Food Security | 2000s Energy Crisis | Rice

Food security

Hunger – Not a choice!
April 2010

Nikhil Vora
(Dir) +91-22-6622 2567 Email: nikhilvora@idfcsski.com

Land frenzy – the ‘in’ thing?
Daewoo vying to lease 1.3m ha of farmland – half the size of Belgium – from the Madagascar government for 99 years to support the South Korean needs

Karuturi Global (an Indian company) has acquired 300,000 ha of farmland in Ethiopia

In 2008, a Dubai-based investment firm acquired 800,000 acres in Pakistan

In 2009, Saudi Arabia signed a deal for 1.2m acres of farmland in Tanzania

Today, China cultivates 2.47m acres in Indonesia

2

Catching the eye of financial investors?
Schroders planning to launch a Global Land Fund, to devote 25% of its capital to farmland acquisitions

Morgan Stanley has bought 40,000ha of farmland in Brazil

Landkom (a UK-based investment group) has leased 100,000ha of farmland in Ukraine. Targeting 350,000ha by FY11

In 2008, IFC invested US$1.4bn in the agri business supply chain

In 2008, Goldman Sachs invested US$300m to acquire 10 poultry farms in China

Committed investments of over US$60bn towards farmlands!
3

LAND..heading the OIL way? 4 ..

8% of world demand Asia Pacific – 30% of world demand but only 9.8% Consumption: 27.5% Consumption: 6.4% Consumption: 3.8% Production: 8.3% Production: 9.What makes oil ‘black gold’? Production: 15.7% of world supply 5 .9% Production: 12.4% Production: 21.7% Consumption: 24.9% Consumption: 7.4% * Percentage indicates contribution to the world Source: BP Statistical review of World Energy Middle East – 32% of world supply and only 7.1% MIDDLE EAST Production: 31.7% Consumption: 30.

both these resources are depleting at a faster rate than they can be generated 2 Supply-demand mismatch Concentrated origination point while demand regions are globally spread Thus.Food – the ‘oil’ of tomorrow? 1 Future deficit Current oil and land reserves insufficient to support the needs of the world 20 years hence Incrementally. a ‘global need’ but supply restricted within geographies rich in underlying resources 3 Prices on an uptrend Oil and food prices hit an all-time high in 2008 Rising prices are a precursor to the crisis of shortage 6 .

“There is never enough of anything for all those who want it” .Thomas Peacock 7 .

25 0.1 1.6 8 .50 0.Are we prepared to face the future deficit? Estimated oil demand (m barrels/day) OIL 24.1 acres in 1960 to 0.00 0.25 1.8 14.00 1960 1980 2000 2030E Source: Food & Agricultural Organization of United Nations 0.1 4.arable land per capita worldwide (acre) FOOD Arable land per person to shrink from 1.75 0.6 acres by 2030… …assuming the current status of arable land sustains 1.8 Current Source: IEA Estimates 2010E 2020E 2030E Precious acres .5 A gap of ~25m barrels/day by 2030E based on the current capacity USD750bn of investments required to plug the deficit 81.

200 135.273 4.The gap between ‘have’ and ‘want’… 2008 Consumption 27.7% 31.8% 8.000 33.7% OIL Oversupply in the Middle East Undersupply in Asia Pacific North America S.1% Production 15.5% 21.000 17.9% 12.000 9 .500 92% -17% 25% -75% 75% -13% FOOD Production and consumption points widely distributed across all food products 259. & Cent.4% 6.000 10.590 87.8% 3.020 16.203 104.4% 9. America Europe & Eurasia Middle East Africa Asia Pacific ('000 tonnes) Wheat USA China Corn USA Japan Rice Thailand China Production Consumption Surplus/Deficit 63.4% 30.000 207.800 118.9% 24.3% 7.

…rising prices – alarm bells are ringing! Oil prices 160 (USD/ bbl) 120 Oil prices have quadrupled in the past decade 80 40 0 Jan-00 Source: Bloomberg Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Corn and wheat prices (US$/bu) 1.has seen the sharpest increase ( Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jul-00 Jul-01 Jul-02 Jul-03 Jul-04 Jul-05 Jul-06 Jul-07 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Source: Bloomberg Source: Bloomberg Jan-08 Jul-08 0 10 .200 900 600 300 0 Corn Wheat Rice and sugar price Rice (US$/cw t) 30 Sugar (US$/pound) Three fold increase in prices over the last decade 24 18 12 6 Rice – the key staple food .

