11 Aug 2016

Absa AgriBusiness

Agri Economic Outlook 2016Presented By

Ernst Janovsky

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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Current trends to consider

1. Technology to reshape Companies and Countries• Education gap to shrink (cheaper & best in class)• Work skill competition to increase (Middle class to

exceed 3,5 billion in 2050 )• Companies to deliver personalized value to

individuals • Marketing to move to one to one • Changing companies to become proactive

2. Demand shift from West to East • Diffusion of power in world USA produced 50% of

GDP 35 year ago now only 22%

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World per capita demand for food to reach a plateau

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Agricultural production opportunity

55

Water is the key for economic development !

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Climatic trends to consider

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International commodity trends to consider

Slow recovery surplus capacity> 4% world GDP growth (Capitalism)

Slow recoverySurplus capacity

> 4% world GDP growth

Industrialisation

Ener

gy c

risis

Ira

q / I

ran Fi

nanc

ial

cris

is

Fall of Communism as economic system in the world Berlin wall ‘98 / Hong Kong ‘99

Two commodity price shifts over the past 60 years ended by two economic crises

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Economic trends - Buying power of the consumers

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b) Economic trends – Economic Competitiveness

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b) Economic trends - Cost of capital to increase

1. Capital markets decline - Aging West • Less innovative Slower growth• Pension fond contribution to decline

(1950 16:1 worker :retiree, 2050 < 2:1)

2. Pressure to hike interest rates from BOP

3. Pressure from imported and administrative inflation to hike

4. Growth in money in circulation (M3 money) is below Reserve Bank target this is clear indication of the Consumer been under pressure

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c) Farming efficiency trends – Cost of inputs

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c) Farming efficiency trends - Terms of trade

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c) Farming eficiensy trends - how to improve productivity

1. Take back the consumer•Demand technology •Brand / Direct Sales2. Improve Shelf life / No more seasonality •Improved shelf life - Dairy – UHT•Apples - CA treatment 18mth

•Year round Avocado’s Production (Area and cultivar)

3.Effective cost and production management / Information technology•Connectivity

•Precision farming – Effective utilization of inputs, optimizing of yields Positioning of seed

•Improved Management - Measurement

•Automation tractors, dairy etc.

4. Energy efficiency and Transport • Green energy (Solar, Wind, Bio-fuels etc.)

• Adaptation to farming practices (No till from 65L/ha to 12-17L/ha)

• Fuel efficient tractors and transport

5 . Improved Production Efficiency's / • Biological farming

•Bacterial soups and under cover farming

•Organic and Chemical

• Genetic technology

•Selection via gene traits (Breading)

•Manipulation of genes (GMO)

6. Economy of scale • Size efficiency

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Maize price trends

Maize1.Volumes are down 27% from 9,9m ton (white 4,7m ton, yellow 5,2m ton) in 2015/16 to 7,2m ton in 2016/17 (white 3.4m ton, yellow 3,8m ton) 2.Price increased by 62% for white maize to R4770/ton and 39% for yellow maize to R3720/ton implying that the total revenue for farmers will be up in spite of a drought3.This might sound great but for the individual farmer that had a total crop failure the impact of the drought means a total loss of revenue.

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Soyabean Price trends

Soyabeans1.Volumes is expected to decline by 50% to 5,2k ton2.Price only by 30% to R6900/ton3.This implies that soyabean farmers revenue to decline by 20%

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Domestic poultry consumption and price trends

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Poultry profitability trend

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Where does our meat for export heading?

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Domestic beef production and herd trends

2020

International Beef trade

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Domestic beef price trends

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Chop as feedlot energy source is losing its ground and new energy sources needs to be developed

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Mutton price trends

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Fibre trends

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Domestic wool price expectations

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Land price trends

1. Growth in fix asset prices expected to slow down due to:• Lower net farm income growth

due to drought • A weakening debt to fix asset

ratio hampering access to credit

• Unfriendly land reform policies creating uncertainties

• Expected increase in interest rate making investors more careful

2. Net farm income to improve after the effect of lower volumes due to drought this is further complemented by expected increases in commodity prices due to a expected further weakening in the exchange rate

3. Agricultural Input cost to continue to grow faster than inflation due to a weakening of the rand

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Thank you for the opportunity to share a few ideas

Any Questions Authors

Ernst JanovskyWessel Lemmer

Karabo TakadiJulie Hayward

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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Wheat price trend

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Conclusion: The best years are still to come

Summary•La nina 60%, neutral 55%•Export driven, •Grazing limited•Financial institutions & the farmer

• Consolidation of debt• Postponement of payments• Loan on cattle purchases• Production credit

•Join organized agriculture and support your own business environment