Tajikistan oilseeds market study 2011_Ian Luyt_Novirost

Study on the potential for development of alternative oil seeds in

Tajikistan

Ian Luyt

www.novirost.com

Presentation to the Second International Agribusiness Investment Forum Dushanbe, Tajikistan 18-19 October 2011

INTRODUCTION

This study was commissioned by the Tajik Agricultural Finance Framework (TAFF) to develop a general analysis of the market for vegetable oils and co-products in Tajikistan and in particular to evaluate the opportunity to develop

alternative oilseed crops in Tajikistan.

TAFF was set up by the European Bank for Reconstruction and Development (EBRD) in 2007 to support the restructuring and diversification of the

agricultural sector in Tajikistan. The main objective is to provide alternative finance to small and medium-sized farms and support the freedom to farm

concept whilst fostering best farming practices. www.taff.tj

The Study was completed in July/ August 2010. This updated presentation includes further insights as well as the 2010 production and market statistics.

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TAJIKISTAN “NORTH” AND “SOUTH” REGIONS IN CONTEXT OF OILSEED PROCESSING

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“NORTH”

“SOUTH”

EDIBLE OIL IN TAJIKISTAN BASICS OF SUPPLY AND DEMAND

•  Consumption: approx. 100,000 tons per annum •  Local Production: 17,000 - 20,000 tons per annum •  Local Production: more than 95% from cotton seed •  Some imported rape/ sunflower oilseed is processed (~ 5%) •  Imports: approx 80,000 tons per annum •  Import declared (2010): US$ 72.8 million  Cost of imports has increased by 50% over past 12 months

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GLOBAL VEGETABLE OIL CONSUMPTION 2010

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Palm 33%

Soybean 29%

Rapeseed 16%

Sunflowerseed 8%

Palm Kernel 3%

Peanut 3%

Co@onseed 3%

Coconut 3%

Olive 2%

Source: USDA/ www.soystats.com

“BIG 4 OILS” = PALM, SOYBEAN, RAPE, SUNFLOWER > 80% OF CONSUMPTION

IMPORTS HAVE GROWN SIGNIFICANTLY

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YEAR 2005 2006 2007 2008 2009 2010 Import Value* $13.6 $17.3 $25.8 $41.7 $48.6 $72.8

Yr-on-Yr Growth - 27% 49% 62% 17% 50%

SOURCE: TAJSTATS Annual Statistics Publication 2011 * US$’000,000s

•  In 2010, 7% more oil was imported but cost of imports was up by 50% - reflecting higher global edible oil prices

COTTONSEED OIL PRODUCTION IN TAJIKISTAN PAST AND PRESENT

•  During Soviet Union, Tajikistan produced approx. 1.0 million tons of seed cotton

•  There were (only) 3 major oil processing plants •  Cottonseed Oil production was > 100,000 tons per annum •  Economic imperatives and crop diversification has reduced

cotton production by 70% on 1991 levels •  Cottonseed oil production now 17,000-20,000 tons per annum •  Oil Processing is currently highly fragmented: –  Approx. 52 registered industrial scale processors –  Over 200 small-scale processors

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EDIBLE OIL PRODUCTION – now 18% of 1991 Level

YEAR 1991 2006 2007 2008 2009 2010

PRODUCTION 76,100 20,200 23,700 17,300 13,000 14,100

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YEAR 1991 2006 2007 2008 2009 2010

PRODUCTION 819,600 437,900 419,800 353,100 296,000 310,500

Khatlon 528,000 258,100 259,600 241,100 197,900 202,000

Sugd 237,700 131,400 124,800 88,200 87,100 92,200

RRP 53,900 48,400 35,300 23,800 11,000 16,400

AVE YIELD 27.4 17.0 16.6 15.6 17.8 19.3

RAW COTTON PRODUCTION – now 38% of 1991 Level

SOURCE: TAJSTATS Annual Statistics Publication 2011

EDIBLE OIL PRODUCTION HAS DECLINED ALONG WITH COTTON PRODUCTION

AT BEST, 20-35% OF DEMAND CAN MET FROM LOCALLY PRODUCED COTTON SEED OIL

•  CURRENT PRODUCTION POTENTIAL: 17,000 - 20,000 tons/ annum (based on assumption: 180,000 ha of cotton grown at average 1.8 tons per ha)

