Market outlook

Jesus BenavidesAlex Rall

David SalamonJose Torbay01.17.2008

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Agenda

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- Introduction

- Overview of Moringa Oil

- Potential Markets

- Opportunities & Risks

- Strategic Recommendations

- Socioeconomic Benefits

- Q & A

- Tasks & Challenges

Team of MBA students from MIT Sloan:- Jesus Benavides (Mexico)- Alex Rall (Germany)- David Salamon (France)- Jose Torbay (Venezuela)

Who we are

Introduction

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Studying the viability of global commercialization of Moringa oil- Examining potential markets- Putting together the foundation for a realistic marketing strategy

What we are doing

Overview of

Moringa

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

What is Moringa?

Overview of Moringa

• 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

What is Moringa Oil?

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Current Use of Moringa

•Oil as a based for shampoo in low scales

•Food supplement – fortification

•Some Specialty Creams (cosmetics)

•Specialty “Energy” drinks

No mass scale production

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Possible Uses for Moringa

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

Leaves: Nutrition and Medicine

Trees:Alley Cropping Erosion

Control

Flowers: Medicine

Pods:Nutrition Medicine

Roots: Medicine

Seeds: Water Purifier-Medicine-Oil

Gum: Medicine

Bark: Medicine 7

Moringa Seeds

Moringa Leaves

Moringa Value Contributors

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Animal FeedsWater Treatment

•Cooking Oil Commercial & Industrial•Cosmetics Emollients•Personal Care Bath soaps •Perfumery•Industrial Oil Biodiesel – Oleochemical Shortenings•Lubricants

Moringa Oil

Moringa Meal

Moringa Seeds

Moringa Leaves Nutritional supplements

Food Fortification

Note however 100ha would saturate the market

Moringa Value Chain

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Potential Markets

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Food consumption/processing

High-end/Cosmetics

Industrial/Biofuel

- EU growing at a CAGR of 7.3% and US at 3.5% over 2003-2006 period- Limited domestic production capacity necessitates increased 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

Market Overview

Food consumption/processing

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European Union United States

2003

2004

2005

2006

Overall Vegetable Oil Use for Food Consumption (MMT)

- Technological advances (e.g.: other types of biomass replacing vegetable oils)- If biodiesel market does not pick up, this market will be saturated

Market Risks

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- Would most 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)

Moringa Oil - Cons

Food consumption/processing

- 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

Moringa Oil - Pros

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- 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 Overview

- Short product lifecycle- Hypes/fads common and difficult to sustain- Reputations difficult to build and negative reputations last for long periods

Market Risks

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High-end/Cosmetics

- Very extensive testing is required- Requires FDA approval-Government help is needed e.g. for conduction of clinical test

Moringa Oil - Cons

High-end/Cosmetics

- 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 - Pros

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- 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

Market Overview

Industrial/Biofuel

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

Market Risks

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- 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

Industrial/Biofuel

- Low 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 - Pros

Moringa Oil - Cons

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- Lower transportation costs (due to regional proximity)- Shorter transportation times- Economic advantages from producing in the Philippines

Geographic Advantages

- Economic trends increasing market prices stable/increasing revenues- 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

Market outlook

Sustainable business

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- Time is crucial; Need to act now

Oil Price for Major Vegetable Oils ,[$/metric ton]

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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

Prices increasing

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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 tasks1

Number of tasks

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tpu

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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

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- Focus on leading position in one core market/industry20

Assessment of market attractiveness leads to a 3-phase

market entry strategy

Suitability of Moringa Oil

Mark

et

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tlook

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Socioeconomic benefits

Biofuel

Food Processing

Food Consumptio

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High End/ Cosmetics

SurfactantsLubricants

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Aggressive entry into BiofuelsProgression to High End marketApplications in Food industries

Unattractive

Aggressive entry

into biodiesel market

Market Entry Strategy: Phase 1

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

Tasks

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Challenges

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

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

- 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

Progression into

High End market

and Food industry

Market Entry Strategy: Phases 2 & 3

1. Leverage brand recognition- Build upon reputation- Find relations in new industries

Tasks

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Challenges- Maintain supply chain stability- Deal with complexity of serving different customer types

2. Diversify product portfolio- Invest in R&D- Create new product brands3. Differentiate via branding- Invest in marketing initiatives

- 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

Socioeconomic Benefits

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Moringa Oil production

Socioeconomic Benefits

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Earned Income Vs. Opportunity Costs

Extraction FacilitiesEmployment

- Planting season- One time only

- Harvest season- Twice a year- Lasts for one month

- Significant job creation in the example of the biofuel market:

Farmers partners and employers

Employment

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- Employment will impact other functions such as:Truck drivers, Port operators, others

Others

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

# of jobs created by farmers during each season

Market Share

5% 10% 15%

Planting* 16,667 33,333 50,000

Harvesting 100,000 200,000 300,000

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- Significant increase in income earned by rural population especially farmers- Helps fight poverty in rural areas- Assumption: Ten hectares per farmer

Earned Income by Farmers

Earned Income Vs. Opportunity Costs

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- 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)

Opportunity Costs

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)

18,000 36,000 54,000

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- 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

Investment

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Extraction Facilities

- The labor force per plant is estimated at 100 employees-By 2010 around 3,000 employees are expected (30 manufacturing sites)

Employment

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Recommended Government Actions

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- Marketing campaign

- Planting materials

3 - Infrastructure (e.g.: roads network)

4 - Clinical tests

5 - Educational materials (e.g.: pamphlets)

6 - 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

3 - Results in significant positive side-effects

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

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Q&A

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Appendix

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