India Role in Meeting Oil Demand

Transcription

1 POTS: Malaysia India Palm oil Trade Fair & Seminar 212 India Role in Meeting Oil Demand 8 th June 212 Pawan Kumar Associate Director Rabobank Food and Agribusiness Research and Advisory

2 Introduction Section I Strong macroeconomic parameters Section II Rising domestic demand Section III Perennial short domestic supply Section IV Where is the supply? Section V Conclusions 2

3 Section I Strong macroeconomic parameters 3 Rabobank International

4 Growing economy attracting investments Per capita GDP & GDP growth 2,5 12. Net foreign direct investment (USD bln) 5 2, Per Capita GDP (US$) 1,5 1, % GDP Growth F212 F213 F214 F215 F216 F GDP per capita (current US$) GDP growth (annual %) Source: Euromonitor, IMF Source: World Bank 4

5 growth well supported by large young population base Population (mln) Age profile, % 1,35 6.% 1,3 5.% Population (mln) 1,25 1,2 1,15 % of Total Population 4.% 3.% 1,1 2.% 1,5 1.% 1, Source: World Bank, Euromonitor.% Population ages -14 Population ages Population ages 65 and above (% of total) 5

6 ...India projected to be the third largest economy by US China India Japan United Kingdom Germany Russia France Brazil Canada

7 ..being one of the fastest income growth country This is different than in the past Income growth is fastest in countries with large populations, this is driving demand growth Developing Markets 14% 12% 1% 8% 6% 4% 2% % -2% -4% Developed Markets 14% 12% 1% 8% 6% 4% 2% % -2% -4% Argentina China Iran Russia Brazil India Mexico South Africa United States EU-27 Japan Source: USDA, 211 Source: USDA, 211 7

8 economic growth increasing middle class population Total No. of household (Million) Aggregate annual disposable income (INR tln) 3 12% % 2% 27 1% 1% 23% 2 5% 34% % 49% 43% 3% 33% 18% e 225e 281 Core 3% Globals >1 target consumer groups Per household annual income (INR ) Strivers 9-2 Seekers 2-5 Aspirers 5-1 Deprived < Source: McKinsey Global Institute Rise of India s consumer market ; Nielsen Upper Middle and Rich (UMAR) Survey 29; Businessworld Marketing Whitebook: e 225e Globals >1 Strivers 9-2 Seekers 2-5 Aspirers 5-1 Deprived <9 8

9 .placing India among the most promising economies Economic and population growth in select countries, (F) 2.% Population Growth - CAGR % Australia South Africa Indonesia India 1.% Canada Argentina Mexico Thailand.5% France USA Brazil China Kazakhstan Italy.% -2% % 2% 4% 6% 8% 1% 12% -.5% Germany Russia Japan Income (Real GDP) Growth - CAGR % Source: IMF, 212, size of the bubble denotes population of the country 9

10 Section-II Rising domestic demand 1

11 Economic growth a key driver for edible oil consumption India s per capita consumption still much lower Edible Oil Consumption (Kg per capita) & GDP per Capita, selected countries,211 India s Yearly Edible Oil Consumption (Kg per capita) & GDP per Capita 35. US Pakistan Egypt Indonesia China Brazil Russia South Africa India Argentina EU Singapore Edible Oil Consumption (Kg per Capita) y = ln(x) R² = , 2, 3, 4, 5, Source: World Bank, USDA - 5 1, 1,5 GDP per Capita (US$) 11

12 pushing domestic edible oil to higher level India s Consumption has been growing at 5.7% since 22/3. Every consumption is growing by 5-6 thousand tonnes. Indian accounted for 14% of world edible oil consumption Mn tonnes % 16% 14% 12% 1% 8% 6% 4% 2% % Consumption (LHS) Percentage of world (RHS) Source: Rabobank, USDA 12

13 however the GDP growth has outpaced edible oil consumption India s GDP > edible Oil Consumption GDP Oil Consumption Source: USDA 13

