Value chains that unlock market opportunities

Agri SA Congress

13 October 2011

John Purchase

Presentation outline• Global Food System and Value Chains• Food Chain and Network Development• How do we capture value?• Role of Government and the Case for

International Investment• Concluding remarks

Global Food System and Value Chains

Food &Beverages Feed

Fuel

PharmaMedicine

PharmaCosmetics

Electricity

Plastics

Entertainment/Tourism

Textiles &Clothing

Shoe &Leather Ind

Construction & Furniture

Paper

Environment

From Farms to……

Source: Marcos Fava Neves

From Farms to …Everything!

No. 1:Respect our farmers!

Want to Make More than a Banker? Become a Farmer!By STEPHEN GANDEL July 10, 2011

• If you want to become rich, Jim Rogers, investment whiz, best-selling author and one of Wall Street's towering personalities, has this advice: Become a farmer. Food prices have been high recently. Some have questioned how long that can continue. Not Rogers. He predicts that farming incomes will rise dramatically in the next few decades, faster than those in most other industries — even Wall Street. The essence of his argument is this: We don't need more bankers. What we need are more farmers. The invisible hand will do its magic. "The world has got a serious food problem," says Rogers. "The only real way to solve it is to draw more people back to agriculture."

Tools of the trade surround John Willoughby on his 800 ha plot outside Grand Island, Neb. Photograph by Danny Wilcox Frazier/TIME

Status and Trends

South Africa

Global Food System • Within IFAMA, major look at increase in global

food consumption – 1 billion people in Asia alone moving into middle class.

• All forecasts 10 years ago for China/Asia’s production, imports & exports were wrong.

• If China today intends to be self sufficient in soybeans, it will need over 35 million new hectares – but does not have the land for this.

• Thus increased trade & opportunity. • Will need much better logistics, ports, etc.

Global Food System • Changing food system: Redefining

agribusiness from commodity companies to consumer companies – worldwide trend.

• Demands of system far more complex and variable – requires multi-disciplinary approach and readiness to change.

• Common knowledge South Africa’s agro-food system competes in the global food system – thus need to adapt to new trends and demands to remain competitive and

unlock opportunity. Consumer focus NB!

Global Food System • Retailers, the Giants of the Chains - Wal-Mart sold €337 billion worth of food from 8 400 stores in 15 countries in 2010 - Private vs retailers labels/brands - Powerful: Information about consumers - Their supply chains incredibly important - Move to ‘Green Economy’, Fair Trade, Smallholder procurement, increased convenience, tasting areas, etc.

Note: 2010F and 2014F are calculated using fixed exchange rates based on the average rates of 2009 from www.oanda.com (01.01.09 to 07.12.09).

Source: IGD Research, December 2009

2006 2010 2014Forecast

Rank Country €bn Rank Country €bn Rank Country €bn

1 US 612 1 US 638 1 China 761

2 China 328 2 China 529 2 US 745

3 Japan 297 3 Japan 345 3 India 448

4 France 206 4 India 279 4 Japan 360

5 India 190 5 France 205 5 Russia 322

6 UK 188 6 Russia 186 6 Brazil 284

7 Germany 150 7 Brazil 185 7 France 228

8 Italy 127 8 UK 170 8 UK 198

9 Russia 116 9 Germany 160 9 Germany 168

10 Mexico 112 10 Italy 130 10 Indonesia 167

2,326 2,827 3,681

BRIC(S) to drive Modern Retail growth

Germany: The Melander family of BargteheideFood expenditure for one week: $500.07

Source: Peter Menzel www.menzelphoto.com Hungry Planet: What the World Eats

USA: The Revis family of North CarolinaFood expenditure for one week $341.98

Source: Peter Menzel www.menzelphoto.com Hungry Planet: What the World Eats

Egypt: The Ahmed family of CairoFood expenditure for one week: $68.53

Source: Peter Menzel www.menzelphoto.com Hungry Planet: What the World Eats

Chad: The Aboubakar family of Breidjing CampFood expenditure for one week: $1.23

Source: Peter Menzel www.menzelphoto.com Hungry Planet: What the World Eats

Food Chain

and

Network Development:

14-Point List

Food Chain: 14-Point List1. Chain Design, Governance and performance

2. Chain Waste

3. Food risks and chain integrated risk management

4. Sustainable chains and certification

5. Chain and network impacts, and adaptation

6. Chain and networks legislation and regulation

7. Food and health communication

Food Chain: 14-Point List8. Climate change and chains adaptation

9. Chain information management

10. Biomass based chains

11. Metropolitan agriculture chains

12. Chain and network intermediaries

13. Chain and network entrepreneurship and

innovation

14. Chain inclusion and social innovation

How do we capture value?• Innovation in integrated food chains:

input suppliers & farmers• Innovation for Food Industry and Retailers• Creative Pricing Strategies – framework

method: 3 phases• Value capture trilogy: - Costs - Differentiation - Collective action

Role of Government and the Case for International Investment

Strategy for International Investments

• Considerable debate globally on pros and cons.• However investment mostly positive and should

be promoted, but some limited and transparent form of regulation necessary.

• Wal-Mart issue, for example, big debate in SA.• Can evaluate Multi-nationals contribution to

economic development: Environment, Human resources, Taxation, R&D, Financing, Policies on

market access, JV’s for farmers/suppliers, and governance structures.

Role of Government• Acknowledge agro-food industry is private

sector business, where markets have to work.• Create facilitating and enabling environment

for competition in an open, competitive market.

• Provide infrastructure at competitive pricing.• Market development (PPP with Private Sector)• Trade and tariff policy, etc.• Assist in incorporating smallholders into value chains.

Agribusiness Executive Survey: Factor analysis

Source: Agricultural Business Chamber

Concluding remarks• Value chains compete globally, and our agro-

food value chains (and others!) are part of that serious World Cup competition.

• Generally fairly well developed value chains, but by following a more strategic and networking approach, together with government, we can unlock huge opportunities.

• Our approach must be pro-active, and our focus must be on people to make it happen!

Thank You

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