Download CIOC12 Keynote Speech Chandran (English)

1
The 7th China International Oils &
Oilseeds Conference
Challenges, Opportunities for the Palm Oil Industry
M.R.CHANDRAN
Advisor to RSPO
8 November, 2012
Hotel Shangri-la, Guangzhou, China
M.R.
M.R.CHANDRAN
CHANDRAN
7th CIOC, Guangzhou, China
7th CIOC, Guangzhou, China
2
Talking Points
•
Changing of Global Scenario
•
Agriculture & Sustainability
•
C an Palm Oil be the Solution?
•
Closing Remarks
M.R. CHANDRAN
7th CIOC, Guangzhou, China
3
Changing of Global Scenario
M.R. CHANDRAN
7th CIOC, Guangzhou, China
4
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.
M.R. CHANDRAN
7th CIOC, Guangzhou, China
5
Changing Global Economic Scenario
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
M.R. CHANDRAN
7th CIOC, Guangzhou, China
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Changing Global Economic Scenario
• 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.
M.R. CHANDRAN
7th CIOC, Guangzhou, China
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Changing Global Economic Scenario
• 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
M.R. CHANDRAN
7th CIOC, Guangzhou, China
8
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.
M.R. CHANDRAN
7th CIOC, Guangzhou, China
9
Global Impact of China + India
• 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
M.R. CHANDRAN
7th CIOC, Guangzhou, China
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Agriculture & Sustainability
M.R. CHANDRAN
7th CIOC, Guangzhou, China
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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
crisis”….,
M.R. CHANDRAN
7th CIOC, Guangzhou, China
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New Economic Model
Dr Stern’s
Message
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.
M.R. CHANDRAN
7th CIOC, Guangzhou, China
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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
M.R. CHANDRAN
7th CIOC, Guangzhou, China
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The Big Picture
2011: Available land bank: 4.0
billion ha
• 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)
Source: Oil World 2011: FAQ 2011
M.R. CHANDRAN
7th CIOC, Guangzhou, China
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Land Security
Global Population Vs Arable Land Per Capita
Major Factors
9.0b
+ 350%
6.6b
World
Population
Increasing
2.0b
0.6 acres
<2 acres
- 92%
0.17 acres
Land Resources
Decreasing
Source: Freeworld Academy & University of Michigan
M.R. CHANDRAN
7th CIOC, Guangzhou, China
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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
M.R. CHANDRAN
7th CIOC, Guangzhou, China
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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
M.R. CHANDRAN
7th CIOC, Guangzhou, China
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Environmental Crisis
“Mother Nature
doesn't do
bailouts”
M.R. CHANDRAN
7th CIOC, Guangzhou, China
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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
M.R. CHANDRAN
7th CIOC, Guangzhou, China
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A Hungry World
M.R. CHANDRAN
7th CIOC, Guangzhou, China
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Poverty … …
Do remember this:
• Poverty is not created by the
POOR.
• It is created by society, institutions,
concepts & politics…
M.R. CHANDRAN
7th CIOC, Guangzhou, China
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Can Palm Oil Be The Solution ?
M.R. CHANDRAN
7th CIOC, Guangzhou, China
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World Oils & fats Consumption
Source: Oil World
M.R. CHANDRAN
7th CIOC, Guangzhou, China
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Major Consumers of Palm Oil
2011: Total consumption 49.7m mt
Asia 58%, Europe 11%, Africa 13% = 82%
Other
30%
EU-27
11%
USA
2%
India
14%
Bangladesh
2%
China
13%
Thailand
3%
Nigeria
4%
Pakistan
4%
Indonesia
13%
Malaysia
4%
M.R. CHANDRAN
7th CIOC, Guangzhou, China
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Oils & Fats: Additional Demand
M.R. CHANDRAN
7th CIOC, Guangzhou, China
26
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?
M.R. CHANDRAN
7th CIOC, Guangzhou, China
27
Rising Global Dependence on Palm Oil
•
World production of palm oil increased substantially
•
In 1980:
4.6 Mn T
•
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
or 8% of 17 oils & fats
M.R. CHANDRAN
7th CIOC, Guangzhou, China
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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.
M.R. CHANDRAN
7th CIOC, Guangzhou, China
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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
M.R. CHANDRAN
7th CIOC, Guangzhou, China
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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.
