m.r. chandran 7 th cioc, guangzhou, china m.r. chandran 7 th cioc, guangzhou, china m.r.chandran...

M.R. CHANDRAN 7th CIOC, Guangzhou, China


M.R.CHANDRAN

Advisor to RSPO

8 November, 2012Hotel Shangri-la, Guangzhou, China

11

The 7th China International Oils & Oilseeds Conference

Challenges, Opportunities for the Palm Oil Industry


Talking Points22

• Changing of Global Scenario

• Agriculture & Sustainability

• C an Palm Oil be the Solution?

• Closing Remarks


33

Changing of Global Scenario


44 Changing Global Economic Scenario

• We now live in a global village.

• We can’t escape the consequences when something goes wrong in another part of the village.

• Europeans failed to build Europe & that is now a big problem.



In short – they abused their credit cards and have run up huge debts

The debt of 17 Euro nations has climbed to 87% of GDP in 2011 – highest since Euro was introduced in 1999 – their debt to GDP limit is 60% - Greece: 170%; Italy: 121%; Portugal: 108%

• Unemployment in 17 Eurozone countries: 11% - 17 mil –Spain at 24% & Greece at 23%

• G-20 backs Europe’s overhaul to fight crisis – major economies are showing readiness to contain the debt & banking crisis & restore investor confidence.I

http://news.yahoo.com/g20-backs-europes-plans-overhaul-fight-crisis-002851230--business.html;_ylt=A2KLJQslT.JPZ3wAk1uyBhIF;_ylu=X3oDMTRkY3EzMDNxBGNjb2RlA3ZzaGFyZWFnMgRtaXQDVG9wU3RvcnkgQnVzaW5lc3NTRgRwa2cDMWJlODJjMzctZWRlMy0zMjZmLWIxZGUtOGNkNDczNWUyMGNiBHBvcwM0BHNlYwN0b3Bfc3RvcnkEdmVyAzViZDg4MTAxLWJhZTgtMTFlMS1iN2ZmLTgxNDJlNTUwZmViMQ--;_ylg=X3oDMTFtcHBmZ2VxBGludGwDdXMEbGFuZwNlbi11cwRwc3RhaWQDBHBzdGNhdANidXNpbmVzcwRwdANzZWN0aW9ucw--;_ylv=3



• The USA is no better…..in fact they are the biggest offender.

• Current US national debt : $16 trillion…30 years ago it was only: $1 trillion

• The US economy has slowed – unemployment rate at 8 %

• But US has massive resources and able to pull in funds – especially from Middle East & China.

• US Fed ramping-up economy with monetary stimulus - QE3.

• The troubling side effects of QE3 are becoming evident in Asia, with policymakers in the region facing increasing pressure to step in and stem the rise in their currencies.



• The financial crisis & the fast changing global power equations are driving unexpected development

• The debt crisis in the US & Euro Zone and the rise of the East are accelerating this change

• All advanced countries are aging and aging fast with low to no domestic growth.

• It looks like the global economy is gearing for a shakeout and will have new face soon


88 Global Impact of China + India

• Among the Emerging Economies like Brazil, Russia, Nigeria, Indonesia & South Africa, it is the rise of China & India which will have an enormous business implications during the first half of this Century - mostly beneficial to the world.

• Both nations will require enormous resources - own rapidly expanding domestic consumer markets.


99

• This demand for natural & industrial resources will be for many years.

• Emerging nations will increasingly trade among themselves.

• The US is China’s largest trading partner today .... in 20 years, India, Brazil , ASEAN, Africa & Russia are likely to be the main destinations for Chinese goods.

• The new developments will have major implications on manufacturing, product branding and consumer tastes & preferences

Global Impact of China + India


1010

Agriculture & Sustainability


1111 Climate Change Riskier

Climate & Carbon Conference Hong Kong, Oct 08

Observations by Lord Nicholas Stern – former British Treasury Economist:

“The risk of inaction over climate change far outweigh the turmoil of the global financial crisi

s”….,


1212 New Economic Model

We need a new Green Economy model that focuses on low

carbon growth that provides for sustained, shared & Green job

creating recovery through innovation-led economy.

Dr Stern’s Message


1313 Food Security

• Earth: Total land surface area: 13.4 bil ha.

• Capable of supporting agri: 4.0 bil ha - 30%

• Under cultivation: 1.5 bil ha - 12%.

• There are only two ways to increase grains, oil seeds & edible oil output:

Increase Cultivated Land

Area

Boost Yields


1414 The Big Picture

• 98% of all food comes from land

• 15 crops provide roughly 90% of calories consumed by humans

• Area of grains and oilseeds: 975 mil ha

• Cultivated Oil Palm area = 15 mil ha = <2% of grains+oilseeds)

2011: Available land bank: 4.0 billion ha

Source: Oil World 2011: FAQ 2011


1515 Land Security

Global Population Vs Arable Land Per Capita

Source: Freeworld Academy & University of Michigan

Major Factors

World Population Increasing

Land Resources Decreasing

<2 acres 0.17 acres0.6 acres

2.0b

6.6b

9.0b

- 92%

+ 350%


1616 Water Security

• 2010 ADB report: Asia is in the grip of water crisis

• 40% gap between demand & supply by 2030

• 80% of Asia’s water used to irrigate agricultural land

• Efficiency of water usage in agriculture improved by only 1% since 1990

• The silent water wars have begun…

• The Tibetan plateau supplies water to 47% of the world’s population


1717 The Bad News

• More than 70% of the world population depend on the eco-system for their livelihood.

