6 April 2014 The potential of agriculture in Africa and the effect of it on beef production Presented 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.

2 Global demand shifts immanent if GDP growth is used as indicator of expected demand growth.

33 Market sentiments drive exchange and interest rates and market volatility

4 IF global food consumption in the next 40yrs is to exceed total food production of the last 500 years, why is commodity prices expected to soften?

55 Agri mega trend - Wealth Effect 1 Global food demand growth outstrips population growth Latin America & Caribbean Sub-Sahran Africa East Asia South Asia North America Arable land in use Total suitable for rainfed crop production Resource availability (million ha)

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77 Agriculture accounts for 70% of labour and more than 25% of GDP with low priority for investment 2-10% of total financing 2012 GDP per capita in USD Agricultural sector % contribution to GDP

88 PESTLE risk rating for selected Africa countries

99 Overall PESTLE ranking for selected Africa countries

10 African Counties agricultural potential and attractiveness

11 Agricultural Investment Risk ratings for selected countries in Africa Asset Management Risk assesses implied land costs (economic value added and land scarcity), transaction risks (capital restrictions, FDI rules, controls on asset liquidation, transactional interference by the state), and asset expropriation risk (real capital assets, regulatory assets, or bank deposit assets). The asset expropriation risk assessment includes analysis of state power and war and conflict risk. The Operational Risk assessment measures water, electricity, and fuel supply risk, labour market risk (labour availability and labour regulations), the administrative business burden, and natural disaster risk (drought, floods, and others). The operational environment is key to securing sufficient income from an agricultural asset Market Access measures payments/transactions connectedness, exchange controls pertaining to trade flows, customs regulation, and physical logistics within country and connecting to global markets. This is a measure of both access to buyer markets and supplier markets and therefore links strongly together with the Operational Risk assessment 0 – HIGH RISK; 10 – LOW RISK

12 Commodity overview and risk rating - Rice Recommendation Risks Do not finance primary rice producers directly, due to credit risk (low equity base) and cost-to-serve small farmers Financing Risk View Key insights Despite rice being mostly produced by small-scale farmers, it is well established in the private sector market chains. Rice prices are shifting to a downward trend, which is attributed to ample global supply coupled with the on-going 2013/14 main crop harvest and the decline in Thai rice prices Supa is the most widely produced variety of rice. Rice production is poorly mechanised and production is mostly carried out using hand hoes. Most farmers determine their prices through negotiation, which are often below government set prices. The increase in rice production may be attributed to crop diversification response by small holder farmers who have been switching to commodities that are offering higher net income and less purchased inputs. Key players in the rice industry are National Milling and the FRA Rice prices are shifting to a downward trend, which is attributed to strong global supply coupled with the on-going 2013/14 main crop harvest and the decline in Thai rice prices Mainstream processors and retailers sell imported products and dont source their goods from local producers Informal cross-boarder trade to the Democratic Republic of Congo (DRC) Limited government information collection and dissemination support to farmers

13 Commodity overview and risk rating - Sugar Key insights East Africa is a sugar-deficit region The long-term future of a sugar industry based only on sugar as an output is downwards. Viability very much dependent on legislation and feed-in tariffs proposed by Zambian government. for energy co-generation. This should be analysed in more detail to determine long-term funding view on the sector Sugar is grown mostly by commercial farmers but small-scale farmers also produce a significant part of production Production expected to rise at a rate of 5.0% per annum between 2012/13 and 2016/17 to reach tonnes. Key players are Zambia Sugar (grow 30,000 ha, + buy in and mill), Consolidated Farming (grower buyer), Kasama Sugar (grower buyer), Makuku, Chilala, Nanga, Syringa, (all growers), Rolling Thunder (transport), and Kaleya Small-Holders (growers & producers association) Recommendation Risks Financing Risk View There are no trade tariffs on the export of any sugar from Zambia There is a total ban on the import of non- fortified sugar, protecting the local industry to some extent The EU has production quotas for imports from Zambia; these are being phased out over the next two years The plan development of sugar mill in Mkushi and the construction of a malting plant in Lusaka could impact positively to sugar. Electricity generation environment is favorable for new entrants. Tax incentives and legislation amendments was made to attract new investments. Tariffs are negotiated between buyer and seller. Finance subject to: o Normal credit criteria o 100% of crop, or remainder of other production, under irrigation o Adequate infrastructure proven expertise

14 Constant improvement in productivity is needed independent of the farming method to remain profitable.

15 Producers do not have any control over price and are deemed to be price takers

16 Through productivity increases, Farming Enterprises can continue to remain profitable in spite of a Cost Curve 1.Energy efficiency No till – 12-17L/ha New efficient tractors Green energy applications 2. Storage technology Dairy – UHT Apples - CA treatment 18mth 3. Information technology Precision farming – Effective utilization of inputs Measurement and efficiency Management Positioning of seed Automation tractors dairy etc. 4. Biological farming Bacterial soups Organic and Chemical 5. Genetic technology Selection via gene traits Manipulation of genes 6.Economy of scale Size efficiency

17 Given all challenges and opportunities farming remain profitable

18 Cyclical production risk needs to be managed

19 Maize trends

20 Soya and Sunflower price trends

21 World beer herd trends

22 World beef production trends

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24 Beef trends

25 Thank you for the opportunity to share some ideas Contact details E Janovsky Tel (011) 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.