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TRANSCRIPT
Food security
Hunger – Not a choice!
April 2010
Nikhil Vora(Dir) +91-22-6622 2567Email: [email protected]
2
Land frenzy – the ‘in’ thing?
Daewoo vying to lease 1.3m ha of farmland – half the size of Belgium – from the Madagascar government for 99 years to support the South Korean needs
Karuturi Global (an Indian company) has acquired 300,000 ha of farmland in Ethiopia
In 2008, a Dubai-based investment firm acquired 800,000 acres in Pakistan
In 2009, Saudi Arabia signed a deal for 1.2m acres of farmland in Tanzania
Today, China cultivates 2.47m acres in Indonesia
3
Catching the eye of financial investors?
Schroders planning to launch a Global Land Fund, to devote 25% of its capital to farmland acquisitions
Morgan Stanley has bought 40,000ha of farmland in Brazil
Landkom (a UK-based investment group) has leased 100,000ha of farmland in Ukraine. Targeting 350,000ha by FY11
In 2008, IFC invested US$1.4bn in the agri business supply chain
In 2008, Goldman Sachs invested US$300m to acquire 10 poultry farms in China
Committed investments of over US$60bn towards farmlands!
4
LAND...heading the OIL way?
5
What makes oil ‘black gold’?
Middle East – 32% of world supply and only 7.8% of world demand
Asia Pacific – 30% of world demand but only 9.7% of world supply
Production: 8.5%Consumption: 6.9%
MIDDLEEAST
Production: 12.4%Consumption: 3.4%
Production: 9.7%Consumption: 30.1%
Production: 21.7%Consumption: 24.3%Production: 15.8%
Consumption: 27.4%
Production: 31.9%Consumption: 7.8%
* Percentage indicates contribution to the worldSource: BP Statistical review of World Energy
6
Food – the ‘oil’ of tomorrow?
Future deficit
Current oil and land reserves insufficient to support the needs of the world 20 years hence
Incrementally, both these resources are depleting at a faster rate than they can be generated
Prices on an uptrend
Oil and food prices hit an all-time high in 2008
Rising prices are a precursor to the crisis of shortage
1
2
3
Supply-demand mismatch
Concentrated origination point while demand regions are globally spread
Thus, a ‘global need’ but supply restricted within geographies rich in
underlying resources
7
“There is never enough of anything for all those who want it”
- Thomas Peacock
8
Are we prepared to face the future deficit?
1960 1980 2000 2030E0.00
0.25
0.50
0.75
1.00
1.25(acre)
Source: Food & Agricultural Organization of United Nations
Precious acres - arable land per capita worldwide
OILA gap of ~25m barrels/day
by 2030E based on the
current capacity
USD750bn of investments
required to plug the deficit
Estimated oil demand
81.8
4.514.1
24.8
Current 2010E 2020E 2030E
(m barrels/day)
FOODArable land per person to
shrink from 1.1 acres in 1960
to 0.6 acres by 2030…
…assuming the current status
of arable land sustains
Source: IEA Estimates
1.1
0.6
9
The gap between ‘have’ and ‘want’…
Wheat
-13%135,000118,000China
75%10,20017,800Thailand
Rice
-75%16,0004,000Japan
25%207,020259,273USA
Corn
-17%104,50087,000China
92%33,20363,590USA
Surplus/DeficitConsumptionProduction('000 tonnes)
9.7%30.1%Asia Pacific
12.4%3.4%Africa
31.9%7.8%Middle East
21.7%24.3%Europe & Eurasia
8.5%6.9%S. & Cent. America
15.8%27.4%North America
ProductionConsumption2008
OIL
Oversupply in the Middle East
Undersupply in Asia Pacific
FOOD
Production and consumption points widely distributed across all food products
10
…rising prices – alarm bells are ringing!Oil prices
Corn and wheat prices Rice and sugar price
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Rice (US$/cwt) Sugar (US$/pound)
(
0
40
80
120
160
Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08
0
300
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Jan-
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Corn Wheat(US$/bu)
Three fold increase in prices over the last
decade
Rice – the key staple food - has seen the sharpest increase
Oil prices have quadrupled in the past
decade
Source: Bloomberg
Source: Bloomberg Source: Bloomberg
(USD/ bbl)
11
Food – potentially a bigger issue than oil!
OIL: there are alternatives!