•  MAXIMUM COTTON SEED OIL POTENTIAL: 34,000 tons per annum (based on assumption: 200,000 ha at average 3.0 tons per ha)

•  This offers significant OPPORTUNITY FOR PRODUCTION OF ALTERNATIVE OILSEEDS

•  INCREASE POSSIBLE from more efficient PLANTING of cotton seed – if seed is reduced from current 90-120 kg per ha to 25 kg per ha, this may yield an additional 2,500 - 3,000 tons of cottonseed oil per annum at a current market value $6.25 - $7.5 million per annum*

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* Based on price of cottonseed oil in Dushanbe green market on 18.10.2011 as 12 Somoni per liter

OIL PROCESSING IS HIGHLY FRAGMENTED

PROCESSING SECTOR – CHARACTERISTICS: •  No dominant processor/ clear market leader in Tajikistan •  Little or no standards enforcement •  Oil is usually consumed locally, in the region where produced •  Tolling arrangements are common - payment to farmer in oil and/ or seed

cake •  Blending with other oils/imported oils to improve appearance is apparently

quite common •  2 categories of processors:

 INDUSTRIAL-SCALE PRODUCTION - 52 registered processors (not all are active)

 SMALL-SCALE PRODUCTION - Over 200 small-scale processors

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THERE IS SIGNIFICANT UNUSED PROCESSING CAPACITY

•  INDUSTRIAL-SCALE PRODUCTION: –  Collective capacity (oil output): approx. 100,000 tons per annum –  Capacity utilization (oil output) currently: less than 10,000 tons per

annum (10%) –  Industrial-scale plants are relatively very small, for example:

•  Typical commercial plant (seed input): 1000-3000 tons per day •  Large Tajik plant (seed input): 100-200 tons per day

•  SMALL-SCALE PRODUCTION: - Capacity 2 to 3 tons per day over 120 days - Theoretically, ~ 50,000 tons capacity (?)

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SMALL SCALE PROCESSORS CURRENTLY PRODUCE MOST OF THE OIL

•  Small scale processors process approx 90% of oil in South •  But process only 10% of oil processed in North •  In 2008 production split as follows:

–  Large scale: approx 7,200 tons –  Small scale: approx: 10,000 tons

THERE IS SIGNIFICANT OPPORTUNITY TO CONSOLIDATE PRODUCTION AND IMPROVE EFFICIENCIES IN THE OIL PROCESSING SECTOR

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WORLD COTTONSEED OIL PRODUCTION TOP 10 PRODUCERS (‘000 tons)

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0.00

200.00

400.00

600.00

800.00

1,000.00

1,200.00

1,400.00

1,600.00

Source: USDA Estimates for 2011/ www.indexmundi.com

* Tajikistan #17

SUNFLOWER SEED OIL IS NOW THE MOST COMMONLY CONSUMED EDIBLE OIL

•  Cottonseed oil is the traditional favorite •  Cotton seed oil is 35% of consumption (50% of this is imported) •  Cotton seed oil imports - mostly from Turkmenistan, also Iran/ China •  However, imported Sunflower oil is now more than 55% of consumption •  Imports are mainly from Russia •  Also imports of palm, soya and olive oils (not significant) •  Market price was ~ 6.5 Somoni per liter in August 2010 •  Market price in October 2011 ~10 -12 Somoni per liter •  LOCAL MARKET PRICE INCREASE FROM 54 to 84% •  Cottonseed oil often has price premium of 20-30% above other oils

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TURKMENISTAN NOW THE LARGEST ORIGIN OF EDIBLE OIL IMPORTS

COUNTRY 2006 2007 2008 2009 2010 TURKMENISTAN 0 $1,815 $9,704 $12,208 $30,773 RUSSIA $252 $771 $2,801 $5,546 $10,257 KAZAKHSTAN $2,354 $3,708 $2,235 $3,064 $5,858 IRAN $3,584 $3,985 $7,815 $4,544 $2,814 UAE $749 $1,189 $2,467 $1,252 $1,252 AZERBAIJAN $1,429 $1,480 $939 $1,079 $477 Other Sources - - - - $9,883 Margarine & Fats - - - - $12,305 TOTAL IMPORTS N/A N/A N/A N/A $73,676

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CONSUMPTION BY TYPE OF EDIBLE OIL

