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

51

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. Pawan.kumar@rabobank.com