Market outlook

Jesus Benavides Alex Rall David Salamon Jose Torbay 01.17.2008
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Agenda
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- Introduction - Overview of Moringa Oil - Potential Markets
 - Opportunities & Risks

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- Strategic Recommendations
 - Tasks & Challenges

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- Socioeconomic Benefits -Q&A

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Introduction
Who we are Team of MBA students from MIT Sloan: - Jesus Benavides (Mexico) - Alex Rall (Germany) - David Salamon (France) - Jose Torbay (Venezuela) What we are doing Studying the viability of global commercialization of Moringa oil - Examining potential markets - Putting together the foundation for a realistic marketing strategy

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Overview of Moringa

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Overview of Moringa
What is Moringa? • • • • Moringa – Malunggay – Horseradish – Drumstick Easily grown in the Philippines 2 harvests every year Very high oil content (40%)

What is Moringa Oil? • The oil is extracted from the seed through relatively simple processes • Vegetable Oil that can be used for many industries (Cooking- Food Processing- Cosmetics – Biofuels- others) • Low trans fatty; High content of beneficial fatty acids •Comparable to premium vegetable oils like Olive Oil
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Current Use of Moringa
No mass scale production •Oil as a based for shampoo in low scales •Food supplement – fortification •Some Specialty Creams (cosmetics) •Specialty “Energy” drinks

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Possible Uses for Moringa
Leaves: Nutrition and Medicine
Nutrition • Disease Prevention • Ointment • Alley Cropping • Fertilizer • Erosion Control • Water Purification • Cosmetics • Textile Printing • Insecticide • Fungicide • Lubricants • Tanning Leather • Dye • Fiber Products • Fences • Ornamentation & Shade • Wind Barrier • Cane Juice Clarifier • Honey Production & Clarifier • Condiment • Cooking Oil • Food • Traditional medicine: Anemia • Anxiety • Asthma • Blackheads • Blood impurities • Blood pressure • Bronchitis • Catarrh • Chest congestion • Cholera • Colitis • Conjunctivitis • Cough • Diabetes • Diarrhea • Dropsy • Dysentery • Eye and ear infections • Fever • Glandular swelling • Gonorrhea • Headaches • Hysteria • Intestinal worms • Jaundice • Lactation • Malaria • Pain in joints • Pimples • Pregnancy • Psoriasis • Respiratory disorders • Scurvy • Semen deficiency • Skin infections • Sore throat • Sores • Sprain • Stomach ulcers • Tuberculosis • Tumor • Urinary disorders • Wounds • Biodiesel

Trees: Alley Cropping Erosion Control Flowers: Medicine Pods: Nutrition Medicine Roots: Medicine Seeds: Water Purifier-MedicineOil Gum: Medicine Bark: Medicine

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Moringa Value Contributors

Moringa Seeds

Moringa Leaves

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Moringa Value Chain
Moringa Seeds Moringa Oil •Cooking Oil  •Cosmetics  •Personal Care  •Perfumery •Industrial Oil  •Lubricants Moring a Meal Commercial & Industrial Emollients Bath soaps Biodiesel – Oleochemical Shortenings

Animal Feeds Water Treatment

Moringa Leaves

Nutritional supplements Food Fortification
Note however 100ha would saturate the market
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Potential Markets
Food consumption/processing High-end/Cosmetics Industrial/Biofuel
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- EU growing at a CAGR of 7.3% and US at 3.5% over 2003-2006 consumption/processing period - Limited domestic production capacity necessitates increased Market Overview imports - Prices per liter for comparable oils higher than expected price of Moringa - Gap being formed for vegetable oils in this market due to shift to biodiesels

Food

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Overall Vegetable Oil Use for Food Consumption (MMT)
2003 2004 2005 2006

EuropeanUnion

United States

Market Risks - Technological advances (e.g.: other types of biomass replacing vegetable oils) - If biodiesel market does not pick up, this market will be saturated
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Food consumption/processing
Moringa Oil - Pros - Dietary benefits  responds to increased health consciousness in US/EU, low in trans fatty acids - Long product shelf life due to fatty acid content - Relative cost advantage - Would mostOil - Cons Moringa likely require the use of a process to remove the nutty flavor/smell - Acceptability of the market may require large marketing investment - Food processing companies incur a significant switching cost - Requires FDA/EFSA approval (may take time or not pass)

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Highend/Cosmetics
Market Overview - Acceptability for new products higher than in food industry - High margins - Variety of applications - High potential in certain key markets (such as the UK) - Broad range of customers  reduced impact of dropout from one customer - Growing segment in EU and US Market Risks - Short product lifecycle - Hypes/fads common and difficult to sustain - Reputations difficult to build and negative reputations last for long periods

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Highend/Cosmetics
Moringa Oil - Pros - Chemical composition and physical properties ideally suited for the high end market - High oleic acid content  good emollient - Nutritional benefits  ideal particularly for dietary supplements - Cost advantage over main competitors such as Sunflower oil or Olive oil - Lower price sensitivity of potential clients than in other markets Moringa Oil - Cons - Very extensive testing is required - Requires FDA approval -Government help is needed e.g. for conduction of clinical test
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Industrial/Biofuel
Market Overview - Biodiesel production, growing between 30% and 50% from 2006 onward, is expected to reach 12B liters by 2010 and 37B liters by 2016 [RNCOS, 2006] - One of the main drivers of the price increases in vegetable oils and shifts of oils from other uses

