Opportunities and Challenges of Rice Business in Sub-Saharan Africa.

Rajeev RainaGlobal Head -FarmingOlam International Limited

CARD 6th General MeetingAccra, 17th-19th Nov 2015Rice

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This presentation may contain statements regarding the business of Olam

International Limited and its subsidiaries (‘Group’) that are of a forward

looking nature and are therefore based on management’s assumptions

about future developments.

Such forward looking statements are intended to be identified by words

such as ‘believe’, ‘estimate’, ‘intend’, ‘may’, ‘will’, ‘expect’, and ‘project’ and

similar expressions as they relate to the Group. Forward-looking

statements involve certain risks and uncertainties because they relate to

future events. Actual results may vary materially from those targeted,

expected or projected due to several factors.

Potential risks and uncertainties includes such factors as general economic

conditions, foreign exchange fluctuations, interest rate changes, commodity

price fluctuations and regulatory developments. The reader and/or listener

is cautioned to not unduly rely on these forward-looking statements. We do

not undertake any duty to publish any update or revision of any forward-

looking statements.

Cautionary note on forward looking statements

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Overview of Olam

Olam is a leading global agri-business operating across the

value chain

Presence across 16 platforms, 5 agri-commodity segments

across 4 value chain steps

Approximately 23,000 employees operate in over

65 countries delivering to over 13,800 customers

worldwide

Olam’s customers include leading multinational

corporations such as Kraft Foods, Nestlé, Lavazza, Mars,

Tchibo and Planters

Olam is listed on the mainboard of the Singapore

Exchange

Olam is supported by strong shareholders

Temasek (51.4%): One of the largest investment

companies in the world (rated AAA/Aaa)

Mitsubishi Corporation (20.0%): Largest trading

group in Japan by market capitalisation with

revenues of US$63bn

Olam’s management (6.4%)

Kewalram Chanrai Group (4.8%): Founder of Olam.

A widely diversified conglomerate with interests in

manufacturing, agro commodities, international trade

and property development

Who are we?

2015

5 segments

16 platforms

4 value chain steps

65 countries

> 13,800 customers

~ 23,000 employees

Volume: 14.0Mn tonnes

S$19.7bn turnover

S$630.3 PAT

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Olam Business :Global Leadership positions across

diverse platforms

Edible Nuts, Spices

& Vegetable

Ingredients

Confectionery &

Beverage

Ingredients

Industrial

Raw Materials

Food Staples

& Packaged Foods

• Cashew: #1 global

supplier

• Almond: #2 global

grower

• Peanut: Largest

independent US

blancher & ingredient

manufacturer, #3 US

sheller

• Hazelnut: Top 3 global

supplier

• Dehydrated onion

and garlic: #1 global

supplier

• Sesame: #1 global

supplier

• Coffee: Top 3

global supplier

• Cocoa: #1 global

trader and

exporter

• Grains: #2 miller in Africa

• Palm: Developing one of

the largest sustainable

Palm businesses in Africa

• Dairy: Top 3 dairy farming

operations globally

• Rice: #2 global supplier

• Packaged Foods: Strong

market positions in West

Africa in Seasonings,

Paste, Biscuits, Candies,

Noodles

• Cotton: #1

privately-owned

global ginner; #2

global merchant

• Rubber:

Developing one of

the largest

sustainable Rubber

businesses in Africa

• Wood Products:

#1 global supplier of

FSC certified

tropical products

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Olam’s Business ModelO

rig

in

Cu

sto

me

r

Flexible business model to achieve rapid, cost effective and profitable growth

Farming Origination Logistics ProcessingMarketing Solutions

& Services

Trading &

Distribution

Integrated supply chain manager

Integrated end-to-end capabilities across the supply chain

Value added services

Proven and flexible business model

Pricing power

Olam actively manages its commodity price risk

A commodities trader

Mere agents

A trading company

Only a regional player

Speculative traders

Trading partners who are proprietary traders

What we ARE NOTWhat we ARE

Olam is a truly global agri-business supply chain manager

Manage physical delivery of goods

Principal to goods traded

Total supply chain manager, adding value at every stage

Global player

Maintain a hedged book

Trading partners are producers/industrial end users

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Global reach across 65 countries

1

1994

•7 Products

•4 Countries

2005

•14 Products

•~40 Countries

2014

•16 Platforms

•~65 Countries

Founded

as an

exporter

in Nigeria in

1989

2001

•10 Products

•~20 Countries

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Global presence

across

5 continents3 Expansion into North and

South America, Middle East

2

Expansion into Asia

and Europe

Unique Africa foot print with

operation capabilities in 24 African countries

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Olam’s Rice operations

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Olam Rice business - Volumes & Markets

• Olam is 2nd largest rice player in the world by volumes.

