/tonne, CPO
USD 1068/tonne
31
Source: Ministry of Agriculture-India
Indian Palm production (tonnes) Indian palm plantation (Ha)
…domestic production insignificant in comparison to demand…
0
20000
40000
60000
80000
100000
120000
0
20000
40000
60000
80000
100000
120000
140000
160000
32
Source: Ministry of Agricultural, India
..how much of 800 thousand identified area can be used efficiently for produced????
Andhra Pradesh 400,000
Karnataka 250,000
Assam 10,000
Gujarat 61,350
Goa 10,000
Kerala 5,000
Maharashtra 10,000
Tamil Nadu 30,000
West Bengal 10,000
Tripura 5,000
Orissa 10,000
33
Accounts for 87% of the world palm oil production and 90% of exports
Source: USDA, MPOB, Oilworld
Global palm production (thousand tonnes) India’s import (thousand tonnes)
Malaysia and Indonesia the only suppliers…
0
10,000
20,000
30,000
40,000
50,000
60,000
2000/2
001
2001/2
002
2002/2
003
2003/2
004
2004/2
005
2005/2
006
2006/2
007
2007/2
008
2008/2
009
2009/2
010
2010/2
011
2011/1
2
Indonesia Malaysia Others
0
1000
2000
3000
4000
5000
6000
7000
8000
2008 2009 2010 2011
Indonesia Malaysia
34
…but supply from traditional supplier could be under constraints…
• On average last ten years consumption has grown by 2.5 million tonnes every year
Planting happened at roughly 350,000 Ha per annum between 1975-2009
Malaysia new planting happening at less then 150,000 Ha/annum where as
Indonesia Plantation growing at 200,000-300,000 Ha per annum
incremental annual demand requires another 500,000 ha of planted area
Source: USDA, Director General of Estate
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
0
2
4
6
8
10
12
14
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
Mil
lio
n H
a
Mil
lio
n H
a
Plantation (LHS)
YoY Incremental plantation (RHS)
Palm Oil Supply & Demand (‘000 tonnes)
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
Incremental Production Incremental Consumption
Oil palm Plantation Area increment
Land availability is the next challenge
35 35
…wonder how many more years of expansion within traditional producer countries?
Source: CIC, Ministry of agriculture Indonesia
Indonesia has another 16-17 million suitable land for planting.
Malaysia could possibly do another 600,000 ha
0
2
4
6
8
10
12
14
Indonesia Malaysia
Years
36
• Securing and developing land in Indonesia is becoming more challenging due to
• Infrastructure constraints
• Labour availability - Remember oil palm is a “people business”..1 person for every 7 to 10 ha’s.
• Land cost
• Complex social issue
• Technological interventions will eventually be needed to tackle problem of labour shortage
..however expansion not without constraints…
1
2
37
3.4
3.6
3.8
4
4.2
4.4
4.6
4.8
2008 2009 2010 2011
Indonesia Malaysia
...but yield improvement can also add to supply
Source: MPOB, Oil World
Best management practices and technical intervention to play crucial role in yield improvement
Can Indonesia
close the yield gap?
38
…Other frontiers – Brazil/Africa.
Mostly high population density pockets seem to be
located near cities, development of palm plantation
would require, in some regions, for urban to rural
migration.
Other challenges in Africa are training the labor,
developing the seed varieties, managing cultures.
Brazil has a suitable climate but high cost labor
and sustainability pressures will remain the largest
challenges.
