Apple Supply Chain 6z2465

The Indian Apple market Finding fresh angles 3 March 2011

S Venkatraman Senior Director & Head, Head Food & Agribusiness Research and Advisory Rabo India Finance ltd

Strictly private & confidential – for discussion purposes only

This presentation is incomplete without reference to, and should be viewed solely in conjunction with, the oral briefing provided by Rabo India Finance Ltd (Rabo) / subsidiaries of Rabobank International / Rabobank. Rabobank Neither this presentation nor any of its contents may be used for any other purpose without the prior written consent of Rabo and Rabobank. The information in this presentation reflects prevailing conditions and our views as of this date, all of which are accordingly subject to change. In preparing this presentation, we have relied upon and assumed, without independent verification, the accuracy and completeness of all information available from public sources or was otherwise reviewed by us. In addition, our analyses are not and do not purport to be appraisals of the assets, stock, or business of the company under analysis.

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Increasing trend in fruit production • s for 10 per cent of world’s total fruit production

Fruit production trend in India (million tonnes)

80 70 60

• India I di iis th the world's ld'

50

largest producer of

40

bananas and

30

mangoes

20 10

mango production

0

― 23% of world’s

91‐92 92‐93 93‐94 94‐95 95‐96 96‐97 97‐98 98‐99 99‐00 00‐01 01‐02 02‐03 03‐04 04‐05 05‐06 06‐07 07‐08 08‐09 09‐10

―39% of the world’s

banana production Source: NHB

Fruit production is increasing at 6% p.a. for the last 6 years 3

Mango and Banana for 60% of total production FRUITS

Area (‘000 ha)

Production (‘000 tons)

Banana

748

26997

Share in total production 36 7% 36.7%

Mango

2357

13557

18.4%

Citrus

961

9452

12.9%

Papaya

103

3912

5.3%

Guava

216

3225

4.4%

Apple

279

1795

2.4%

86

1420

1.9%

Sapota

162

1358

1.8%

Grapes

107

925

1.3%

Pomegranate

128

829

1.1%

74

492

0.7%

Others

1257

9564

13 1% 13.1%

Total

6478

73526

100%

Pineapple

Litchi

4

Source: National Horticulture Board, 2009-10 data

High growth in vegetable production producer after China p Ranks ―1 in peas and okra; k ―2 onions, cauliflower & cabbage; ―3 in potatoes ―4 4 in i tomatoes

Vegetable production trend in India (million tonnes)

160 140 120 100 80 60 40 20 0

91‐992 92‐993 93‐994 94‐995 95‐996 96‐997 97‐998 98‐999 99‐000 00‐001 01‐002 02‐003 03‐004 04‐005 05‐006 06‐007 07‐008 08‐009 09‐110

Second largest

Source: NHB

Vegetable production is increasing at 4% p.a. for the last 5years

5

Potato and Onion take dominant share Area (000 ha)

Production (000 tons)

Share in total production

Potato

1825

36410

27%

Onion

755

12213

9%

Tomato

633

12425

9%

Brinjal

589

10163

8%

Cabbage

328

7245

5%

Cauliflower

337

6403

5%

Okra

451

4797

4%

Peas

362

3011

2%

Tapioca p

232

8060

6%

Sweet Potato

119

1095

1%

Others

2332

31724

24%

Total

7964

133545

100%

Vegetables

Source: NHB

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Diverse production regions & seasonality

Vegetables Fruits

7

Diverse production regions & seasonality  Indian fruit and vegetable production is distributed over diverse agro climatic conditions across different states.

 Large variation in seasonality for fruits ―further accentuated as storage facilities are both expensive and rare

 Price volatility is high due to seasonality

 Comparative advantage in production and export ―Mango, Banana, Grapes, Papaya and Guava ―Onion Potatoes, ―Onion, Potatoes Peas and Tomatoes

8

Long supply chain with significant value loss

9

•

Fragmented holdings

• High intermediation

•

Lacks scale & cost efficiency

•

Poor productivity

• High margin build up

•

High cost of Aggregation

•

Old Cultivars

• Low investment

Low backend infrastructure

•

Low technology

• Highly unorganised

•

• Information asymmetry

Low levels of processing

•

Value loss

•

•

Post harvest practice

• Lack of infrastructure

•

Price volatility

Huge opportunity to focus on back end sourcing sou c g of o fresh es produce p oduce

10

Global practices

11

Strong growth in demand Income and population growth in selected countries

•

Increasing income and

CAGR populatio on (06-11)

population in India as the key driver

•

Per capita consumption expenditure of F&V has increased by 8-9% per year in the last 12 years

