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Commodity

Top 5 Agro commodities Produced in the UAE - 2011

Production (Int $1000)

Production (MT)

Dear Colleagues,

It is with great pleasure that we bring you the first Agro newsletter, the latest initiative from the DMCC Commodity Services team in bringing relevant market news to the Agro community we support in Dubai. The growth and importance of Agro commodities trading in Dubai is highlighted by the large dependence on food imports in the Gulf region. This newsletter is intended for those involved in the agro commodities trade wishing to learn and stay informed about the developments of the local industry. We aim to bring you the latest developments and new perspectives on Dubais agricultural sector; we hope you enjoy the content and look forward to your feedback.

Sincerely,

Franco Bosoni Director, DMCC Commodity Services

AGRO PULSE

Issue 1.1

UAE

During the recent Gulf Food Conference, Shaikha Lubna Al Qassimi, UAE Minister of Foreign Trade, said The UAE has become a major global hub for rice, coffee and tea trading, due to its strong connectivity. She went on to add, About 90% of the Gulfs food demand is met with imports as agriculture is restricted due to climatic conditions and land use restrictions.

A report published by Alpen Capital highlights that agriculture contributes only 0.9% of the UAEs GDP and only 1% of the UAE land is available for agriculture in comparison to the UK which uses 24% of the its land for agriculture.

Food consumption in the UAE has been growing at the rate of 12% per year and, within this, the demand for food staples has increased by 30%, according to the Ministry of Economy. The increase is a result of the population growth, influx of tourists, recovery of the economy and its prominent position as a re-export hub. Source: Alpen Capital

In an effort to improve food security, the UAE government has invested in sustainable food security projects in the region and abroad especially in Vietnam, Cambodia, Egypt, Pakistan, Romania, Sudan and the Americas to safeguard supplies and against market price fluctuations.

Another strategy that has been used by GCC countries is stockpiling to build reserves of food; which requires effective management as well as appropriate storage facilities.

The UAEs Agro Sector at a glance

Farmers in the UAE have also been incentivised to cultivate up to 81,000 hectares of land; top agro production is highlighted in the above graph.

The UAE re-exports nearly 50% of imported food products to other GCC countries as well as Russia, India, Pakistan and East Africa. According to the Economist Intelligence Unit, in 2010, the UAEs imports totalled US$3.6 billion. This figure is estimated to rise to US$5.5 billion in 2015 and US$8.4 billion in 2020.

The UAE is one of the biggest re-exporters of rice. In 2010, the UAE re-exported a total of US$520.8 million, which accounted for approximately 90% of the worlds re-exports.

According to Dubai Exports, 85.7% of the UAEs re-exported rice goes to Western Asia. The other markets include Oman, Nigeria, Zimbabwe, US, Mozambique, Madagascar, Sri Lanka, South Africa, Zambia, Uganda, Rwanda, Mauritania and Ethiopia. Source: agrifeeds.org

Source: FAO

Agro Pulse

Issue 1.1

Tea Price

The price of tea is expected to remain stable for 2013 and not reach the highs of 2012 according to an anonymous UK trader who spoke to The Public Ledger. The trader also highlighted if production doesnt pick up in 2013 from 2012, the increase in the growth of population in India and China would lead to a gap of 100m kg in tea. However if production in Kenya picks up this year, the gap will be closed.

Dubai

Dubai has become a value-addition hub and sourcing centre for a number of Agro commodities. As of 2011, the trade (import and (Re-export) of the Agro sector was approximately US$6.8 billion, which was 11% more than the 2010 trade:

Type of Sector Commodities 2011 Value of trade

Softs Coffee, cocoa, sugar, tea US$2.3 billion

Grains Wheat, corn/maize, barley, oats, rice

US$2.1 billion

Edible Nuts Almonds, cashew kernels, desiccated coconut, pistachios, walnuts

US$690 million

Oilseeds, Oils and Fats

Soya beans, soya oil, sunflower seed, sunflower seed oil, cottonseed oil, sesame seed, maize/corn oil, palm oil, castor oil, olive oil

US$525 million

Pulses (Legumes)

Lentils, peas, chickpeas US$473 million

Herbs and Spices

Pepper, ginger, cumin seed, nutmeg, cloves, coriander

US$209 million

Softs: This sector represents 37% of Dubais total agro commodities trade. Sugar makes up almost 70% of the Softs category, with tea making up 29%.

Grains: In 2011, the trade value of grains made up almost 36% of trade in the agro sector in Dubai and this accounts for approximately 90% of the grains re-exported to the GCC and Middle East region, with rice accounting for the largest share of re-export.

Edible Nuts: The edible nuts category accounted for almost 12.4% of the agro trade in Dubai. Almonds represent the highest value edible nut, making up almost half of the total trade value within this category.

Oilseeds, Oils and Fats: In 2011 oilseeds, oils and fats made up less than 9% of Agro trade; representing approximately US$513 million in value in 2011; 63% up from 2010.

Pulses: In 2011, lentils were the highest trading commodity by value in the pulses section, accounting for almost 73% of the trade in this segment.

Herbs and Spices in 2011 herbs and spices accounted for approximately 4% of total agro trade with pepper as the largest commodity within the sector with US$111 million trade value.

For more trade figures please visit: http://www.dmcc.ae/jltauthority/diamond/industry-statistics-diamond/

Agro Pulse

Issue 1.1

What are the biggest challenges for the Agro Sector?