14 Palm has been the at the centre of consumption basket Palm of the fastest growing oil with larger base Consumption (thousand tonnes) Consumption growth, 21/2-21/11 (%) % 7% 6% 5% 4% 3% 2% 1% Soybean Cotton Groundnut Sunflower Rapeseed Sesame Palm Rice Bran Others % -1% Source: USDA Source: USDA 14

15 gaining market share over the years Accounts for 44% of the edible oil consumption of India Consumption share 23/4 Consumption share 211/12 Rice Bran 5% Rice Bran 5% Others 2% Others 6% Soybean Soybean 18% 16% Cotton 5% Cotton 8% Palm 33% Groundnut 1% Palm 44% Sunflower 7% Rapeseed 16% Sunflower 5% Rapeseed 12% Groundnut 5% Sesame 2% Sesame 1% Source: SEA, Rabobank analysis 15

16 Besides home consumption food service a big driver for oil consumption Home consumption about 7% of the total consumption India s food services retail market expected to grow at per cent year-on-year over the next five years to reach Rs USD 11 bn by No. of times food ordered in a month No. of Times Food Ordered in a Month 1-2 Times 22% 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 3-4 Times 5-6 Times 7-8 Times 9-1 Times 11 + Times 2% 11% 5% 4% 5% % 1% 2% 3% Source: India Brand Equity Foundation, 28-9; Businessworld

17 among other food industry such biscuit & noodles Convenience a big driver Biscuit Industry ( tonnes) Noodles ( tonnes) % 5 13% % 3 17% Source: Euromonitor, organized market 17

18 Pickles and Snacks Savories Pickles ( tonnes) Snack & Savories ( tonnes) % % 6 9% % Source: Euromonitor 18

19 Section III Perennial short domestic supply 19 Rabobank International

20 Edible oil production has struggled to grow with demand leading to rising deficits Production only 4.5% of the global production Edible oil production India 8 5.% Edible oil deficit (Mn tonnes) 1 Mn tonnes % 3.% 2.% 1.%.% % 2-2.% 1 Production Yearly Growth 2

21 palm, the largest consumed oil but only a small portion of production Rapeseed remains the largest produced oil soybean oil has gained production share over the years In 2/1 In 25/6 8.82% 7.3% 6.58% 8.3% 15.85% 1.44%.79%.12% 17.66% 12.19%.57%.9% 27.98% 27.96% In 211/ % 22.19% 2.19% 6.13% 24.27% 31.13% 16.32% 19.2%.69%.8% Oil, Coconut Oil, Cottonseed Oil, Palm Oil, Palm Kernel Oil, Peanut Oil, Rapeseed Oil, Soybean Oil, Sunflowerseed Source: USDA 21

22 oilseed production growth a big challenge Oilseed production has grown at 4.6% per annum led by cotton, soybean & rapeseed Oilseed production ( thousand tonnes) Production CAGR 2/1-211/12 (%) 4 1.% 35 8.% 3 6.% Sunflower Soybean Rapeseed Peanut Palm Cotton Copra 4.% 2.%.% -2.% -4.% -6.% -8.% -1.% Source: USDA 22

23 yield growth also declining Cotton seed Rapeseed Tonnes/Ha /2 22/2 23/2 24/2 25/2 26/2 27/2 28/2 29/2 21/2 211/2 212/2 4% 3% 2% 1% % -1% Tonnes/Ha /2 22/2 23/2 24/2 25/2 26/2 27/2 28/2 29/2 21/2 211/2 212/2 2% 1% % -1% -2% Yield (LHS) Yield growth Yield Yield growth Soybean Sunflower Tonnes/Ha /2 22/2 23/2 24/2 25/2 26/2 27/2 28/2 29/2 21/2 211/2 212/2 6.% 4.% 2.%.% -2.% -4.% Tonnes/Ha /2 22/2 23/2 24/2 25/2 26/2 27/2 28/2 29/2 21/2 211/2 212/2 3% 2% 1% % -1% -2% Yield (LHS) Yield growth (RHS) Yield (LHS) Yield growth (RHS) Source: USDA 23