- High volatility of energy prices Market Risks - Complex interrelations between alternative/competing energy sources - Regulations quickly changing (unpredictability of US government programs) - Potential price pressure from new entrants

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Industrial/Biofuel
Moringa Oil - (better than diesel) - Low iodine valuePros - Low cetane (ignition) number (better than both coconut fat and diesel) - Cost is comparable to alternatives (e.g.: Soybean oil) - Could potentially obtain carbon credits in future, which would further enhance value of planting Moringa Moringa Oil - Cons - Not fully tested (CO, HC, NOx emissions) - Existing capacity does not match the huge volume of demand - Use in surfactants not ideal due to lack of C-12 carbon chains

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Sustainable business
Geographic Advantages - Lower transportation costs (due to regional proximity) - Shorter transportation times - Economic advantages from producing in the Philippines - Economic trends  increasing market prices  stable/increasing revenues Market outlook - Long term nature of contracts  reduced competitive pressure - Importance of reliability of supply  sustainable business relationships - Nature of industry based on relationships  moving now is important

- Time is crucial; Need to act now

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Prices increasing
Oil Price for Major Vegetable Oils ,[$/metric ton]
1400 1200 1000 800 600 400 200 0 1998/99 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 Soybean Cottonseed Sunseed Peanut Palm Canola Coconut Corn

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Strategic Recommendatio ns

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Scarcity of resources and time pressure necessitates focused market approach
1 Output - Negative marginal output with increasing number of tasks

Number of tasks 2 First-mover market -Temporary gap in the worldwide vegetable oil supply - Difficult break up of long-term contracts - Commodity product  difficult differentiation ∴ Aggressive market strategy required - Focus on leading position in one core market/industry
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Assessment of market attractiveness leads to a 3-phase market entry strategy
Market Outlook High End/ Cosmetics 2 1 Biofuel Aggressive 1 entry into Biofuels Progression to 2 High End market Applications in 3 Food industries

Surfactants

Food 3 Consumptio n Food Processing

Lubricants

Unattractiv e

Suitability of Moringa Oil

Socioeconomic benefits
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Market Entry Strategy: Phase 1
Tasks 1. Fill value chain - Launch production program - Establish client contacts Aggressiv e entry into biodiesel market 2. Ramp up - Cultivation of Moringa - Delivery of first lots 3. Establish long term relations - Preempt the competition - Build brand recognition 4. Cement market position - Expand client base Challenges - Timeliness/Speed - Overcome interdependence of supply & client base
- Satisfaction of volumes - Coordinated and quick cultivation of plants - Establish stable supply chain

- Creation of spare capacity - Guarantee of supply stability - Contain organizational growth - Maintain stability of prices on the production side
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Market Entry Strategy: Phases 2 &3

Progressi on into High End market and Food industry

Tasks 1. Leverage brand recognition - Build upon reputation - Find relations in new industries 2. Diversify product portfolio - Invest in R&D - Create new product brands 3. Differentiate via branding - Invest in marketing initiatives

Challenges - Maintain supply chain stability - Deal with complexity of serving different customer types - Requires the right marketing mix (4 P’s and 5 C’s) - Disconnect from the initial perceptions that may have formed - Setting different price points

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Socioeconomi c Benefits

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Socioeconomic Benefits

Moringa Oil production

Employment

Extraction Facilities

Earned Income Vs. Opportunity Costs

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Employment
Farmers partners and employers - Planting season - One time only - Harvest season - Twice a year - Lasts for one month - Significant job creation in the example of the biofuel market:
# of jobs created by farmers during each season Market Share Planting* Harvesting 5% 16,667 100,000 10% 33,333 200,000 15% 50,000 300,000

* Planting employment will be only in the first year Assuming a Biofuel market of 16 billion liters per year by 2010 ** 20 persons harvest 1 ha in 3 days

Others - Employment will impact other functions such as: Truck drivers, Port operators, others
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Earned Income Vs. Opportunity Costs

Earned Income by - Significant increase in income earned by rural population especially Farmers farmers - Helps fight poverty in rural areas - Assumption: Ten hectares per farmer Expected Annual Income (PHP) per Farmer (land owner) Year Revenue Market Share USD entering (mm) Overall income to farmers (PHP mm) Opportunity Costs 1 2,000,000 3 3,000,000 5% 514 18,000 4 4,000,000 10% 1,028 36,000 15% 1,542 54,000

Expected National Impact in the Philippines

- Most of the land needed is not being used - Planting corn, a farmer would earn 1,440,000 PHP per year - Planting coconut, a farmer would earn 814,000 PHP per year - In addition, the meal of Moringa seeds used for animal feeding (from the residual during the extraction process)

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Extraction Facilities

Investment - An investment of 250 million PHP per extraction facility is needed - A minimum of 1000 ha per facility is required for profitability - Maximum capacity of facilities can be expanded at a marginal investment as more hectares are added - Estimation of 30 extraction facilities by the end of 2010 Employment - The labor force per plant is estimated at 100 employees -By 2010 around 3,000 employees are expected (30 manufacturing sites)

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Recommended Government Actions
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- Marketing campaign - Planting materials - Infrastructure (e.g.: roads network) - Clinical tests - Educational materials (e.g.: pamphlets) - Access to credit for farmers

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Summary
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- Attractive markets for Moringa oil exist - Aggressive and focused strategy required
 - Biofuel Industry 

- High End/Cosmetics industry, Food consumption/processing markets

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- Results in significant positive side-effects

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Q&A

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Appendix

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