Transcript Financial Results

The potential of agriculture in
Africa and the effect of it on
beef production
Presented By Ernst Janovsky
6 April 2014
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.
Global demand shifts immanent if GDP growth is used as indicator of
expected demand growth.
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Market sentiments drive exchange and interest rates and
market volatility
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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?
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1 Agri mega trend - ‘Wealth Effect’
Global food demand growth outstrips
population growth
Resource availability
(million ha)
1066
Total suitable for rainfed
crop production
1031
Population vs Food Demand Growth
Arable land in use 1997-99
1950 - 2050
50
366
40
220
30
203
20
228
10
232
207
99
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6
0
1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050
Population (Bn)
Food demand (Petacal/ day)
Latin America &
Caribbean
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Sub-Sahran Africa
East Asia South Asia North
America
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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
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PESTLE risk rating for selected Africa countries
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Overall PESTLE ranking for selected Africa countries
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African Counties agricultural potential and attractiveness
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Agricultural Investment Risk ratings for selected countries in Africa
0 – HIGH RISK; 10 – LOW
RISK
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
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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
Commodity overview and risk rating - Rice
Risks
 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
Key insights
Recommendation
 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
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 Do not finance primary rice
producers directly, due to credit risk
(low equity base) and cost-to-serve
small farmers
Financing Risk View
Commodity overview and risk rating - Sugar
 Risks
There are no trade tariffs on the export of
any sugar from Zambia
 There is a total ban on the import of nonfortified 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.
Key insights
Recommendation
 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)
 Finance subject to:
o Normal credit criteria
o 100% of crop, or remainder of other
production, under irrigation
o Adequate infrastructure proven
expertise
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Financing Risk View
Constant improvement in productivity is needed independent
of the farming method to remain profitable.
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Producers do not have any control over price and are
deemed to be price takers
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Through productivity increases, Farming Enterprises can
continue to remain profitable in spite of a Cost Curve
4. Biological farming
1. Energy efficiency
•
No till – 12-17L/ha
• Bacterial soups
•
New efficient tractors
• Organic and Chemical
•
Green energy applications
5. Genetic technology
2. Storage technology
•
Dairy – UHT
•
Apples - CA treatment 18mth
• Selection via gene traits
• Manipulation of genes
6. Economy of scale
3. Information technology
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Precision farming – Effective
utilization of inputs
•
Measurement and efficiency
Management
•
Positioning of seed
•
Automation tractors dairy etc.
•
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Size efficiency
Given all challenges and opportunities farming remain profitable
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Cyclical production risk needs to be managed
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Maize trends
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Soya and Sunflower price trends
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World beer herd trends
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World beef production trends
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Beef trends
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Thank you for the opportunity to share some ideas
Contact details
E Janovsky
Tel (011) 350 6102
Email [email protected]
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.
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