Moringa Oil Market Outlook And Recommendations V5

Market outlook

Jesus Benavides Alex Rall David Salamon Jose Torbay 01.17.2008 1

Agenda 1

- Introduction

2

- Overview of Moringa Oil

3

- Potential Markets  - Opportunities & Risks

4

- Strategic Recommendations  - Tasks & Challenges

5

- Socioeconomic Benefits

6

-Q&A

2

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

3

Overview of Moringa

4

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 5

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 Oil Purifier-MedicineGum: Medicine Bark: Medicine

7

Moringa Value Contributors

Moringa Seeds

Moringa Leaves

8

Moringa Value Chain Moringa Seeds

Moringa Oil

•Cooking Oil  •Cosmetics  •Personal Care  •Perfumery •Industrial Oil 

Commercial & Industrial Emollients Bath soaps Biodiesel – Oleochemical Shortenings

•Lubricants Moring a Meal

Moringa Leaves

Animal Feeds Water Treatment

Nutritional supplements Food Fortification Note however 100ha would saturate the market 9

Potential Markets Food consumption/processing High-end/Cosmetics Industrial/Biofuel 10

Food

- 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

20

Overall Vegetable Oil Use for Food Consumption (MMT) 2003

10

2004 2005

0 EuropeanUnion

United States

2006

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 11

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 likely require the use of a process to remove the nutty Moringa - Cons 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

13

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 14

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 Oil - Pros - LowMoringa iodine value (better than diesel) - 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

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- Time is crucial; Need to act now

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Prices increasing Oil Price for Major Vegetable Oils ,[$/metric ton] 1400 1200

Soybean Cottonseed Sunseed Peanut Palm Canola Coconut Corn

1000 800 600 400 200 0 1998/99

1999/00

2000/01

2001/02

2002/03

2003/04

2004/05

2005/06

2006/07

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Strategic Recommendatio ns

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

Output

1

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 20

Market Outlook

Assessment of market attractiveness leads to a 3-phase market entry strategy High End/ Cosmetics

Surfactants

1

2

Biofuel

Food 3 Consumptio n Food Processing

Unattractiv e

Lubricants

Aggressive 1 entry into Biofuels Progression to 2 High End market Applications in 3 Food industries

Suitability of Moringa Oil

Socioeconomic benefits 21

Market Entry Strategy: Phase 1

Aggressiv e entry into biodiesel market

Tasks

Challenges

1. Fill value chain - Launch production program - Establish client contacts

- Timeliness/Speed - Overcome interdependence of supply & client base

2. Ramp up - Cultivation of Moringa - Delivery of first lots

- Satisfaction of volumes - Coordinated and quick cultivation of plants - Establish stable supply chain

3. Establish long term relations - Preempt the competition - Build brand recognition

- Creation of spare capacity - Guarantee of supply stability - Contain organizational growth

4. Cement market position - Expand client base

- Maintain stability of prices on the production side 22

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*

5%

10%

15%

16,667

33,333

50,000

Harvesting

100,000

200,000

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 26

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

1

3

4

Revenue

2,000,000

3,000,000

4,000,000

Expected National Impact in the Philippines Market Share

5%

10%

15%

USD entering (mm)

514

1,028

1,542

Overall income to farmers (PHP mm) Opportunity Costs

18,000

36,000

54,000

- 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 1

- Marketing campaign

2

- Planting materials

3

- Infrastructure (e.g.: roads network)

4

- Clinical tests

5

- Educational materials (e.g.: pamphlets)

6

- Access to credit for farmers

29

Summary 1

- Attractive markets for Moringa oil exist

2

- Aggressive and focused strategy required  - Biofuel Industry 

3

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

- Results in significant positive side-effects

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Q&A

31

Appendix

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