•  Sunflower oil has been the most popular oil since 2007 •  Cotton seed oil is 35% of consumption (50% imported) •  Palm Oil is 3rd and Soya Oil is 4th - imports increasing •  Currently insignificant amounts of canola/ rapeseed oil in market •  These are official statistics:

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Source: State statistics committee, EBRD report on edible oil market

PER CAPITA CONSUMPTION IS RISING - AND IS BACK AT 1991 LEVELS

•  Tajikistan consumes 13.3 kg per capita (1991 level - 13.3 kg) •  There is often PERCEPTION that Tajikistan consumes extraordinary

amount of edible oil - this is incorrect: per capita consumption is at about the right level for Tajikistan’s per capita income level

•  COMPARATIVE PER CAPITA CONSUMPTION: •  India 12.0 kg •  Russia 14-15 kg •  USA 40 kg •  Global Average 18-19 kg

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Vegetable Oil Meat products Milk products Tajikistan 13.3 11.4 54.7 Global average 18-19 40 80 Indus. countries 40 90 215

Sources: FAO, www.bunge.com, www.ameft.com, State Statistics Committee, Tajikistan

VEGETABLE OIL IS 9.8% OF HOUSEHOLD FOOD EXPENDITURE

FOOD ITEM % of TOTAL EXPENDITURE

Bread & bread products 35.4% Meat & meat products 15.1% Sugar & confectionary products 11.5% VEGETABLE OILS 9.8% Vegetables & Melons 9.0% Fruits & Berries 5.0% Potatoes 4.1% Milk & milk products 3.8% Other products 6.3%

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RISK OF IMPORTS

•  Tajikistan dependent on imports for 80% of edible oil consumed •  This presents risk of shortages/ steep price increases •  Weather catastrophe in Russia last year (Russian yield down ~ 11%) •  Oil seed prices up last year: + 30-40% •  Ukraine: highest rapeseed prices in history in 2010 (~ US$470/ ton) •  Rapeseed prices currently €435/ ton (October 2011) •  Russia banned oilseed exports in 2010 - considered ban on oil exports •  Kazakhstan banned oil exports in 2010 – considered ban on oilseed exports •  IMPORT COSTS HAVE RISEN BY ~ 50 % OVER PAST YEAR •  MARKET WILL CONTINUE TO GET TIGHTER IN FUTURE •  HIGHLIGHTS NEED TO ADDRESS GREATER SELF-SUFFICIENCY

IN OILSEED PRODUCTION

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Source: www.agrimarket.info, www.avacommerce.com

IMPLICATIONS FOR LOCAL OIL PROCESSORS

•  Balance of power in oilseeds market has moved from processors to growers •  Cottonseed Oil still appear to attract a premium (~ 20%) over other oils

because of traditional tastes and preferences •  Cottonseed oil prices track import prices – priced at import parity •  Oils appear to be largely interchangeable for local consumers •  Growing consumer sophistication and awareness of food safety and quality

issues •  Higher quality of imported oils will set the consumer standard in future

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CONSUMER CHOICE: Dushanbe Market October 2011

COMPARATIVE PRICE TREND: SUNFLOWER OIL PRICE UP 39% OVER PAST YEAR

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$1,100

$1,200

$1,300

$1,400

$1,500

$1,600

$1,700

$1,800

Sep-‐10 Oct-‐10 Nov-‐10 Dec-‐10 Jan-‐11 Feb-‐11 Mar-‐11 Apr-‐11 May-‐11 Jun-‐11 Jul-‐11 Aug-‐11 Sep-‐11

Sep-‐10 Oct-‐10 Nov-‐10 Dec-‐10 Jan-‐11 Feb-‐11 Mar-‐11 Apr-‐11 May-‐11 Jun-‐11 Jul-‐11 Aug-‐11 Sep-‐11

Series1 $1,195 $1,304 $1,396 $1,466 $1,529 $1,592 $1,577 $1,692 $1,701 $1,701 $1,676 $1,666 $1,673

SOURCE: www.indexmundi.com - Sunflower Oil, US export price from Gulf of Mexico, US Dollars per Metric Ton

TOTAL COST OF IMPORTS OF EDIBLE OILS & FATS HAS INCREASED SIGNIFICANTLY

YEAR IMPORT VALUE (US$)