• With unique capability of being integrated across value chain from Farming to Distribution.

• In Africa we participate in 16 countries

• Olam handles approx. 1.5MMT of rice globally , 1 MMT in Africa. Distributes in excess of 0.5MMT In Africa.

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Strong presence across countries and value chain in Africa

Ori

gin

Cu

sto

me

r

Integrated supply chain manager

Farming

• Nigeria

Origination

• Thailand

• Vietnam

• India

Logistics

• Global

• Cote d ivore

• Cameroon

• Gabon

Processing

• Nigeria

• Thailand

• Vietnam

Trading

• Global

• 12 African countries Angola, DRC, Gabon, Benin, Niger, IVC, Guinea, Burkina Faso, Mali, Benin, Togo, Liberia,

Branding and Distribution

• Nigeria

• Ghana

• Mozambique

• Cameroon

Olam Rice foot print

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Olam investing in Rice Production leading to import

substitution, inclusive growth and sustainable business

• At 4400ha planted, already largest single rice farm in Africa. Possibility of expansion to double the size.

• Fully mechanized farm right from planting to harvesting.

• On farm fully automated rice mill with storage, parboiling and milling facilities.

• Developing high productivity double cropping rice model.

• Outgrowers program along with USAID & NADP covers 4000farmers this year.

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Olam & Sustainability

• Olam’s Sustainability standard• Plantations and concessions policy• Olam s livelihood charter to improve livelihoods of small holder farmers• Suppliers code fro supply chain• QEHS policy on processing Plants

• Sustainable rice platform : Investing in developments and testing of sustainability standards• Supporting sustainable development

• Innovation award• Scholarships for research• Sustainable forum for agribusiness `

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Rice sector opportunities in Africa

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• Growing population

• Urbanisation

• Growing concern for health , nutrition and food safety

• Growing consumerism –Branding and distribution

Growing demand for rice

0

5,000

10,000

15,000

20,000

25,000

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

2015

2017

2019

2021

2023

Th

ou

sa

nd

of M

etric

To

nn

es

Sub-Saharan Africa: Actual and Projected Rice Imports

Source: FAO – OECD Agricultural Outlook 2015

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• Africa has arable land that can be cultivated

• Africa has water resources to support rice production .

• Significant opportunity to improve food security, rural employment and self sufficiency.

Potential for domestic production

Source: McKinsey Global Institute

All types of potentially suitable land not under cultivation

590

Land currently under cultivation

320

20

Closed forest or protected area

195

1,320

Land potentiallysuitable for cultivation

Housing andinfra-structure

2,445Total land

785

Not suitablefor cultivation

90

Very suitable (80-100%)

Suitable(60-80%)

Moderately suitable (40-60%)

Marginally suitable (20-40%)

590

135

225

140

Land by degree of suitabilityMillion ha, % of maximum yield

Land availability in Sub-Saharan AfricaMillion ha, 2008

15

0

0.5

1

1.5

2

2.5

3

3.5

4

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

2015

2017

2019

2021

2023

Met

ric

Ton

nes

per

Hec

tare

Rice Yields

Sub-Saharan Africa

World

Sub-Saharan rice yields are 50% below global averages

suggesting that investment in agriculture is necessary to

reduce imports

Source: FAO – OECD Agricultural Outlook 2015

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• Increased Fertiliser usage

• Mechanisation• Irrigation• Varietal

Improvement• Intensification – 2

crops annually• Inefficient supply

chain. Middle men & physical losses

Potential to increase yields & productivity

7

24

90

105 109

165

AsiaWestern Europe

WorldNorth Africa

Latin America

AfricaSSA

+354%

Global fertilizer application rates, 2008Kg per hectare

Region Irrigated land (% of crop land)

Agricultural machinery (tractors/100 km2

of arable land)

East Asia and Pacific - 89

Europe and Central Asia

11.2 185

Latin America / Caribbean

11.4 123

Middle East and North Africa

32.7 142

South Asia 38.9 129

Sub-Saharan Africa 3.6 13

World 18.4 200

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• Post 2007 food crisis most food import based countries In Africa have increasingly welcomed investments in domestic production .

• Perception change from suspicion of “foreign investment in farming” to “ they can catalyse domestic production”

• There have been many schemes developed by African nations to attract investment in rice production e.g.

• Nigeria , Ghana ,Senegal ,Burkina Faso, Cote d’ivore etc.

