The Indian Apple market

Finding fresh angles

The Indian Apple market
Finding fresh angles
3 March 2011
S Venkatraman
Senior Director & Head Senior Director & 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 Neither this presentation nor any of its contents of Rabobank International / 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.
2
Increasing trend in fruit production
Accounts for 10 per
cent of worlds total
Fruit production trend in India (million tonnes)
80
fruit production
I di i th ld'
60
70
80
India is the world's
largest producer of
bananas and
30
40
50
mangoes
39% of the worlds
mango production
0
10
20
mango production
23% of worlds
banana production
0
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9

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Fruit production is increasing at 6% p.a. for the last 6 years
Source: NHB
3
Mango and Banana account for 60% of
total production total production
FRUITS Area (000 ha) Production (000 tons)
Share in total
production
Banana 748 26997 36 7% Banana 748 26997 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%
Pineapple 86 1420 1.9%
Sapota 162 1358 1.8%
Grapes 107 925 1.3% Grapes 107 925 1.3%
Pomegranate 128 829 1.1%
Litchi 74 492 0.7%
Others 1257 9564 13 1%
4
Source: National Horticulture Board, 2009-10 data
Others 1257 9564 13.1%
Total 6478 73526 100%
High growth in vegetable production
Second largest
producer after China
Vegetable production trend in India (million tonnes)
160
p
Ranks
1 in peas and
k
100
120
140
160
okra;
2 onions,
cauliflower &
40
60
80
100
cabbage;
3 in potatoes
4 i
0
20
40
9
2
9
3
9
4
9
5
9
6
9
7
9
8
9
9
0
0
0
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1
0
4 in tomatoes
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9
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9
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1
Source: NHB
Vegetable production is increasing at 4% p.a. for the last 5years
5
Potato and Onion take dominant share
Vegetables
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 232 8060 6% p
Sweet Potato 119 1095 1%
Others 2332 31724 24%
Total 7964 133545 100%
Source: NHB
6
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 Peas and Tomatoes Onion, Potatoes, Peas and Tomatoes
8
Long supply chain with significant value
loss
Fragmented holdings
High intermediation Lacks scale & cost efficiency
Poor productivity
Old Cultivars
Low technology
Value loss
High margin build up
Low investment
Highly unorganised
Information asymmetry
High cost of Aggregation
Low backend infrastructure
Low levels of processing
Value loss
Post harvest practice
Information asymmetry
Lack of infrastructure
Price volatility
9
Huge opportunity to focus on back end
sourcing of fresh produce sou c g o es p oduce
10
Global practices
11
Strong growth in demand
Income and population growth in selected countries
Increasing income and Increasing income and
population in India as the
key driver
o
n

(
0
6
-
1
1
)
Per capita consumption
expenditure of F&V has
increased by 8-9% per year
C
A
G
R

p
o
p
u
l
a
t
i
o
in the last 12 years
Organised retail industry in
India is expected to grow at India is expected to grow at
12-15%
Organised retailing of Fresh
Income growth (09)
Size of bubble = 2008 population
S UN IMF R b b k
F&V is about 1 mn tonnes
Source: UN, IMF, Rabobank
12
Initiatives in backward linkages in learning
phase p
Initiatives in direct procurement from farmers through contract farming
Offers assured market, financial assistance, agronomic support Offers assured market, financial assistance, agronomic support
Multiple sources in the initial phase -directly farmers, APMC markets etc
13
Opportunity Productivity improvement
Product
India
(tonnes/ha)
World average
(tonnes/ha) (tonnes/ha) (tonnes/ha)
Apple 6.5 to 7.5 13-14
Plums 1.27 4
Peaches/Nectarines 2 11
Apricot 0.9 7
Cherries 2 5
Papaya 8.75 na
Oranges 9 17
Onion 11 17
14
Source: Rabobank research
Apple production centred largely in
Northern India
J&K
HP
Varieties grown
are mainly Red
Delicious & Golden
Uttarakhand
HP
Arunachal Pradesh
Delicious & Golden
Delicious
A l i Apple season in
India is end July to
Mid December &
Harvest from June Harvest from June
to November
15
Low productivity is the primary concern
Production in 2010-11 is
estimated at 2 to 2.2 mn
2500
250
300
Area, Production of Apple in India
tonnes
Productivity has been in
the range of 6 5 to 7 5
1500
2000
200
250
t
i
o
n