8% over a 10 year timeframe and by 1.6% to 1.2% to 1. and up to 30% by 2050 from 2% currently But can food find a replacement… OIL: demand can be potentially controlled Recent innovations on clean technology could potentially reduce oil demand over the next 20 years Research indicates that a 1% reduction in global oil demand reduces oil prices by 1.3% over a 20-year timeframe (Source: European Federation for Transport and Environment) …and is hunger a choice? 11 .Food – potentially a bigger issue than oil! OIL: there are alternatives! Alternative sources of energy . etc IEA expects ethanol to comprise up to 10% of the world’s usable gasoline by 2025.biofuels. wind power. solar energy.

Food Security – Are we headed towards a crisis? 12 .

000 1.500 1.. Improvement in yields Yields Corn Increase (over last 10 yrs) 13% 8% 4% 10% 20% 110 100 + 1975 1980 1985 1990 1995 2000 2005 Oats Wheat Rice 90 1970 Source: USDA Soybeans Source: USDA Total demand of world grain & oilseeds But it has not been enough to meet the demand …world grain and oilseeds demand up 3x over three decades (Million MT) 2..500 2.000 1970 1975 1980 1985 1990 1995 2000 2005 Source: USDA PS&D Database 13 .History is evidence… Area harvested has grown by 20%… Area harvested (Index: 1970=100) 120 …yields have improved by 10-20%.

…and the future seems far from good Arable land as a % of total area Source: CIA Factbook 2008 AFRICA – “The waste of plenty is the resource of plenty”! • Less than 5% of arable land in cultivation • Only 7% arable land irrigated (against 40% in Asia and 20% globally) • Per capita income 1/7th of the world average • Average 10m tonnes of annual food deficit • 14% of world population but 1/4th the world’s hungriest people Where land is available…the means to produce are limited 14 .

5bn people by 2050. 1/3rd of the US maize produce was used for biofuel production In USA.Arable land is shrinking 1/3rd of world arable land lost over the past 40 years due to soil erosion Research on erosion rates indicates that soil loss is far faster than it can be replenished by natural processes Erosion removes ~75bn tonnes of topsoil a year and destroys ~20m acres of farmland (source: Cornell University Research) Erosion/ Spoilage Biofuel Increasing demand for biofuel to reduce land available for food production Grain consumption for biofuel alone has increased from 20m tonnes in 2005 to 50m tonnes currently In 2008. Housing and infrastructure needed to support them to eat into a significant portion of arable land Industrialization Arable land in developed countries to fall by 50m ha by 2050E: FAO 15 . one acre of land lost due to urbanization and highway construction for every one person World population likely to grow by 2.

While arable land is depleting… …food consumption is increasing 16 .

the highest propensity to spend Per capita income growth over last 14 years 194% Source: Bloomberg 200% 73% Highest per capita income growth 17 .Population growth + affordability…higher food demand World population 37% growth in population over last 30 years China (1.34bn) 63% 73% growth in population over last 30 years India (1.18bn) 17% Largest population base growing the fastest Source: Bloomberg (Numbers in brackets denotes actual population) + Also.34bn) 20% Others (4.

the average Chinese consumer ate 44 pounds of meat annually…. …Today.In 1985. the same is at 110 pounds 18 .

The future looks ‘hungry’! Current grain prices remain above their 20-year average while food stocks around the world are still near 40-year lows World food stock Ending stocks (m MT – LHS) 800 Stocks/use (% .RHS) 40 600 30 400 20 Reduction in food stocks indicates fragility of future support 200 10 0 1970 1975 1980 1985 1990 1995 2000 2005 0 Source: USDA PS&D Database 19 .

500 Inventory has been halved 60 1.000 50 500 40 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Source: USDA PS&D Database 20 .000 Ending stocks for soyabean (‘000 tonnes) 500 850 Down by 40% 400 Shrunk by 1/4th 700 300 550 200 400 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E 100 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Ending stocks for oats (m bushels) 80 Ending stocks for corn (m bushels ) 2.000 Shrunk by 1/3rd 70 1.The future looks ‘hungry’! Ending stocks for wheat (m bushels) 1.

after seven years of drawing down stocks. world grain carryover stocks made a ‘record low’ at 55 days of world consumption 21 .In the last decade. grain consumption has exceeded production 7x. In 2008.