• We are approaching capacity limitations of major agricultural resources.

• Stresses on the system (weather and diseases) will trigger production shortfalls causing price explosions


1818 Environmental Crisis

“Mother Nature

doesn't do bailouts”


1919 The Good News

• Increased demand means prices for agricultural products vary within a new & higher band price.

• Sustained higher prices can create a sustained level of investment in new technologies for agriculture & food


2020 A Hungry World


2121 Poverty … …

Do remember this:

• Poverty is not created by the POOR.

• It is created by society, institutions, concepts & politics…


2222

Can Palm Oil Be The Solution ?


2323 World Oils & fats Consumption

Source: Oil World


2424 Major Consumers of Palm Oil

2011: Total consumption 49.7m mt

Asia 58%, Europe 11%, Africa 13% = 82%

E U -2 71 1 %

In d ia1 4 %

In d o n e s ia1 3 %C h in a

1 3 %

O th e r3 0 %

U S A2 %

B a n g la d e s h2 %

Pa kis ta n4 %

T h a i la n d3 %

M a la y s ia4 %

Nig e r ia4 %


2525 Oils & Fats: Additional Demand


2626 Growth in Demand for Vegetable Oils

• Veg oil demand predicted to increase: from 120 MT (2010) to 240 MT in 2050

• Palm Oil demand to increase from 45 MT in 2010 to:

• 2015 - 60 MT (33%)

• 2020 - 75 MT (66%)

• Main drivers: population growth & per capita income

• Which vegetable oils are best placed to fulfil demand?


2727 Rising Global Dependence on Palm Oil

• World production of palm oil increased substantially

• In 1980: 4.6 Mn T or 8% of 17 oils & fats

• In 1990: 11.0 Mn T or 14%

• In 2000: 21.9 Mn T or 19%

• In 2010: 45.9 Mn T or 27% (only 6% of area)

• In 2011: 50.4 Mn T or 28% (57% of exports)

• In 2012: 52.3 Mn T (Malaysian output declining)

• In 2020 at least 78 Mn T of palm oil required by consumers worldwide


2828 Oil Palm Is The Most Efficient Producer

• Palm produces 30% of world vegetable oil production on 6% of the land occupied by vegetable oil crops.

• Commercially viable yields possible on degraded land not suited to other crops.


2929 Indonesia: Projection 2012 - 2025

2012 2015 2020 2025

Total Planted Areas ('000 ha) 9,236 10,299 12,382 14,936

Total Mature Areas ('000 ha) 7,389 8,239 9,906 11,949

Total CPO Production (m tons) 25.2 33.8 55.3 66.6

Productivity yield (tons/ha) 3.4 4.1 5.5 ? 5.6?

Source : BPS, BPN, Kementerian Pertanian, diolah Pusat Data InfoSAWIT


3030 Structural Decline in Planting Expansion

INDONESIA:

• New plantings in Indonesia have slowed in the last 2-3 years.

• Annualized New Plantings have slowed down…for 2011 = 250K Ha?

• The land moratorium and restrictions in Indonesia on new permits to clear primary forest effective 20th May 2011 for a period of 2 years limits new expansion opportunities.

• Also the need to comply with RSPO, ISPO P&C and land acquisition issues.


3131 Global Palm Oil Supply: 2005-2012F

(m mt) 2005 2006 2007 2008 2009 2010 2011 2012F

Production

Malaysia 15.2 15.5 15.3 17.7 17.6 17.0 19.0 18.5

Indonesia 13.5 15.5 16.7 18.9 21.0 22.1 25.0 26.0

Others 4.7 5.0 5.7 6.0 6.7 6.8 7.0 7.5

Total 33.4 36.0 37.7 42.6 45.3 45.9 51.0 52.0

Prod .growth (%) 11.7 7.8 4.8 12.8 6.3 1.3 11.1 2.0


3232 Snapshot of Malaysian Palm Oil Industry

Key Listed Plantation Cos in Bursa Malaysia*

Market Capitalization RM 194.1b (US$ 63.6 b)

Price Earnings Ratio 14.0 X

Price to Book Ratio 1.4 X

ROE 11.9 %

Total Assets RM 169.4 b (US$ 55.5 b)

Total Turnover RM 117.4 b (US$ 38.5 b)

Net Profits RM 13.9 b (US$ 4.6 b)

Total Cash RM 22.7 b (US$ 7.4 b)