Alternative sources of energy - biofuels, wind power, solar energy, etc
IEA expects ethanol to comprise up to 10% of the world’s usable gasoline by
2025, and up to 30% by 2050 from 2% currently
OIL: demand can be potentially controlledRecent innovations on clean technology could potentially reduce oil demand
over the next 20 years
Research indicates that a 1% reduction in global oil demand reduces oil prices
by 1.6% to 1.8% over a 10 year timeframe and by 1.2% to 1.3% over a 20-year
timeframe (Source: European Federation for Transport and Environment)
…and is hunger a choice?
But can food find a replacement…
12
Food Security – Are we headed towards a crisis?
13
History is evidence…
1970 1975 1980 1985 1990 1995 2000 20051,000
1,500
2,000
2,500
(Million MT)
Source: USDA PS&D Database
Total demand of world grain & oilseeds
Source: USDA
Area harvested (Index: 1970=100)
But it has not been enough to meet the demand
…world grain and oilseeds demand up 3x over three
decades
Area harvested has grown by 20%…
1970 1975 1980 1985 1990 1995 2000 200590
100
120
110
20%Soybeans
10%Rice
4%Wheat
8%Oats
13%Corn
Increase (over last 10 yrs)Yields
…yields have improved by 10-20%...
Improvement in yields
+
Source: USDA
14
…and the future seems far from good
AFRICA – “The waste of plenty is the resource of plenty”!• Less than 5% of arable land in cultivation• Only 7% arable land irrigated (against 40% in Asia and 20%
globally)• Per capita income 1/7th of the world average• Average 10m tonnes of annual food deficit• 14% of world population but 1/4th the world’s hungriest people
Arable land as a % of total area
Source: CIA Factbook 2008
Where land is available…the means to produce are limited
15
Arable land is shrinking
In USA, one acre of land lost due to urbanization and highway construction for every one person
World population likely to grow by 2.5bn people by 2050. Housing and infrastructure needed to support them to eat into a significant portion of arable land
Increasing demand for biofuel to reduce land available for food production
Grain consumption for biofuel alone has increased from 20m tonnes in 2005 to 50m tonnes currently
In 2008, 1/3rd of the US maize produce was used for biofuel production
1/3rd of world arable land lost over the past 40 years due to soil erosion
Research on erosion rates indicates that soil loss is far faster than it can be replenished by natural processes
Erosion removes ~75bn tonnes of topsoil a year and destroys ~20m acres of farmland (source: Cornell University Research)
Biofuel
Industrialization
Erosion/ Spoilage
Arable land in developed countries to fall by 50m ha by 2050E: FAO
16
While arable land is depleting…
…food consumption is increasing
17
Population growth + affordability…higher food demand
Also, the highest propensity to spend
World population
Others (4.34bn)63%
India (1.18bn)17%
China (1.34bn)20%
37% growth in population over last 30 years
73% growth in population over last 30 years
Largest population base growing the fastest
+
194% 200% 73%
Highest per capita income growth
Source: Bloomberg (Numbers in brackets denotes actual population)
Source: Bloomberg
Per capita income growth over last 14 years
18
In 1985, the average Chinese consumer ate 44 pounds of meat annually….
…Today, the same is at 110 pounds
19
The future looks ‘hungry’!
Current grain prices remain above their 20-year average while food stocks around the world are still near 40-year lows
Source: USDA PS&D Database
1970 1975 1980 1985 1990 1995 2000 2005
10
400
600
800
20
30
40Ending stocks (m MT – LHS) Stocks/use (% - RHS)
200
0 0
World food stock
Reduction in food stocks indicates
fragility of future support
20
The future looks ‘hungry’!Ending stocks for wheat Ending stocks for soyabean
400
550
700
850
1,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E
Down by 40%
100
200
300
400
500
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E
Shrunk by 1/4th
Ending stocks for oats Ending stocks for corn
40
50
60
70
80
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E
Shrunk by 1/3rd
0
500
1,000
1,500
2,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E
Inventory has been halved
Source: USDA PS&D Database
(m bushels) (‘000 tonnes)
(m bushels) (m bushels )
21
In the last decade, grain consumption has exceeded production 7x. In 2008, after seven years of drawing down stocks, world grain carryover stocks made a ‘record low’ at
55 days of world consumption
22
Survival of the ‘saviour’ - ???