•

Organised retail industry in India is expected to grow at

Income growth (‘09) Size of bubble = 2008 population

S Source: UN, UN IMF, IMF Rabobank R b b k

12

12-15%

•

Organised retailing of Fresh F&V is about 1 mn tonnes

Initiatives in backward linkages in learning p phase

13

•

Initiatives in direct procurement from farmers through contract farming

•

Offers assured market, financial assistance, agronomic

•

Multiple sources in the initial phase -directly farmers, APMC markets etc

Opportunity –Productivity improvement India

World average

(tonnes/ha)

(tonnes/ha)

Apple

6.5 to 7.5

13-14

Plums

1.27

4

2

11

0.9

7

2

5

8.75

na

9

17

11

17

Product

Peaches/Nectarines Apricot Cherries Papaya Oranges Onion Source: Rabobank research

14

Apple production centred largely in Northern India J&K HP Uttarakhand

Arunachal Pradesh

• Varieties grown are mainly Red Delicious & Golden Delicious • Apple A l season in i India is end July to Mid December & Harvest from June to November

15

Low productivity is the primary concern • Production in 2010-11 is

300

estimated at 2 to 2.2 mn

250

tonnes • Productivity has been in

world average of 13.6 • Monoculture of a few old

2000

1500 150 1000 100 500

50

cultivars (older than 30 years)

0

0

• Absence of post harvest protocols & training leads to high wastage

Area (In ' 000 HA) Production (in ' 000 MT) Source: NHB

Varietal and productivity improvement is to be addressed 16

Producttion

tonnes/ ha against a

2500

200 Are ea

the range of 6.5 6 5 to 7.5 75

Area, Production of Apple in India

Long distant points of consumption • Average acreage for apple orchards is 0 76 ha 0.76 • Packed in wooden boxes carrying 18 kgs each • Paddy straw is used in the box to reduce damage harvest • Poor infrastructure in post harvest, storage and transport increase wastage • Transportation mainly at ambient temperatures • CA facility is limited - only 30000 production)) but tonnes ((< 1.5% of p growing 17

Significant domestic demand • One of the most expensive fruits • Though apple is highly price elastic, the customer preference is for ―Red colour ―Sweet taste ―Crunchiness ―Uniformity in shape and size • Retail Prices: Imported apples are usually available at 2-2.5 times domestic apple prices

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China and USA have equal share in apple imports p 150

Source of imported apples 1% 6% 9%

Apple imports('000 tonnes)

100

42%

50 42%

0

Source: Commerce ministry, Government of India

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USA

China

Chile

Australia

Others

•

Varieties -Red Delicious, Fuji, Royal Galla, Granny Smith, Golden Delicious,

•

Apple imports have grown at a CAGR of 32% from 2005/06 to 2009/10

•

Value of apple imports for 09-10 is USD 92 mn

•

In Q1 of 2010-11 (Apr-June), 71000 tonnes of apples were imported

•

Dec- July is Seasonal window for apples

High margin cost in import marketing Description Import unit price, CIF (Washington apples) Expenses incurred by importer on: (Tariff (50%), Clearing, Freight, Commission of agent) Importer's margin Realization at wholesale market Expenses of trader (Transportation, Cold Storage (15 days avg), Commission) Wholesale trader's margin Retailer’s Retailer s purchase price Retailer's expenses Carriage/Handling, Transportation, Wastages, Others Retail margins Consumer price

USD per box of 20 kg 25.0 17.1 3.3 45.4 1.1 2.2 48.7 4.4 8.9 62 0 62.0

Source: Rabobank research

Over 50% of consumer price is channel margins without any value addition 20

Impact of imports on Indian market

21

Impact of imports on Indian market

22

Impact of imports on Indian market

23

Impact of imports on Indian market

24

Impact of imports on Indian market

25

Impact of imports on Indian market

26

Pear is a fast growing fruit

•

Small production volumes at about 200000 Tonnes

•

Current volume of imports is c.10000 tonnes with a CAGR of 25% over the last five years

•

Pear imports are mainly from China (45%), US (35%) , South Africa (20%)

•

Varieties of pears are mainly Anjou (USA), Shandong (China) and Packhams (South Africa)

• 27

Import duty is 31% for pears

Opportunities aplenty • Productivity y improvement p

Production

• Varietal improvement • High Density Planting • Post harvest protocol development

Supply Chain management

• Cold chain logistics • Controlled atmosphere storage

• Imports

Marketing g

• Partnerships for domestic retail business • Sourcing base for exports

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Rabobank : Global Financial Powerhouse Rabobank is recognised internationally for its unique specialisation and expertise in the Food and Agribusiness space. About Rabo India

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• • 29

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- Strong track record with key clients

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The financial link in the global food chain details S. Venkatraman Senior Director & Head Food & Agribusiness Research and Advisory Rabo India Finance Ltd Tel – 91-22-22034567 Ex 217 Email – [email protected] s venkatraman@rabobank com