Docstoc

Slide 1 - ADFIAP - Association of Development Financing

Document Sample
Slide 1 - ADFIAP - Association of Development Financing Powered By Docstoc
					 AGRICULTURE VALUE CHAIN FINANCING

                  CONTENTS

  1. Concepts and Definition of Value Chain
  2. Malaysian Value Chain Activity & Financing
  3. Agrobank Value Chain Financing
  4. Key Performance Indicators
  5. Malaysian Economic Transformation Program
     in Agriculture
  6. Concluding Remarks




    By Dr. Sockalingam R. Ramasamy




www.agrobank.com.my
                                                  1
                 CONCEPT AND DEFINITION OF VALUE CHAIN

                                       Firm Infrastructure


   Support
   Activity
                                Human Resource Management
                                         Technology
                                        Procurement


              Inbound       Operations         Outbound          Marketing
              Logistics                        Logistics            &              Service
                                                                  Sales

                                        Primary Activity


 A value chain is a chain of activities for a firm operating in a specific industry.
 Products pass through all activities of the chain in order, and at each activity the product gains some value.
 The chain of activities gives the products more added value than the sum of added values of all activities.

 The value chain categorizes the generic value-adding activities of an organization.
 The "primary activities" include: inbound logistics, operations (production), outbound logistics, marketing and
   sales (demand), and services (maintenance). The "support activities" include: administrative infrastructure
   management, human resource management, technology (R&D), and procurement.

 The sum total of link-level value-added yields total value.

                                                                                                                    2
 MALAYSIAN




   VALUE




  CHAIN




ACTIVITIES/
FINANCING




              3
Agro-based Manufacturing Grows Faster than Primary Agriculture
 •       The Malaysian economy grew at an average annual rate of 4.6% in the past five years.

 •       The primary agriculture sector grew at an average annual rate of 3.0% in the past five years.

 •       The agro-based manufacturing sector grew at a higher average annual rate of 5.1% in the past
         five years.



Growth of Agro-based Manufacturing, Primary Agriculture and Malaysian Economy, 1Q05 – 2Q10

% Year-on-Year
 15

 10

     5

     0
         1Q05



                       3Q05



                                     1Q06

                                            2Q06

                                                   3Q06

                                                          4Q06

                                                                 1Q07

                                                                        2Q07

                                                                               3Q07

                                                                                      4Q07

                                                                                             1Q08

                                                                                                    2Q08

                                                                                                           3Q08

                                                                                                                  4Q08

                                                                                                                         1Q09



                                                                                                                                       3Q09

                                                                                                                                              4Q09

                                                                                                                                                     1Q10

                                                                                                                                                            2Q10
                              4Q05




                                                                                                                                2Q09
                2Q05




 -5

-10

-15
                                     Primary Agriculture                 Mal Economy                Agro-based Manuf Industry
                                                                                                                                                                   4
Loans Outstanding for Agro-based Manufacturing is Bigger than Primary Agriculture


        •   Loans outstanding for the agro-based manufacturing sector has been always bigger than that
            for the primary agriculture sector.

        •   The difference between the two sectors is expected to continue in the coming years.

                Loans Outstanding for Primary Agriculture and Agro-based Manufacturing
                                in the Banking System, Mar 05 – Jun 10
           RM mil
       30000

       25000

       20000

       15000

       10000

        5000

            0
                         Jun-05




                                                             Jun-06




                                                                                                 Jun-07




                                                                                                                                     Jun-08




                                                                                                                                                                         Jun-09




                                                                                                                                                                                                             Jun-10
                                           Dec-05




                                                                               Dec-06




                                                                                                                   Dec-07




                                                                                                                                                       Dec-08




                                                                                                                                                                                           Dec-09
                                                                      Sep-06
                Mar-05



                                  Sep-05



                                                    Mar-06




                                                                                        Mar-07



                                                                                                          Sep-07



                                                                                                                            Mar-08



                                                                                                                                              Sep-08



                                                                                                                                                                Mar-09



                                                                                                                                                                                  Sep-09



                                                                                                                                                                                                    Mar-10
                                                                          Primary Agriculture                        Agro-based Manufacturing


                                                                                                                                                                                                                      5
Loans Growth for Primary Agriculture Stronger than Agro-based Manufacturing


      •        The loans growth for the primary agriculture sector generally moves in line with that for the
               agro-based manufacturing sector.