USA, the world’s largest food exporter, earns US$40bn through food exports
POPULATIONUSA adding 3m people
per year
URBAN SPRAWLSOne acre land lost due
to urbanization and highway construction for every one person
EROSIONAnnually, more than 2m acres of prime cropland is lost to erosion and water
logging
WATERGroundwater
providing 31% of the water used in agriculture is
depleting 160% faster than the recharge rate
USA to cease to be a food exporter by 2025E
+ + +
23
Food Crisis – A reality…
…Food Security – The next BIG play?
24
Themes to play
With scarcity of arable land, owners of the ‘source’, such as farmland, to be the key beneficiaries
Land ownership comes with underground water – hence, land a proxy to ‘water security’
However, India has imposed a ceiling on land holding (80% of farmers have less than 2 ha of land). Hence,
Indian corporates that have acquired large patches of land overseas are the potential ‘winners’
Ownership of underlying assets
With arable land limited as also depleting, productivity enhancement emerges as a strong tool for food
security
Efficient irrigation practices not only conserve water but also improve productivity
Further, advanced techniques such as hybrid seeds and proficient fertilization would enable better yields
Improve productivity
With production concentrated and demand points spread, price discovery is an important aspect
While historically exchanges in USA and Europe have dominated commodity trading, new age commodity
exchanges in the Asian geographies offer strong potential
Efficient price discovery
25
India – the country of ‘landlords’
80% of farmers in India have land holdings smaller
than five acres
Land ‘ownership’ a far reality!
1212West Bengal
2718Uttar Pradesh
3012Tamil Nadu
2718Rajasthan
2717Punjab
1510Orissa
2718Maharashtra
2718Madhya Pradesh
12-1512-15Kerala
25-3010-20Karnataka
1510Himachal Pradesh
2718Haryana
15-2710-18Gujarat
2515-18Bihar
1717Assam
15-2710-18Andhra Pradesh
one croptwo crops(in acres)
Irrigated land withIrrigated land withLimit on holdings
Ceiling on land holding
26
Overseas farmland acquisitions…the right call?
Indian corporates have invested ~USD2.5bn in buying huge plantations in Ethiopia, Kenya, Madagascar, Senegal and Mozambique to grow grains for
the domestic market
Acquired 300,000 acres of farmland in Ethiopia
Acquired 120,000 acres of palm plantations in Indonesia
Acquired palm plantations in Malaysia
27
Farmland acquisition: An investment that creates ‘value’!
0
50
100
150
200
250
300
Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08
ARCHER-DANIELS S&P 500 INDEX
Archer Daniels has seen strong re-rating of its stock post the
acquisition of farmland
Price performance of ADM
28
Asset ownership: The best shield against food security
Rice – great grains!Prices of rice, the staple food for ~3bn worldwide, has increased by 4x over the last 10 yearsAsian farmers produce ~90% of the total with two countries, China and India, growing more than half the total cropWorld rice stocks have decreased by 3% per year. Thus, paddy growers / processors will emerge as strong betsKey players include Kohinoor Foods, REI Agro and KRBL
Acreage on a downtrend… …making rice expensive
Harvested acreage Prices
(US$/cwt)
0
6
12
18
24
30
Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08
Rice
2.8
3.0
3.2
3.4
3.6
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
(m acres)
29
Asset ownership: The best shield against food security
Indonesia
44%
Malaysia
42%
Colombia
2%Thailand
3%
Nigeria
2%Other
7%
Palm oilMost important edible oil when ranked by global production and consumption
Accounts for >35% of the world’s global production of edible oils
Palm oil stocks at all time low. Stocks of soyabean oil, the closest replacement, also at their lowest levels
Key players owning palm plantations include Ruchi Soya, KS Oils and Godrej Industries
Malaysia and Indonesia account for 86% of world production Production has been rising rapidly
Distribution of world production World production of palm oil
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
45,000
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
World production of palm oil: 1995-2008 (‘000 tonnes)
30
…backed by superior returnsPaddy production
Outflow(US$/ha)
Inflow(US$/ha)
Net proceeds
Year 1 Year 2 Year 3 Year 4 Year 5
2,000 800
One time capex Annual Opex
800 800 800
1,600 1,600 1,600 1,600
Yield (per ha)4 tonnes
Realization (per tonne)US$ 400
Break-even in Year 4
=
(2,000) (1,200) (400) 400 1,200
31
…backed by superior returns
Outflow(US$/ha)
Inflow(US$/ha)
Net proceeds
Year 1-4 Year 5 Year 6 Year 7 Year 8
5,000 1,000
One time capex Annual Opex
1,000 1,000 1,000
2,400 2,400 2,400 2,400
Yield (per ha)4 tonnes
Realization (per tonne)US$ 600
Break-even in Year 8
=
(5,000) (3,600) (2,200) (800) 600
Oil palm production
32
India has the second largest arable land in the world after USA…
…but on arable land per capita, India is 104th!