Mostly high population density pockets seem to be
39
50% of the imports are in developing Asian economies
Source: USDA
Palm oil Imports (thousand tonnes), 2010/11 Palm oil imports CAGR (2000/01-2010/11)
Demand pressure on palm rising from other economies…
Source: USDA
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
2010/11 2011/12
40
..biodiesel mandates adding to demand pressure…
Source: OECD-FAO, 2010
Global Biodiesel Production (thousand tonne)
Global Biodiesel Production Share (%)
0
5000
10000
15000
20000
25000
30000
35000
40000
2005
2006
2007
2008
2009
2010
2011(e
)
2012(f
)
2013(f
)
2014(f
)
2015(f
)
2016(f
)
2017(f
)
2018(f
)
2019(f
)
2020 (
f)
('0
00
to
nn
e)
13%
43% 12%
11%
6% 15%
USA
EU-27
Brazil
Argentina
Indonesia
Others
41
…vegetable oil balance sheet is tight suggesting upward pressure on prices…
Source: USDA
World veg oil ending stock World veg oil stock to usage days
Lowest stock to usage in last 40 years, world has about a month inventory of veg oil
0
5
10
15
20
25
30
35
40
45
50
0%
2%
4%
6%
8%
10%
12%
14%
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
1990/1
991
1992/1
993
1994/1
995
1996/1
997
1998/1
999
2000/2
001
2002/2
003
2004/2
005
2006/2
007
2008/2
009
2010/2
011
('0
00
to
nn
e)
Ending stock (LHS) Stock/Usage (RHS)
42
Source: Bloomberg
Fund effect Managed Money (G&O) & S&P Agri Index
…however funds have played there part…
43
…witnessed heavy selling in soybean oil space in recent times…
-60
-40
-20
0
20
40
60
80
100
20
30
40
50
60
70
80
2007 2008 2009 2010 2011 2012
Thousand c
ontr
acts
US
¢/lb
Managed money net long CBOT Soyoil price
44
…weather God played there role in past and will continue to do so…
Weather Disruptions 2010 and 2011, world need favorable weather conditions to soften pressure on stock
Canada too wet
Russian drought
SE Asia rain
Argentina too dry
Colombia rain
EU cold/wet
China too wet Pakistan floods
US MX too hot/dry
Brazil Dry condition
East Africa drought
Australian floods
45
S&P Index Ref soy oil Price in India (INR/10 kg)
…all this resulting in higher volatility…
0
5
10
15
20
25
30
35
0
100
200
300
400
500
600
S&P agri Vol (180W) 300
350
400
450
500
550
600
650
700
750
800
Jan-08 Jan-09 Jan-10 Jan-11 Jan-12
46
USD/INR USD/MYR
…uncertain time have made currencies movement unstable adding to pricing pressure…
40
42
44
46
48
50
52
54
56
58 Ja
n-1
0
Mar-
10
May-1
0
Jul-
10
Sep-1
0
Nov-1
0
Jan-1
1
Mar-
11
May-1
1
Jul-
11
Sep-1
1
Nov-1
1
Jan-1
2
Mar-
12
May-1
2 2.9
3
3.1
3.2
3.3
3.4
3.5
Jan-1
0
Mar-
10
May-1
0
Jul-
10
Sep-1
0
Nov-1
0
Jan-1
1
Mar-
11
May-1
1
Jul-
11
Sep-1
1
Nov-1
1
Jan-1
2
Mar-
12
May-1
2
47
Edible oil and oilseed together accounts for 4.82% weightage in Indian wholesale price index
…leaving Industry vulnerable to supply, forex and price shocks in price sensitive consumer market
48
• Increase domestic production?????
• Import oilseed
• Government policy limits the options
• Need strong domestic animal protein industry
• Upstream integration
• Investments in foreign territories-Latin America, Africa and Southeast Asia however a challenging option
• Downstream integration
• JVs with upstream players in Indian market
• Build trade relationship with traditional suppliers
• As the pressure is rising from other demand spheres and supply could be under constrain
What options India has
1
2
3
4
5
49
Conclusions
Section V
50
Conclusions
The demand will continue to rise at 4-5% for the next 5 years, Out of home consumption share to rise
Production increase a big challenge, land expansion difficult, yield improvement is big hope for production increase
The veg oil deficit to rise leading to higher level of import in line with demand expansion, palm leading the way
Managing supply pressure, forex and price volatility are challenges
Build sustainable trade relationship with traditional supplier to secure supply
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Thank You
Rabobank International Singapore Branch 77 Robinson Road, #07-00, SIA Building Singapore 068896
Rabobank leading the pact as
“The financial link in the global
food chain”™ Food & Agribusiness Research and Advisory Pawan Kumar Associate Director
Food and Agribusiness Research and Advisory
t. +65 6230 6722 e. [email protected]