2002 $4.8m 2003 $8.9m 2004 $10.5m 2005 $13.6m 2006 $17.3m 2007 $25.3m 2008 $41.7m 2009 $48.6m 2010 $72.8m

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TOP 6 FOOD IMPORTS IN 2010 VEGETABLE OILS & FATS NOW #3

# FOOD ITEM IMPORT COST (US$)

1 FLOUR $107m 2 WHEAT $84m 3 VEGETABLE OIL & FATS $73m 4 SUGAR $53m 5 POULTRY MEAT $28m 6 CHOCOLATE $27m

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UZBEKISTAN NOW ALSO SIGNIFICANT IMPORTER OF EDIBLE OIL

2010/11 STATISTICS •  Oilseed production – 2.22 MMT (1.3 million hectares) •  Mostly Cottonseed, some Sunflower 10,000 MT and Safflower 10,000 MT •  Crushing capacity – 3.5 MMT but capacity utilization only 60% •  20 crushing plants, most now privatized to some extent •  COTTONSEED OIL PRODUCTION – 250,000 MT •  Cottonseed oil exports banned to meet local demand •  Oilseed imports for processing – 25,000 MT (soybeans ex Brazil) •  EDIBLE OIL IMPORTS – estimate 70,000 MT •  Main sources of import – sunflower oil from Russia and Ukraine •  OILMEAL PRODUCTION – 765,000 MT •  Significant, growing demand for OIL MEALS from dairy, aquaculture, and

especially POULTRY (potential demand soybeans 300,000 tons per annum)

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Source: USDA GAIN Report: Uzbekistan Oilseed Report 30.0.2011

TAFF HAS SHOWN THAT RAPESEED CAN BE GROWN PROFITABLY

•  In 2009, approx 5,000 tons of rapeseed imported by processors •  Rapeseed enables extension of factory processing season (after cotton seed) •  Major processors are familiar with rapeseed oil production •  Cost of local cotton seed (2010): approx $320/ ton •  Cost of rape seed imported from Kazakhstan (2009) approx $330 per ton •  TAFF projections indicate rapeseed can be produced at ~ $250 per ton •  Yield assumption: 2 tons/ha •  THIS COST IS COMPETITIVE WITH BOTH LOCAL COTTON SEED

AND OTHER SEED IMPORTS

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RAPE SEED SIGNIFICANT FARMING CHALLENGES

•  FIRST TRIAL STARTED IN YAVON DISTRICT IN FALL 2011 •  KEY CHALLENGES

–  new crop –  new technology –  farm production fragmented

•  PROCESSING OK - major processors have used and understand the characteristics of rapeseed

•  To meet current import requirements of 70-80,000 tons per annum, this will require production of rapeseed off approx 115,000 ha (at 2 tons/ ha)

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SIGNIFICANT AND GROWING DEMAND FOR OIL MEALS, ESPECIALLY POULTRY

•  EGG PRODUCTION up 220% in last five years

•  Also significant growth in chicken meat production •  FOWL NUMBERS up 71% in last five years

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YEAR 2006 2007 2008 2009 2010

Production ‘000s eggs 105,230 111,233 151,016 188,515 231,924


YEAR 2006 2007 2008 2009 2010

Fowls (#s) 2,571,153 3,280,382 3,682,851 3,938,517 4,402,688

CONCLUDING REMARKS •  GROWING LOCAL DEMAND FOR EDIBLE OIL – 80% is imported •  Also growing market for OIL MEALS (imports up 30% in 2010) •  LIMITS TO LOCAL COTTONSEED OIL PRODUCTION – maximum

20-35% of consumption •  Tajikistan at RISK ON PRICE AND RELIABILITY OF SUPPLY – this

will get tighter in future •  GOOD POTENTIAL FOR RAPE SEED, possibly also sunflower seed •  Rape seed can be grown competitively •  Production challenges on farms: TAFF’s guidance is key to success •  Processors understand and have processed rape seed for several years •  Alternative sources of oil seeds will improve capacity utilization •  Oilseed Processing is highly FRAGMENTED and will need to be

CONSOLIDATED to survive and succeed in future •  Significant, GROWING DEMAND FOR OIL MEALS (esp. Poultry)

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THANK YOU

Ian Luyt Dushanbe, 19 October 2011

www.novirost.com [email protected]

+7 915 201-3244

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Tajikistan oilseeds market study 2011_Ian Luyt_Novirost

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