??? USA. the world’s largest food exporter. more than 2m acres of prime cropland is lost to erosion and water logging + WATER Groundwater providing 31% of the water used in agriculture is depleting 160% faster than the recharge rate USA to cease to be a food exporter by 2025E 22 .Survival of the ‘saviour’ . earns US$40bn through food exports POPULATION USA adding 3m people per year + URBAN SPRAWLS One acre land lost due to urbanization and highway construction for every one person + EROSION Annually.

Food Crisis – A reality… …Food Security – The next BIG play? 23 .

owners of the ‘source’. land a proxy to ‘water security’ However. to be the key beneficiaries Land ownership comes with underground water – hence. Indian corporates that have acquired large patches of land overseas are the potential ‘winners’ Improve productivity With arable land limited as also depleting. price discovery is an important aspect While historically exchanges in USA and Europe have dominated commodity trading.Themes to play Ownership of underlying assets With scarcity of arable land. productivity enhancement emerges as a strong tool for food security Efficient irrigation practices not only conserve water but also improve productivity Further. new age commodity exchanges in the Asian geographies offer strong potential 24 . such as farmland. Hence. advanced techniques such as hybrid seeds and proficient fertilization would enable better yields Efficient price discovery With production concentrated and demand points spread. India has imposed a ceiling on land holding (80% of farmers have less than 2 ha of land).

India – the country of ‘landlords’ Ceiling on land holding Limit on holdings (in acres) Andhra Pradesh Assam Bihar Gujarat Haryana Himachal Pradesh Karnataka Kerala Madhya Pradesh Maharashtra Orissa Punjab Rajasthan Tamil Nadu Uttar Pradesh West Bengal Irrigated land with two crops 10-18 17 15-18 10-18 18 10 10-20 12-15 18 18 10 17 18 12 18 12 Irrigated land with one crop 15-27 17 25 15-27 27 15 25-30 12-15 27 27 15 27 27 30 27 12 80% of farmers in India have land holdings smaller than five acres Land ‘ownership’ a far reality! 25 .

000 acres of farmland in Ethiopia Acquired 120.000 acres of palm plantations in Indonesia Acquired palm plantations in Malaysia 26 . Senegal and Mozambique to grow grains for the domestic market Acquired 300.Overseas farmland acquisitions…the right call? Indian corporates have invested ~USD2. Madagascar.5bn in buying huge plantations in Ethiopia. Kenya.

Farmland acquisition: An investment that creates ‘value’! Price performance of ADM ARCHER-DANIELS 300 S&P 500 INDEX 250 200 Archer Daniels has seen strong rerating of its stock post the acquisition of farmland 150 100 50 0 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 27 .

2 12 3.0 6 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 2. REI Agro and KRBL Harvested acreage (m acres) 3. Thus. the staple food for ~3bn worldwide. paddy growers / processors will emerge as strong bets Key players include Kohinoor Foods.6 Rice Prices (US$/cwt) 30 24 18 3.4 3. growing more than half the total crop World rice stocks have decreased by 3% per year.8 Acreage on a downtrend… …making rice expensive 28 .Asset ownership: The best shield against food security Rice – great grains! Prices of rice. has increased by 4x over the last 10 years Asian farmers produce ~90% of the total with two countries. China and India.

the closest replacement.000 40.000 1996 1997 1999 2005 1995 1998 2002 2003 2000 2001 2004 2006 2007 0 Malaysia and Indonesia account for 86% of world production Production has been rising rapidly 29 .000 20.000 10.000 25.000 30.Asset ownership: The best shield against food security Palm oil Most important edible oil when ranked by global production and consumption Accounts for >35% of the world’s global production of edible oils Palm oil stocks at all time low.000 35. also at their lowest levels Key players owning palm plantations include Ruchi Soya. Stocks of soyabean oil. KS Oils and Godrej Industries Distribution of world production Nigeria Colombia 2% Thailand 3% 2% Other 7% Indonesia 44% World production of palm oil 45.000 15.000 World production of palm oil: 1995-2008 (‘000 tonnes) Malaysia 42% 5.

200 Break-even in Year 4 30 .000) (1.600 Net proceeds (2.…backed by superior returns Paddy production Annual Opex 800 800 800 800 Outflow (US$/ha) One time capex 2.000 Year 1 Year 2 Year 3 Year 4 Year 5 Inflow (US$/ha) Yield (per ha) 4 tonnes Realization (per tonne) US$ 400 = 1.600 1.600 1.600 1.200) (400) 400 1.