33
Efficiency play – make more out of less!
With depleting arable land, productivity enhancement a vital aspect for food security
>50% of arable land in India depends on rain water. Of the remaining 69m ha under irrigation, only 3m ha covered under MIS. Thus, implementation of MIS can reduce water usage considerably as also improve yields
Further, techniques such as hybrid seeds and fertilization improve yield by 10-15%
Key players include Jain Irrigation, AdvantaSeeds, Kaveri Seeds and Monsanto
1 acre Water+ = Food
1 acre Water+ = Food
1x ½x 1.5x
Drip irrigation – a generic model
2348Grapes
3281Lemon
1990Watermelon
5061Sweet lemon
9845Pomegranate
Other crops
3356Sugarcane
2365Cotton
1260Coconut
6740Groundnut
Yield increaseover FMI (%)
Water savingover FMI (%)
45
68
62
79
77
25
60
52Banana
77Papaya
Fruit crops
45
46
20
31
40
Chilly
Vegetables
Tomato
Radish
Onion
Sweet potato
Drip irrigation – the benefits
34
Improved Seeds – Key to increasing crop yields
FAO estimates that we need to produce as much grain from now to 2050 as we did in previous 10,000 years
Agriculture already consumes 70% of world’s fresh water and ~50% of habitable land, increased production can come only through higher yields with limited resource consumption
Seeds are the most efficient vehicle for delivering higher yields as reflected in increasing agri-input space’s R&D tilt to seeds
Global seed giant Monsanto is aiming to double the yields of corn, soya and cotton by 2030 while using 30% lesser inputs
Among Indian players, Advanta India is investing heavily in R&D to develop seeds with innovative traits
Nitrogen use efficient seeds – Will consume less urea
Drought resistant seeds – Can grow with less water
Healthy sunflower oil – Trans fat free for frying
High yielding hybrid seeds for rice, mustard, vegetables etc.
35
Exchanges: Enabling price discoveryWith the geographic gap between demand and supply evident, there remains limited assurance of correct and transparent pricing in the country of origin
Exchanges emerge as a vital platform for global participation and thereby facilitate price discovery
With agriculture poised to pick up in under-developed nations, trading in the same will also become essential and hence exchanges would play a key role
Indian exchanges, for instance, indicate the reduced price volatility
Likewise, exchanges in under-penetrated regions (Africa, etc) promise immense potential
Key players include Commodity exchanges like MCX, NCDEX, NMCE and ICEX
1.80%Jun, 04 - Jan, 072.80%Jan, 01 - Jun, 04Urad
0.90%Mar, 06 - Dec, 075.82%Nov, 04 - Mar,06Potato
1.09%Jan, 04 - Nov,071.51%Feb,99 - Dec,03Rubber
11.62%June, 04 - Nov 0712.01%Feb,01 - June,04Chana
Post-ExchangeTime period
Pre-ExchangesTime periodCommodity
India - price volatility reduced
36
Themes to play
Karuturi Global
Ruchi Soya
KS Oils
Godrej Industries
Rice processors (Kohinoor Foods, REI Agro, KRBL)
Sugar processors (Balrampur Chini, Shree RenukaSugars, Bajaj Hindustan)
Asset ownership
Processors ITC
DCM - Shriram
Advanta Seeds
Jain Irrigation
Kaveri Seeds
Monsanto
MCX (Fin Tech)
NCDEX (NSE)
Aggregators
Efficiency improvement
Price discovery
37
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38
Thank you
Nikhil Vora / Bhushan Gajaria / Swati Nangalia / Shweta Dewan (Dir) +91-22-6638 3308 / 3367 / 3260 / 3290
Email: [email protected] / [email protected] / [email protected] / [email protected]