Davish Jain - Presentation

Indian Oil Meal Scenario

Davish Jain, Managing Director, Prestige Group of Industries, Indore Chairman, The Central Organization for Oil Industry & Trade

OVERVIEW OF HISTORICAL PERSPECTIVE

In the immediate aftermath of the first Green Revolution in food grains, India’s Oilseeds sector has witnessed a steady growth in the last 25 years. Production of oilseeds has registered an increase from 18.44 MMT in 2000-01 to 27.7 MMT in 2005-06 averaging in recent years at 25 MMT. Thanks to good monsoon this year a record crop is expected bringing it in the range of 30 MMT.

Oilseeds 2000-2001

2001-2002

2002-2003

2003-2004

2004-2005

2005-2006

Castor

Linseed

Niger

Safflower

Sunflower

Soybean

Sesamum

Rapeseed & Mustard

9 8 7 6 5 4 3 2 1 0

Groundnut

Quantity in Million Tonnes

Production of major and minor oilseeds and --- importance of Soybean, Groundnut and Rapeseed playing a crucial role. Indian Oilseeds Production

Growth in Area Under Soybean Cultivation & Production in India 16 14

10 5.347

8 6

3.360 2.549

4

4.476 4.028

6.127 6.932 6.122

7.150

5.400 5.050 5.010 4.300

3.236

2006-2007

2005-2006

2004-2005

2003-2004

2002-2003

2001-2002

2000-2001

1999-2000

1998-99

1997-98

1996-97

1995-96

1994-95

1993-94

1991-92

0

3.900

5.900

7.672 7.716 6.354 5.645 5.812 6.002 5.675 6.456 7.208 4.817 5.004 5.599 3.868 4.365 4.025 3.217

2

1992-93

Millions

12

Year Area Under Soybean Cultivation (In Million Hectares)

Production of Soybean (In Million Tons)

Thus, Soybean has played a predominant role. Soybean output has more than doubled in the last 10 years and is expected to reach a level of 8.6 million tons in 2007-08, making available around 6.2 MMT of Soybean Meal with 4 MMT for exports. With current international prices as high as US $300+ per MT, this year would well turn into a record year of highest ever exports of Indian Soymeal earning close to

150

221.62

236.05

220.56

200

215.72

250

186.53

Quantity in Million Tonnes

The graph below puts the Indian situation in global perspective and shows that while we may be the fourth largest exporter in the world, we need to increase our output to be able to generate much higher volume of export. Projected loss of 15 MMT this year means the world soybean production will be closer to 2005-06 level. World Soybean Production

100 50 0 2007-2008

(Projection)

2006-2007

2005-2006

2004-2005

2003-2004

Years

Quantity in '000 tonnes

Import of Oilmeals by South East Asian Countries 10000 9000 8000 7000 6000 5000 4000 3000 2000 1000 0 Meal, Rapeseed

Meal, Soybean

Other

Oil Meals 2003/04

2004/05

2005/06

2006/07

Projections 2007/08

Southeast Asia includes Brunei, Myanmar, Cambodia, Indonesia, Laos, Malaysia, Philippines, Singapore, Thailand, and Vietnam. Import demand of Far East Asian countries like China, South Korea, Japan & Taiwan, which are also regular importers of Oilmeals from India, is in addition.

Export of Soybean Meal by Major Producers (As per USDAprojections) 35,000 30,000 25,000 20,000 15,000

s e o T '0 tiy n a u Q

10,000 5,000 0

2003/04

2004/05

2005/06

2006/07

Projections 2007/08

r e th O

y u g r a P

ia d In

s a S d ite n U

il z a r B

tia n e g r A

Producers

It is a coincidence that this year, soybean production in USA and China will fall by about 20%. Thus, on all counts – be it the output, the global price level and the global competitive pressure -- for India, it is going to be an excellent year full of promise and wholesome performance. Out of the total Indian oil meals exports, Soybean meal exports constitute almost 90%. Last year Soybean meal exports contributed Rs. 4070 crores to the exchequer and this year it will go up further. This is important since almost two-thirds of India’s annual production of Soymeal is being exported. The Soybean Industry also contributes another Rs. 3500 Crores by way of import substitution of Edible oil to the domestic Edible Oil pool.

GLOBAL SOYMEAL TRADE

World Trade

India’s Share

- 52.98 Million MT (Approx.)