e
a
the range of 6.5 to 7.5
tonnes/ ha against a
world average of 13.6
1000
100
150
P
r
o
d
u
c
t
A
r
e
Monoculture of a few old
cultivars (older than 30
years)
0
500
0
50
Absence of post harvest
protocols & training leads
to high wastage
Area (In ' 000 HA)
Production (in ' 000 MT)
to high wastage
Varietal and productivity improvement is to be addressed
Source: NHB
16
Long distant points of consumption
Average acreage for apple orchards is
0 76 ha 0.76 ha
Packed in wooden boxes carrying 18
kgs each
Paddy straw is used in the box to
reduce damage
Poor infrastructure in post harvest Poor infrastructure in post harvest,
storage and transport increase wastage
Transportation mainly at ambient
temperatures
CA facility is limited - only 30000
tonnes (< 1.5% of production) but ( 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 Crunchiness
Uniformity in shape and size
Retail Prices: Imported apples are
usually available at 2-2.5 times
domestic apple prices domestic apple prices
18
China and USA have equal share in apple
imports p
150
Appleimports('000tonnes)
9%
1% 6%
Sourceofimportedapples
0
50
100
42%
42%
0
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
Source: Commerce ministry, Government of India
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
19
High margin cost in import marketing
Description USD per box of 20 kg
Import unit price, CIF (Washington apples) 25.0
Expenses incurred by importer on: Expenses incurred by importer on:
(Tariff (50%), Clearing, Freight, Commission of agent)
17.1
Importer's margin 3.3
Realization at wholesale market 45.4
Expenses of trader
(Transportation, Cold Storage (15 days avg), Commission)
1.1
Wholesale trader's margin 2.2
Retailers purchase price 48.7 Retailer s purchase price 48.7
Retailer's expenses
Carriage/Handling, Transportation, Wastages, Others
4.4
Retail margins 8.9
Consumer price 62 0 Consumer price 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)
Import duty is 31% for pears
27
Opportunities aplenty
Productivity improvement y p
Varietal improvement
High Density Planting
Post harvest protocol development
Production
Post harvest protocol development
Cold chain logistics
Controlled atmosphere storage
Supply Chain
management
Imports
Partnerships for domestic retail business
Marketing
Sourcing base for exports
g
28
Rabobank : Global Financial Powerhouse
Rabobank is recognised internationally for its unique specialisation and
expertise in the Food and Agribusiness space.
About Rabo India
100% subsidiary of Rabobank International
Rabobank Group
presence in India
Offices in Mumbai, Delhi & Bangalore
Incorporated as a non-bank Finance Company
Rabo India Finance Ltd.
Rabo India Securities Pvt.
Ltd
AAA rated by CRISIL (S&P affiliate)
Subsidiary Rabo India Securities is a SEBI
registered Category I Merchant Banker
Ltd.
Rabobank Foundation
Canara Robeco Asset
g g y
Strong sectoral focus with On the ground know-
how
Canara Robeco Asset
Management Company Ltd
India Agri Business fund
Strong relationships : domestic, MNCs, Govt bodies
Access to international network
Sarasin Alpen India Pvt. Ltd
29
Rabo India
- Strong track record with key clients Strong track record with key clients
30
The financial link in the global food chain
Contact details
S. Venkatraman
The financial link in the global food chain
Senior Director & Head
Food & Agribusiness Research and Advisory
Rabo India Finance Ltd
Tel 91-22-22034567 Ex 217
Email s venkatraman@rabobank com Email s.venkatraman@rabobank.com