24 even though yields are much lower than global players Yields-Major area of improvement Cotton yields (tonnes/ha) Rapeseed yields (tonnes/ha) Canada China EU India World Soybean yields (tonnes/ha) Sunflower yields (tonnes/ha) Source: USDA, ten year average 24

25 expansion looks difficult proposition Oilseed acreage has grown at 2% per annum primarily driven by soybean India major oilseed acreage (thousand Ha) India net areas sown - all crops (thousand Ha) 4, , 3, 25, 2, 15, 1, 5, 2/21 21/22 22/23 23/24 24/25 25/26 26/27 27/28 28/29 29/21 21/ /212 Cotton Peanut Rapeseed Soybean Sunflower Source: USDA, Ministry of Agriculture-India 25

26 and traditionally other food crops have had higher degree of support But since 27/8 there has been focus on oilseed MSP MSP increase 1997/98-27/8 MSP increase 27/8-211/12 9.% 18% 8.% 16% 7.% 14% 6.% 12% 5.% 1% 4.% 8% 3.% 6% 2.% 4% 1.% 2%.% % Source: Ministry of Agriculture-India, Rabobank 26

27 leading to higher profitability Competing with food crops for acreage a big battle 8% Gross margins 7% 6% 5% 4% 3% 2% 1% % Wheat Corn Rice Soybean Rapeseed Sunflower Peanut Sugarcane Source: NCDEX, Ministry of Agriculture, HIS, Rabobank (gross margins based on 211 cost and prices) 27

28 as a result dependence on oil imports have increased with palm being the major imported oil Palm oil import grown at 5 percent annually since 2/1 Indian vegetable oil import (Thousand tonnes) Palm import (thousand tonnes) 8, 7, 6, 5, 4, 3, 2, 1, Coconut Cotton Palm Palm kernel Rapeseed Soybean Sunflower Source: USDA, Rabobank 28

29 Section IV Where is the supply 29 Rabobank International

30 With production cost advantage palm remains the cheapest edible oil Palm oil has inherent pricing advantage Oil yields 4.5 Strategic advantage-palm 35 4 Oil Yield (Tonnes/Hectare) USD/tonne Realization to be supported by meal to cover the cost Oil realization of $213 from a tonne of FFB costing $75 Oil realization of $24 from a tonne of bean costing $ FFB Soybean Oil realization assumed Soy oil USD12/tonne, CPO USD 168/tonne 3

31 domestic production insignificant in comparison to demand Indian Palm production (tonnes) 12 Indian palm plantation (Ha) Source: Ministry of Agriculture-India 31

32 ..how much of 8 thousand identified area can be used efficiently for produced???? Assam 1, Gujarat 61,35 West Bengal 1, Tripura 5, Maharashtra 1, Orissa 1, Goa 1, Karnataka 25, Andhra Pradesh 4, Kerala 5, Tamil Nadu 3, Source: Ministry of Agricultural, India 32

33 Malaysia and Indonesia the only suppliers Accounts for 87% of the world palm oil production and 9% of exports Global palm production (thousand tonnes) India s import (thousand tonnes) 6, 8 5, 7 4, 6 3, 5 4 2, 3 1, 2 2/21 21/22 22/23 23/24 24/25 25/26 26/27 27/28 28/29 29/21 21/ / Indonesia Malaysia Others Indonesia Malaysia Source: USDA, MPOB, Oilworld 33

34 but supply from traditional supplier could be under constraints Land availability is the next challenge On average last ten years consumption has grown by 2.5 million tonnes every year Oil palm Plantation Area increment Palm Oil Supply & Demand ( tonnes) 4, 3, , Million Ha Million Ha 2,5 2, 4.4 1, , Plantation (LHS) YoY Incremental plantation (RHS) Incremental Production Incremental Consumption Planting happened at roughly 35, Ha per annum between Malaysia new planting happening at less then 15, Ha/annum where as Indonesia Plantation growing at 2,-3, Ha per annum incremental annual demand requires another 5, ha of planted area Source: USDA, Director General of Estate 34