000 1.000 Year 1-4 Year 5 Year 6 Year 7 Year 8 Inflow (US$/ha) Yield (per ha) 4 tonnes Realization (per tonne) US$ 600 = 2.400 2.000) (3.…backed by superior returns Oil palm production Annual Opex 1.000 1.000 Outflow (US$/ha) One time capex 5.000 1.200) (800) 600 Break-even in Year 8 31 .600) (2.400 2.400 2.400 Net proceeds (5.

India has the second largest arable land in the world after USA… …but on arable land per capita. India is 104th! 32 .

Of the remaining 69m ha under irrigation. only 3m ha covered under MIS. Thus. productivity enhancement a vital aspect for food security >50% of arable land in India depends on rain water.Efficiency play – make more out of less! Drip irrigation – the benefits With depleting arable land. Advanta Seeds. Kaveri Seeds and Monsanto Drip irrigation – a generic model Water saving over FMI (%) Vegetables Sweet potato Onion Radish Tomato Chilly Fruit crops Papaya Banana Grapes Lemon Watermelon Sweet lemon 68 45 48 81 0 61 45 60 25 77 79 62 Yield increase over FMI (%) 40 31 20 46 45 77 52 23 32 199 50 98 1 acre + + Water = = Food Pomegranate Other crops 1x 1 acre ½x Water 1. implementation of MIS can reduce water usage considerably as also improve yields Further.5x Food Sugarcane Cotton Coconut Groundnut 56 65 60 40 33 23 12 67 33 . techniques such as hybrid seeds and fertilization improve yield by 10-15% Key players include Jain Irrigation.

mustard. Advanta India is investing heavily in R&D to develop seeds with innovative traits Nitrogen use efficient seeds – Will consume less urea Drought resistant seeds – Can grow with less water Healthy sunflower oil – Trans fat free for frying High yielding hybrid seeds for rice.000 years Agriculture already consumes 70% of world’s fresh water and ~50% of habitable land. soya and cotton by 2030 while using 30% lesser inputs Among Indian players. 34 .Improved Seeds – Key to increasing crop yields FAO estimates that we need to produce as much grain from now to 2050 as we did in previous 10. vegetables etc. increased production can come only through higher yields with limited resource consumption Seeds are the most efficient vehicle for delivering higher yields as reflected in increasing agri-input space’s R&D tilt to seeds Global seed giant Monsanto is aiming to double the yields of corn.

price volatility reduced Commodity Time period PreExchanges Time period PostExchange Chana Feb. there remains limited assurance of correct and transparent pricing in the country of origin Exchanges emerge as a vital platform for global participation and thereby facilitate price discovery With agriculture poised to pick up in under-developed nations.June.Exchanges: Enabling price discovery With the geographic gap between demand and supply evident.04 12.99 .06 Mar. 04 .Nov. 04 . etc) promise immense potential Rubber Feb. 04 . for instance. 01 .80% Indian exchanges.Nov 07 11.Dec. 04 Jun. NMCE and ICEX 35 .01% 1. 04 . 07 Urad Jan.07 Potato Nov. indicate the reduced price volatility Likewise.90% 1.03 Jan. exchanges in under-penetrated regions (Africa.Dec. 07 Key players include Commodity exchanges like MCX.01 .09% 0. 06 .Mar.82% 2. NCDEX.62% 1. trading in the same will also become essential and hence exchanges would play a key role India .51% 5.Jan.Jun.80% June.

KRBL) Sugar processors (Balrampur Chini. Bajaj Hindustan) ITC DCM . Shree Renuka Sugars. REI Agro.Themes to play Price discovery MCX (Fin Tech) NCDEX (NSE) Efficiency improvement Aggregators Processors Rice processors (Kohinoor Foods.Shriram Asset ownership Karuturi Global Ruchi Soya KS Oils Godrej Industries Advanta Seeds Jain Irrigation Kaveri Seeds Monsanto 36 .

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com / swati@idfcsski.com / bhushangajaria@idfcsski.com 38 .Thank you Nikhil Vora / Bhushan Gajaria / Swati Nangalia / Shweta Dewan (Dir) +91-22-6638 3308 / 3367 / 3260 / 3290 Email: nikhilvora@idfcsski.com / shweta.dewan@idfcsski.

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