M.R. CHANDRAN
7th CIOC, Guangzhou, China
31
Global Palm Oil Supply: 2005-2012F
(m mt)
2005
2006
2007
2008
2009
2010
2011
2012F
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
Production
M.R. CHANDRAN
7th CIOC, Guangzhou, China
32
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
M.R. CHANDRAN
7th CIOC, Guangzhou, China
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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%
M.R. CHANDRAN
7th CIOC, Guangzhou, China
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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
7.5
8.0
9.0
10.0
52.0
60.0
78.0
95.5
ROW
Total CPO Production
M.R. CHANDRAN
7th CIOC, Guangzhou, China
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Closing Remarks
M.R. CHANDRAN
7th CIOC, Guangzhou, China
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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
M.R. CHANDRAN
7th CIOC, Guangzhou, China
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OIL PALM IN AFRICA – CURRENT SCENARIO
Palm Oil Producing Countries
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
Angola
Benin
Burundi
Cameroon
Central
African
Republic
Congo, R
Congo, R.D.
Cote
d’Ivoire
Equatorial
Guinea
Gabon
Gambia
Ghana
Guinea
Guinea
15.
16.
17.
18.
19.
20.
Bissau
Liberia
Madagascar
Nigeria
Sao Tome and
Principe
Senegal
Sierra Leone
21. Tanzania
22. Togo
23. Uganda
Palm Oil
Producing
Countries
Source: WRM
Publications
M.R. CHANDRAN
7th CIOC, Guangzhou, China
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AFRICA – OPPORTUNITIES IN PALM OIL
Domestic
consumption
• 60% of the World’s Arable Land (McKinsey, 2011)
• Population forecasted to double in 50 years
• Growing middle class (McKinsey, 2011)
Market
Access
• Access to high growth markets (ECOWS, CEMAC, North Africa)
Trade
Benefits
• ECOWAS, CEMAC trade agreement promotes free trade across borders
• CEMAC Single currency (CFA Franc) mitigates exchange rate fluctuation risk
and promotes internal trade
Labour
• Availability of cheap labour
• Mobility of labour across ECOWAS, CEMAC countries
Sources : Deloitte & McKinsey 2011
Land
M.R. CHANDRAN
7th CIOC, Guangzhou, China
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Togo
Total Area:
Industrial Plantations:
Benin
600,000 Ha
2,000 Ha
Total Area:
Industrial Plantations:
300,000 Ha
20,000 Ha
Ghana
Industrial Plantations:
300,000Ha
Senegal
Total Area:
50,000 Ha
Guinea
Total Area:
Industrial Plantations
2,000,000 Ha
9,000 Ha
Sierra Leone
Total Area:
Industrial Plantations:
Cameroon
Total Area:
Industrial Plantations:
32,000 Ha
18,000 Ha
25,000 Ha
76,500 Ha
Gabon
Liberia
Industrial Plantations:
Industrial Plantations:
10,000 Ha
70,000 Ha
Nigeria
Total Area:
Industrial Plantations:
2,500,000Ha
360,000 Ha
Ivory Coast
Total Area:
Industrial Plantations:
140,000 Ha
88,000 Ha
Democratic Republic of Congo
Total Area:
Industrial Plantations:
140,000 Ha
88,000 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
M.R. CHANDRAN
7th CIOC, Guangzhou, China
40
AFRICA PALM OIL PRODUCTION
Africa Palm Oil Production
2000
1800
Togo
1600
Benin
Sierra Leone
1400
1200
1000
800
'000 MT
Liberia
Guinea
Angola
Ghana
Cameroon
600
400
200
Congo (Kinshasa)
Cote d'Ivoire
Nigeria
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
M.R. CHANDRAN
7th CIOC, Guangzhou, China
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A GROWTH STORY FOR AFRICA
M.R. CHANDRAN
7th CIOC, Guangzhou, China
42
Wealth Creation:
Today, money is in cultivating wheat,
corn, soya beans and oil palms…….not
in
bread, tortillas, tau foo or margarine
M.R. CHANDRAN
7th CIOC, Guangzhou, China
43
Price Volatility
12-mth Peak
19 October 2012
128
110 (-14%)
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%)
Brent Crude
(US$/bll)
Gold (US$/oz)
• Why? Investors focused on the dimming outlook for the global economy.
M.R. CHANDRAN
7th CIOC, Guangzhou, China
44
MPOB Spot Prices: 2010 - 2011
(RM/tonne)
4,500
Avg Price: RM2,701/tonne
Avg Price: RM3,219/tonne
4,000
3,500
3,000
2,500
2,000
Jan/10
May/10
Sep/10
Jan/11
May/11
Sep/11
Dec/11
M.R. CHANDRAN
7th CIOC, Guangzhou, China
45
MPOB Spot Prices: Jan 2012 – 19 Oct 2012
(R M/tonne)
3,800
3,600
3,400
3,200
3,000
2,800
2,600
2,400
2,200
2,000
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 O c t-12
M.R. CHANDRAN
7th CIOC, Guangzhou, China
46
Market Volatility
THE ONLY THING CERTAIN
ABOUT THE COMMODITY
MARKETS IS THE
UNCERTAINTITY
M.R. CHANDRAN
7th CIOC, Guangzhou, China
CONTACT:
[email protected]
“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