• African nations are still in process of drawing up further incentive packages to promote domestic production

Relatively Favourable investment outlook

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What attracts private investment ?

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• Opportunity :• Import substitution of rice consumption• Availability of natural resources for production

• Business case:• Can we add value to business • Our experience and understanding of the rice

value chain and ability to integrate it • Can we be the lowest cost producers for our

customers long term (Cost leadership)

Long term Business case

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Policy & legal support

• Policy support and consistency of policy overtime• Agricultural & rice policy

• Business environment• Foreign investment conditions• Policy framework om land access, taxation

• Robust legal framework to protect investment• Long term Investment protection• General security

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Perceived Barriers to Investment in Africa…

Source: Africa Attractiveness Study EY 2015

Dev

elo

p S

kills

to

man

age

Co

st

Pe

rce

ive

d C

hal

len

ges

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Rice sector challenges in Africa

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Agricultural and rice policy

Infrastructure

Public & private R & D support

Agricultural support industry

Framework

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Agricultural and rice policy

• Rice Trade and tariff Rice Policy

• Low investment in Agri sector as a % of GDP

• Frequency of change

• Degree of implementation on ground

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• Port facilities, Storage and Roads. ( ex: congested ports , road access)

• Irrigation facilities

• Energy access and costs (Thailand vs Nigeria, even fuel availability)

• Banking (out growers model payment)

Infrastructure : SSA lags behind and is cost inefficient

Coverage Deficit High costs

SSA ODR Item SSA ODR

Paved road density (per 1000 sq. km)

31 134 Power tariffs ($/KWh)

0.05-0.30

0.05-0.10

Total road density (per 1000 sq. km)

137 211 - - -

Fixed line density (lines per 1000 people)

10 78 Road freight tariffs($/ton-km)

0.05-0.25

0.01-0.04

Mobile density (lines per 1000 people)

55 86 - - -

Generation capacity (MW per million people)

37 326 International phone calls ($/3 min call to the US)

0.80 0.20

Electricity coverage (% of population)

16 41 Internet dial-up services ($/month)

50 15-25

Improved water (% of population)

60 72 - - -

Improved sanitation (% of population)

34 51 - - -

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• Research in variety development , nutrition management, Pest & disease management needs acceleration ( AfricaRice largely only one doing this)

• Research trials in developing / recommending suitable fertiliser , chemicals, mechanisation; by input companies & machinery dealers needs to improve

• Weak extension services & financial support to farmers inhibits scalability of operations. (out growers example)

• Lack of Human capital to support rice business

Public & private R & D support

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• Inputs availability and cost (Seeds, fertilisers, chemicals, machinery).

• Absence of suppliers and service providers• High costs of import ( time consuming, permissions & duty).

• By-products realization and downstream industries

• Higher Capital and Cash costs (Concrete cost, land development cost, energy cost, Machinery maintenance, utilisation, security& training)

Agricultural support industry

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What governments can do to improve business environment rice in Africa

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Refining Policy & legal support to promote private

investment in rice farming and milling

• Agricultural Policy support• Improve farming income and competitiveness• Improve local and regional trade• Consistency of policy over time• Effective Implementation on ground

• Cross border trade, Input going to ground not markets.• Business environment

• Foreign investment conditions• Policy framework on land access, taxation etc.• Effective Implementation on ground

• Actual investment incentivized, Tariffs on agricultural investments

• Robust legal framework to protect investment• Long term Investment protection• General security

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Increase pace of Infrastructure development

• Irrigation development• Partner with aid agencies and private sector

• Power: Availability and cost • Promote use of alternate sources of energy to rice

industry like rice husk, solar etc. • Partnerships with aid agencies interested in

sustainability.

• Logistics : Improve road access and storage in growing areas.

• Farmers road access to Markets/Mills

• Develop quality standards and facilitate trade.• Partner with private sector to develop buying platforms

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• Vitalise institutions in R&D • Breeding high yielding

varieties • Geography specific

agronomy practices

• Invest in developing Skilled human capital

• Improve financial support to Farmers and farmers cooperatives

• Improve effectiveness of extension services .

Improve agricultural Institutional capacity in R&D

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Catalyze private investment in support industries

• Framework to address issues • Dis-economics of

Scale?• Intellectual

property rights?

• Inputs industry• Fertilizer , chemicals• Seeds

• Agriculture machinery • Tractors, harvesters etc.

• Maintenance services and spares

• Irrigation • Irrigation pumps, Pivots,

services

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Conclusion

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Thank You