The key challenges in the Agro sector are bridging the gap between the demand and supply of food and affordability of transportation and storage. This is in addition to more specific issues such as the concerns with liquidity of the futures markets, stability of oil prices, trade flows and barriers. Erratic weather patterns, domestic food production and the distribution policies of major producers to rise above political rhetoric and align to an internationally accepted commodities 'sharing' model are yet other issues. At the grassroots level adoption of farming methods to improve yields, availability of cheap and diverse crop insurance policies and enhanced flow of supply side information are constant challenges.

What are the ongoing concerns for this sector in the region?

The Middle East & North Africa region makes up only 5% of the worlds population, yet it consumes more than 20% of the worlds grain exports. Imports have increased from 30 million tonnes of grain in 1990 to nearly 70 million tonnes in 2011. Now, imported grain accounts for nearly 60% of regional grain consumption. With very limited water and arable land and production stagnating, grain imports are likely to continue rising. Thus far, grain imports have filled the widening gap between production and consumption but population growth alone will raise grain demand in the Middle East to 200 million tonnes by 2050, which is equal to 66% of the worlds current grain exports. Increased meat consumption would take demand up even higher.

From a trade finance and business perspective this unique situation will throw open the challenges and unprecedented opportunities to growers, exporters, importers, processors and all the components of the Middle Easts food supply chain. Agriculture growth in the region will come from both consumption and production. Prosperity, increased living standards, and post Arab Spring restructuring of economies will continue to drive both.

Despite the global uncertainty, has agro commodities kept their appeal?

In 2012 the overall poor performance of the commodities index was offset by bull markets in agricultural commodities and precious metals. The long-term outlook for the food sector remains very attractive given the growing structural imbalance between supply and demand for food products and the nature of food and agri-business, which is recession resilient and inelastic. This is why we see lots of dollars chasing direct or indirect investment opportunities in the agri-sector.

What can you tell us about the Agro sector that we dont know?

In 2050, as per FAO estimates, we should raise overall food production by some 70%. Production in the developing countries would need to go up or they will have to import 100% more than what they do now. We need to grow additional three billion tonnes of cereals by 2050, up from todays nearly 2.1 billion tons. We are therefore faced with multiple challenges that require immediate investment in agriculture infrastructure in MENA, Asia and Africa.

Sudhakar Tomar is the Managing Director of Hakan Agro DMCC; the UAEs largest agro-commodities trading organisation with offices, factories, distribution hubs and farming operations in 30 countries. Hakan Agro is strongly committed towards making affordable food available to all. On the Corporate Social Responsibility front Hakan Agro management serves in honorary executive positions of CICILS which is the UN affiliated non profit International Pulses Trade and Industry Confederation.

Agro Pulse

Issue 1.1

The sugar trade in Dubai is of substantial value,

accounting for US$1.6 billion of trade in 2011, which is

approximately 25% of the total agro trade in Dubai. With

the largest stand alone sugar refinery in the world Al

Khaleej Sugar Dubai imported 1.4 million tonnes of

sugar in 2011 and exported more than half of that. The

top trading countries in 2011 were Brazil, India and

Thailand, accounting for over 95% of the volume of

sugar that is imported into Dubai, with Brazil enjoying

the largest share due to long-term contracts with Al

Khaleej. The top countries sugar is exported to are

within the Middle East and Africa region, with Iraq

accounting for 38% of the sugar that is exported.

Production

The top sugar producers worldwide are Brazil, India and

Thailand; with Brazil as the price setter.

World production of sugar is expected to increase by

50mt by 2020-21 to reach over 209mt. The bulk of the

additional production will come from developing

countries and the burden of growth will still remain with

Brazil. India, the second largest producer, is expected

to boost production to 32mt on average per year.

Thailand is expected to retain its third position with

investment projects in the pipeline to increase

production to 8.7mt by 2020-21. The more developed

economies are expected to experience stagnant or low

growth.

Source: OECD and FAO Secretariats. Link: http://www.oecd.org/site/oecd-faoagriculturaloutlook/48184295.pdf

Consumption

FAO has forecasted consumption to grow at 2.2% p.a.

to 2020-21 but down from 2.6% per annum of the

previous 10 years. Developing countries will continue to

experience strong growth in sugar consumption

because of growing income and population.

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Production

Consumption

Mt r.s.e.

In contrast, sugar consumption in many developed

countries is expected to show little or no growth; driven

by slowing population growth and dietary shifts as a

result of increasing health awareness.

Changing Trade Flows

The ethanol mandate passed in EU member states

outlines that 10% of transport energy is to be obtained

from renewable sources by 2020. As a result of this

mandate the EU is no longer a large exporter of white

sugar but now a large importer of raw sugar for refining

and sale in the local market. However white sugar is

expected to bounce back over the coming years as

large refineries in the Middle East and Africa are being

built and are gaining prominence.

Brazil is expected to continue to dominate as a leading

exporter of sugar as it forecasted to account for over

55% of global trade and over 63% of additional sugar

exports by 2020.

China is expected to become the largest importer of

sugar exceeding imports of the EU, US and the

Russian Federation as a result of rapid economic

growth and urbanisation. Source: OECD and FAO Secretariats. Link:

http://www.oecd.org/site/oecd-faoagriculturaloutlook/48184295.pdf

Sugar Prices

World sugar prices declined from historical highs in

2010, but remain on an elevated plateau and are

expected to average higher in real terms by 2020-21

compared with the past decade. The FAO Sugar Price

Index averaged 259 points in February, down 8.6

points (three percent) from January. Prices have

declined for the fourth consecutive month, due to a

relatively large world production surplus.

Commodity Case Study: Sugar

Almas Tower Level 2 PO Box: 48800 Dubai U.A.E T. +971 4 433 67 11 F. +971 4 375 18 96 commodityservices@dmcc.ae