Total Debt RM 34.6 b (US$ 11.3 b)

Total Common / Share Equity RM 94.2 b (US$ 30.9 b)

Total Debt to Common Equity 0.37 X

* As at 18th Oct 2012


3333 Malaysia : Projection 2012 - 2025

2012 2015 2020 2025

Total Planted Area (m ha) 5.1 5.2 5.5 5.5

Total Mature Area (‘m ha) 4.34 4.42 4.68 4.68

Yield per ha CPO 4.26 4.50 4.70 5.00

Total CPO Production 18.5 19.9 21.9 23.4

Note: Immature areas @ 15%


3434 Global Production Projection: 2012 -2025

(mt m) 2012 2015 2020 2025

Malaysia 18.5 20.0 22.0 23.5

Indonesia 26.0 32.0 47.0 62.0

ROW 7.5 8.0 9.0 10.0

Total CPO Production 52.0 60.0 78.0 95.5


3535

Closing Remarks


3636 Land Grab (Since 2000)

• International Land Coalition & Oxfam Novib identified 1,200 land deals under negotiations or completed covering 80mil ha - vast majority after 2007

• Over 60% of the land targeted was in Africa


OIL PALM IN AFRICA – CURRENT SCENARIO3737

Source: WRM Publications

Palm Oil Producing Countries

Palm Oil Producing Countries


AFRICA – OPPORTUNITIES IN PALM OIL3838

• 60% of the World’s Arable Land (McKinsey, 2011)Land

• Population forecasted to double in 50 years• Growing middle class (McKinsey, 2011)

Domesticconsumption

• Access to high growth markets (ECOWS, CEMAC, North Africa)MarketAccess

• ECOWAS, CEMAC trade agreement promotes free trade across borders• CEMAC Single currency (CFA Franc) mitigates exchange rate fluctuation risk and promotes internal trade

TradeBenefits

• Availability of cheap labour• Mobility of labour across ECOWAS, CEMAC countries

Labour

Sour

ces

: Del

oitt

e &

McK

inse

y 20

11


Ivory CoastTotal Area: 140,000 HaIndustrial Plantations: 88,000 Ha

SenegalTotal Area: 50,000 Ha

NigeriaTotal Area: 2,500,000HaIndustrial Plantations: 360,000 Ha

Total Area: 2,000,000 HaIndustrial Plantations 9,000 Ha

Guinea

LiberiaIndustrial Plantations: 70,000 Ha

GabonIndustrial Plantations: 10,000 Ha

Democratic Republic of CongoTotal Area: 140,000 HaIndustrial Plantations: 88,000 Ha

GhanaIndustrial Plantations:300,000Ha

CameroonTotal Area: 25,000 HaIndustrial Plantations: 76,500 Ha

BeninTotal Area: 300,000 HaIndustrial Plantations: 20,000 Ha

TogoTotal Area: 600,000 HaIndustrial Plantations: 2,000 Ha

Sierra LeoneTotal Area: 32,000 HaIndustrial Plantations: 18,000 Ha

While palm tends to grow best between 5 degrees north and south of the equator, land is being snapped up in other regions for plantation development

3939


AFRICA PALM OIL PRODUCTION4040


A GROWTH STORY FOR AFRICA4141


4242 Wealth Creation:

Today, money is in cultivating wheat, corn, soya beans and oil palms…….not

in

bread, tortillas, tau foo or margarine


4343 Price Volatility

12-mth Peak 19 October 2012

Brent Crude (US$/bll)

128 110 (-14%)

Gold (US$/oz) 1,890 1,722 (-9%)

Corn (cents/bu) 838 761 (-9%)

SBO (cents/lb) 58 51 (-12%)

CPO (RM/ton) 3,545 2,323 (-34%)

• Why? Investors focused on the dimming outlook for the global economy.


4444 MPOB Spot Prices: 2010 - 2011

2,000

2,500

3,000

3,500

4,000

4,500

Jan/10 May/10 Sep/10 Jan/11 May/11 Sep/11

(RM/tonne)

Avg Price: RM2,701/tonne Avg Price: RM3,219/tonne

Dec/11


4545 MPOB Spot Prices: Jan 2012 – 19 Oct 2012

2,000

2,200

2,400

2,600

2,800

3,000

3,200

3,400

3,600

3,800

J an-12 F eb-12 Mar-12 A pr-12 May-12 J un-12 J ul-12 A ug-12 S ep-12 Oc t-12

(R M/tonne)


4646 Market Volatility

THE ONLY THING CERTAIN ABOUT THE COMMODITY

MARKETS IS THE UNCERTAINTITY

“It has the scent of violets, the taste of olive and a

color which tinges the food like saffron, but is more

attractive”

Ca’da Mosto, a 15th century explorer on discovering

palm oil

CONTACT:[email protected]@platinumgroup.com.my

m.r. chandran 7 th cioc, guangzhou, china m.r. chandran 7 th cioc, guangzhou, china m.r.chandran...

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