-

4.2 Million MT (Approx.) i.e. 7.92%

Largest Asian Supplier of Soymeal catering to over one-third of total Asian SBM imports

THE INDIAN INDUSTRY’S COMPETITIVE STRENGTHS USP's of Indian Soybean Meal Are :  Non-GMO Character with natural purity  Small Sized Parcels ranging from a 20 ton container load to 20,000 tonner ship  Higher Protein content vis-a-vis U.S. & South American Meal. Protein about 4% higher in case of normal Meal which is a great nutritional advantage in feed

formulations

This year, we had highest ever export of Soybean Meal i.e. 4.196 Million tons and much more potential and demand exists for Indian Soybean Meal in the international market. Annual demand for Soybean Meal in the international market is approximately 52.98 Million tons. Presently we are supplying only 4.196 Million tons out of the huge demand of 52.98 million tons. A vast potential exists for further increase in Indian Soybean Meal exports especially to Asian countries where India should be the largest soymeal supplier in 2007-08.

India - A key Supplier to Asian Countries

Our two neighboring SAARC countries - Pakistan & Bangladesh, both represent markets with potential of exports of 0.5 Million tons per year. In the recent years, the major markets for Indian Soyameal have been - Vietnam, China, Indonesia, South Korea, Japan, Thailand and Philippines. This year provides an opportunity to consolidate our hold, capitalizing on other favourable factors as well of lower freight advantage and containerized cargo shipments of smaller consignments, competitive price and vastly improved port and shipping facilities.

Indian Soybean Meal Export to Asian Countries (October-September) VIETNAM

Quantity in Metric Tonnes

THAILAND TAIWAN SRI LANKA SOUTH KOREA SINGAPORE SEYCHELLES PHILIPPINES PAKISTAN MALAYSIA KOREA J APAN INDONESIA CHINA BANGLADESH

Countries 2003-2004

2004-2005

2005-2006

2006-2007 Upto Aug'07

Export from India by surface (Rail/Road) to neighbouring countries are 300,000 to 5000,000 MT in addition.

Statistics just shown illustrate clearly that it is vital to sustain the strength in our traditional markets in East Asia and monitor in particular changes going on in major consuming countries like China and Vietnam: An alert eye on continuing presence in Middle East and Africa is also required. We also need to constantly review our globally competitive position and the way in which we could capitalize on the unique advantage of protein rich Indian Soymeal of Non GMO variety. Non-GMO variety can emerge as a reassuring factor whenever diseases such as bird flu in poultry and blue ear in pigs crop up. Assessment of India’s strengths and weakness, opportunities and constraints has to be made on a continuous basis in the light of evolving world situation.

Emerging Challenges and Opportunities : Domestic Demand of Meal Quantity in '000 tonnes

Domestic Consumption of Oilmeals in India 3,500 3,000 2,500 2,000 1,500 1,000 500 0

2005/06

2006/07

Other

2004/05

Sunflowerseed

Soybean

Rapeseed

Peanut

Cottonseed

2003/04

Oil Meals

Projections 2007/08

The domestic demand for Soymeal is estimated to jump from 1.5 million MT to over 2 MMT this year on account of increase in poultry activity in India, especially broiler farming and the ongoing replacement of animal proteins by soymeal. Growth in consumption of soymeal particularly for feed uses has more than doubled in the past five years. In fact feed use of domestic soybean meal is now growing faster than the production of soybeans. Increasing domestic demand can help in balancing hitherto exclusive dependence on export of Soymeal, thereby providing much needed stability to soybean industry and trade.

EXPANDING ACREAGE AND ENHANCING PRODUCTIVITY

Cultivable area needs to be increased for oilseeds The focus has come on tapping the tremendous scope for expanding cultivation of soybean and other oilseeds and steady increase in output as well as productivity. COOIT is playing a proactive catalytic role in regard to increase in productivity per hectare which is very low compared to the global average. This is a field in which coordinated push by industry, government and research agencies is called for. Higher production and productivity would enhance industry’s competitive strength. It has become imperative to increase both production and productivity to take advantage on a competitive basis of enormous global demand for Soymeal and other meals as well as steadily increasing domestic demand.

MNC’S INTEREST IN INDIA While the sickness syndrome may have dampened the spirits in past years, the industry is now back on its growth track. In this context, the increased interest of large MNCs in investing and doing business with India and from India to East Asia becomes significant. If this trend builds up, it would be interesting and useful to watch its impact on the Indian industry’s future in the global setting as well as in the domestic market growth. Domestic industry needs to be alert and take timely measures to enhance its competitive edge. COOIT as the apex organization, has to play a leading role in influencing Government policies in the right direction.

POTENTIAL TO INCREASE CROP PRODUCTIVITY While for soybeans, ground-nut and rapeseed, increasing trend in the output needs to be maintained and tempo built up for enhancing productivity to come at par with growing market opportunities both in the field of meal as well as refined oil. But in this field, it should be clear that future gains in soybean production should be increasingly in improvements in the yield per hectare, which is still way below the world average and weaken us in the highly competitive global market.

