6 April 2014

The potential of agriculture in Africa and the effect of it on beef production

Presented By Ernst Janovsky

Disclaimer: Although everything has been done to ensure the accuracy of the information, the Bank takes no responsibility for actions or losses that might occur due to the usage of this information.

2

Global demand shifts immanent if GDP growth is used as indicator of expected demand growth.

33

Market sentiments drive exchange and interest rates and market volatility

4

IF global food consumption in the next 40yr’s is to exceed total food production of the last 500 years, why is commodity prices expected to soften?

55

Agri mega trend - ‘Wealth Effect’

0

10

20

30

40

50

1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050

Population vs Food Demand Growth1950 - 2050

Population (Bn) Food demand (Petacal/ day)

1

Global food demand growth outstrips population growth

1066 1031

203 228 232207

86

366

220

99

Latin America & Caribbean

Sub-Sahran Africa East Asia South Asia North America

Arable land in use 1997-99

Total suitable for rainfed crop production

Resource availability (million ha)

66

77

Agriculture accounts for 70% of labour and more than 25% of GDP with low priority for investment 2-10% of total financing

2012 GDP per capita in USD

Agricultural sector % contribution to GDP

88

PESTLE risk rating for selected Africa countries

99

Overall PESTLE ranking for selected Africa countries

1010

African Counties agricultural potential and attractiveness

1111

Agricultural Investment Risk ratings for selected countries in Africa

Asset Management Risk assesses implied land costs (economic value added and land scarcity), transaction risks (capital restrictions, FDI rules, controls on asset liquidation, transactional interference by the state), and asset expropriation risk (real capital assets , regulatory assets, or bank deposit assets). The asset expropriation risk assessment includes analysis of state power and war and conflict risk.

The Operational Risk assessment measures water, electricity, and fuel supply risk, labour market risk (labour availability and labour regulations), the administrative business burden, and natural disaster risk (drought, floods, and others). The operational environment is key to securing sufficient income from an agricultural asset

Market Access measures payments/transactions connectedness, exchange controls pertaining to trade flows, customs regulation, and physical logistics within country and connecting to global markets. This is a measure of both access to buyer markets and supplier markets and therefore links strongly together with the Operational Risk assessment

0 – HIGH RISK; 10 – LOW RISK

12

Commodity overview and risk rating - Rice

Recommendation

Risks

Do not finance primary rice producers directly, due to credit risk (low equity base) and cost-to-serve small farmers

Financing Risk View

Key insights

Despite rice being mostly produced by small-scale farmers, it is well established in the private sector market chains.

Rice prices are shifting to a downward trend, which is attributed to ample global supply coupled with the on-going 2013/14 main crop harvest and the decline in Thai rice prices

Supa is the most widely produced variety of rice. Rice production is poorly mechanised and production is mostly carried out using

hand hoes. Most farmers determine their prices through negotiation , which are often below

government set prices. The increase in rice production may be attributed to crop diversification response

by small holder farmers who have been switching to commodities that are offering higher net income and less purchased inputs.

Key players in the rice industry are National Milling and the FRA

Rice prices are shifting to a downward trend, which is attributed to strong global supply coupled with the on-going 2013/14 main crop harvest and the decline in Thai rice prices

Mainstream processors and retailers sell imported products and don’t source their goods from local producers

Informal cross-boarder trade to the Democratic Republic of Congo (DRC)

Limited government information collection and dissemination support to farmers

13

Commodity overview and risk rating - Sugar

Key insights East Africa is a sugar-deficit region The long-term future of a sugar industry based only on sugar as an output is

downwards. Viability very much dependent on legislation and feed-in tariffs proposed by Zambian government. for energy co-generation. This should be analysed in more detail to determine long-term funding view on the sector

Sugar is grown mostly by commercial farmers but small-scale farmers also produce a significant part of production

Production expected to rise at a rate of 5.0% per annum between 2012/13 and 2016/17 to reach 534 800 tonnes.

Key players are Zambia Sugar (grow 30,000 ha, + buy in and mill), Consolidated Farming (grower buyer), Kasama Sugar (grower buyer), Makuku, Chilala, Nanga, Syringa, (all growers), Rolling Thunder (transport), and Kaleya Small-Holders (growers & producers association)

Recommendation

Risks

Financing Risk View

There are no trade tariffs on the export of any sugar from Zambia

There is a total ban on the import of non-fortified sugar, protecting the local industry to some extent

The EU has production quotas for imports from Zambia; these are being phased out over the next two years

The plan development of sugar mill in Mkushi and the construction of a malting plant in Lusaka could impact positively to sugar .

Electricity generation environment is favorable for new entrants. Tax incentives and legislation amendments was made to attract new investments. Tariffs are negotiated between buyer and seller.

Finance subject to:o Normal credit criteriao 100% of crop, or remainder of other

production, under irrigationo Adequate infrastructure proven

expertise

1414

Constant improvement in productivity is needed independent of the farming method to remain profitable.

1515

Producers do not have any control over price and are deemed to be price takers

1616

Through productivity increases, Farming Enterprises can continue to remain profitable in spite of a Cost Curve

1. Energy efficiency

• No till – 12-17L/ha

• New efficient tractors

• Green energy applications

2. Storage technology

• Dairy – UHT

• Apples - CA treatment 18mth

3. Information technology

• Precision farming – Effective

utilization of inputs

• Measurement and efficiency

Management

• Positioning of seed

• Automation tractors dairy etc.

4. Biological farming

• Bacterial soups

• Organic and Chemical

5. Genetic technology

• Selection via gene traits

• Manipulation of genes

6. Economy of scale

• Size efficiency

1717

Given all challenges and opportunities farming remain profitable

18

Cyclical production risk needs to be managed

1919

Maize trends

2020

Soya and Sunflower price trends

2121

World beer herd trends

2222

World beef production trends

2323

2424

Beef trends

25

Thank you for the opportunity to share some ideas

Contact details

E JanovskyTel (011) 350 6102

Email ernst.janovsky@absa.co.za

Disclaimer: Although everything has been done to ensure the accuracy of the information, the Bank takes no responsibility for actions or losses that might occur due to the usage of this information.