35 wonder how many more years of expansion within traditional producer countries? Indonesia has another million suitable land for planting. Malaysia could possibly do another 6, ha Years Indonesia Malaysia Source: CIC, Ministry of agriculture Indonesia 35 35

36 ..however expansion not without constraints 1 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 1 ha s. Land cost Complex social issue Technological interventions will eventually be needed to tackle problem of labour shortage 2 36

37 ...but yield improvement can also add to supply Best management practices and technical intervention to play crucial role in yield improvement Can Indonesia close the yield gap? Indonesia Malaysia Source: MPOB, Oil World 37

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. 38

39 Demand pressure on palm rising from other economies 5% of the imports are in developing Asian economies Palm oil Imports (thousand tonnes), 21/11 Palm oil imports CAGR (2/1-21/11) 8, 7, 6, 5, 4, 3, 2, 1, 2% 18% 16% 14% 12% 1% 8% 6% 4% 2% % 21/11 211/12 Source: USDA Source: USDA 39

40 ..biodiesel mandates adding to demand pressure Global Biodiesel Production (thousand tonne) (' tonne) (e) 212(f) 213(f) 214(f) 215(f) 216(f) 217(f) 218(f) 219(f) 22 (f) Global Biodiesel Production Share (%) 15% 6% 11% 12% 13% 43% USA EU-27 Brazil Argentina Indonesia Others Source: OECD-FAO, 21 4

41 vegetable oil balance sheet is tight suggesting upward pressure on prices Lowest stock to usage in last 4 years, world has about a month inventory of veg oil World veg oil ending stock 16, 14, 12, (' tonne) 1, 8, 6, 4, 2, 14% 12% 1% 8% 6% 4% 2% World veg oil stock to usage days / / / / /1999 2/21 22/23 24/25 26/27 28/29 21/211 Ending stock (LHS) % Stock/Usage (RHS) 5 Source: USDA 41

42 however funds have played there part Fund effect Managed Money (G&O) & S&P Agri Index Source: Bloomberg 42

43 witnessed heavy selling in soybean oil space in recent times US /lb Thousand contracts Managed money net long CBOT Soyoil price 43

44 weather God played there role in past and will continue to do so Weather Disruptions 21 and 211, world need favorable weather conditions to soften pressure on stock Canada too wet US MX too hot/dry Colombia rain EU cold/wet East Africa drought Russian drought Pakistan floods China too wet SE Asia rain Argentina too dry Brazil Dry condition Australian floods 44

45 all this resulting in higher volatility S&P Index 6 35 Ref soy oil Price in India (INR/1 kg) S&P agri Vol (18W) 3 Jan-8 Jan-9 Jan-1 Jan-11 Jan-12 45

46 uncertain time have made currencies movement unstable adding to pricing pressure USD/INR 58 USD/MYR Jan-1 Mar-1 May-1 Jul-1 Sep-1 Nov-1 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May Jan-1 Mar-1 May-1 Jul-1 Sep-1 Nov-1 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 46

47 leaving Industry vulnerable to supply, forex and price shocks in price sensitive consumer market Edible oil and oilseed together accounts for 4.82% weightage in Indian wholesale price index 47

48 What options India has 1 Increase domestic production????? 2 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 3 Downstream integration JVs with upstream players in Indian market 4 Build trade relationship with traditional suppliers As the pressure is rising from other demand spheres and supply could be under constrain 5 48

49 Section V Conclusions 49

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 5

51 Thank You Rabobank International Singapore Branch 77 Robinson Road, #7-, SIA Building Singapore Food & Agribusiness Research and Advisory Pawan Kumar Associate Director Food and Agribusiness Research and Advisory Rabobank leading the pact as The financial link in the global food chain t e. 51