PRICE OUTLOOK FOR THE NEW CROP YEAR 2007-08: Annual Average Domestic & Export Price of Various Oil meals in India Indian Oilmeals

2006

2005

2004

2003

2002

2001

2000

7166

7059

8364

8286

7326

7119

7612

---

---

NQ

---

6972

6645

3.Rice Bran Ext.(Mumbai)16/5/8

4633

3723

3092

3745

3657

3032

4.Kardi Meal (Mah) 20/2.5

3387

3085

3111

3592

3357

3344

5.Soya Meal (Indore) 48/2.5

8446

8807

12126

10019

8959

8118

7915

6.Rapeseed Meal(Gujarat)38/2.5

4289

4339

4415

4431

4333

4971

5096

7.Sunflowerseed Meal(Mah/Karn)30/2.5 B) Export (FAS) (US$/Tonne)

4797

3645

3788

4728

4176

5117

5337

(a)  Local Ex-Mill (Rs./Tonne) 1.Groundnut Meal (Saur) 45/2/5 2.Groundnut Meal (Saur.)(Non-guarantee)

7284 3409 3833

 

1.Soyabean Meal(Bulk)Yellow(Ex-Kandla) 48/2.5

204

216

256

197

192

187

190

2.Rapeseed Meal (Bulk) 38/2.5

112

112

110

107

96

110

112

3.Groundnut Meal (Bulk) (Ex-Bedi) 45/2.5

157

145

190

110

131

119

NQ

55

67

NQ

30

NQ

NQ

NQ

4.Castor Meal(Bulk)(Ex-Kandla)

 

(C) Export (FOB) (Rs./Tonne) 1.Soyabean Meal(Bulk)Yellow(Ex-Kandla) 48/2.5

9105

9462

12202

10386

NQ

NQ

NQ

2.Rapeseed Meal (Bulk) 38/2.5

4910

4826

4860

4926

NQ

NQ

NQ

3.Groundnut Meal(Bulk)(Ex-Bedi) 45/2.5

6889

6573

8632

7269

NQ

NQ

NQ

The statistics just shown need to be kept in view since India is currently selling new crop Soymeal at 40% more prices, due to enormous competitive advantage in freight rates and proximity to Asian markets in contrast to distant north and South American origins. The current demand is also brisk from all major importers in Asia. This is expected to continue till March, 2008 and could possibly stretch even further. Major Asian countries like China, Japan and others in East Asia, who, despite having large crushing facilities, may find importing ready soybean meal and oil a more economical option in view of ocean freight differential of approx. US$ 50 to 60 per MT.

PERIOD WISE PRICE OUTLOOK

1st Stage : Sep. – Oct., 2007 Over half a million tonne Indian Soymeal has already been contracted till mid September 2007. Most of the trade has taken place on the basis of premium over December CBOT Soymeal quotes ranging from US$ 10 to US$ 22 per short tonne. On this basis, the average price realization so far is estimated at US$ 300 per metric tonne FOB Indian Port, which is almost 40% higher compared to the previous two years. 2nd Stage: Nov. – Dec., 2007 It is expected that the premium may further rise in case the ocean freight rates from South America and North America to Asian destinations do not soften. In such an event, the supplies from these origins would mostly be destined upto European continent especially for soymeal.

3rd Stage: Jan., 2008 onwards Soybean sowing and crop development in South America would be the key and ocean freight rates to Asia would impact the Soymeal prices. If there is no increase in production prospects and ocean freight rates hover around the same high level, then there would be a high draw down on the Indian stocks due to continued buying expected from Asian countries for Indian Soybean Meal. China could be a star buyer taking away a major chunk of Indian Soymeal exports. Hence we can be assured of a bright and buoyant marketing scenario for Indian Soybean meal, and can clock a billion US dollar of export earning much earlier than we could have normally anticipated. This could well turn out to be a really solid booster dose.

STRATEGY FOR THE FUTURE: To sum up, the oil meal scenario has both challenges as well as opportunities in equal measure. We need to concentrate our attention especially on the following:  Need for closely coordinated approach to the domestic and the export markets in view of steadily expanding domestic demand and simultaneous need to keep a firm foot-hold in export markets taking full advantage of currently favourable scenario.  Explore fully emergent potential of exporting to neighboring destinations (SAARC, South East Asia & Far East) & getting a firm hold there.  Take advantage of after-effects of bird flu and blue ear menace to build export of Non–GMO Indian varieties, both to nearer Asian as well as distant European markets.

 Concentrate on improving consistency, physical appearance & prospects of the Indian meal in regard to its texture, colour, particle size & free flow of meal; homogeneity and quality have to be the two buzz words to fetch the right value avoiding undue discounting.  Enhance output of soybeans and other oilseeds with much more emphasis on increasing productivity  Keep a very close tab on price movements and changing global trends.