      •        At most time, the loans growth for the primary agriculture sector is stronger than that for
               the agro-based manufacturing sector.

                            Loans Growth for Primary Agriculture and Agro-based Manufacturing
                                          in the Banking System, Mar 05 – Jun 10
      % Year-on-Year
      30
       25
       20
       15
       10
          5
          0
                Mar-05



                                  Sep-05



                                                    Mar-06



                                                                      Sep-06



                                                                                         Mar-07



                                                                                                           Sep-07



                                                                                                                              Mar-08



                                                                                                                                                Sep-08



                                                                                                                                                                  Mar-09



                                                                                                                                                                                    Sep-09



                                                                                                                                                                                                      Mar-10
                         Jun-05




                                                             Jun-06




                                                                                                  Jun-07




                                                                                                                                       Jun-08




                                                                                                                                                                           Jun-09




                                                                                                                                                                                                               Jun-10
                                           Dec-05




                                                                                Dec-06




                                                                                                                    Dec-07




                                                                                                                                                         Dec-08




                                                                                                                                                                                             Dec-09
          -5
      -10
      -15
                                                                               Primary Agriculture                           Agro-based Manufacturing


                                                                                                                                                                                                                    6
Agricultural Financing Contribution in Banking System by Market Segment

             •   Financing for the primary agriculture sector in the banking system is mainly contributed by
                 the oil palm industry.

             •   Financing for the agro-based manufacturing sector in the banking system is mainly
                 contributed by the food and beverage, wood products and palm oil processing industries.



 Fisheries       Rubber                                             Rubber
    3%            2%
                                                                   Products              Others
                          Others                                                                   Food &
                                                                      6%                  11%
        Livestock         10%                                Paper                                Beverage
          7%                                                Products                                30%
       Forestry                                               10%
        10%
                                                                               Wood
                                   Oil Palm                                                        Palm Oil
                                    69%                                       Products
                                                                                                  Processing
                                                                                21%
                                                                                                     22%




      Loans Outstanding as at Jun 10: RM19.9 bil                         Loans Outstanding as at Jun 10: RM27.3
                                                                                          bil


                                                                                                                  7
Growth Prospects for Agro-Based Manufacturing Financing Are Promising

         •   The loans growth for the palm oil processing industry had grown the fastest in the past five
             years, followed by rubber products, and food and beverages.

         •   As the global economy recovers, the loans growth for the wood and paper products is expected
             to improve going forward.

 Loans Outstanding for Agro-based Manufacturing in
        the Banking System, Mar 05 – Jun 10

     RM mil
  9000                                                                                                   Average
  8000                                                                                Sub-sector        Growth Per
                                                                                                        Annum (%)
  7000
                                                            Rubber Products
  6000                                                                            Palm Oil Processing      15.0
                                                            Food & Beverage
  5000                                                                            Rubber Products          14.6
  4000                                                      Palm Oil Processing
                                                                                  Food & Beverage          9.8
  3000                                                      Wood Products
                                                                                  Paper Products           4.9
  2000                                                      Paper Products
  1000                                                                            Wood Products            0.3

    0
             Jun-06
             Jun-05




             Jun-07



             Jun-08



             Jun-09



             Jun-10
             Dec-05



             Dec-06



             Dec-07



             Dec-08



             Dec-09
             Sep-09
             Mar-05

             Sep-05

             Mar-06

             Sep-06

             Mar-07

             Sep-07

             Mar-08

             Sep-08

             Mar-09



             Mar-10




                                                                                                                  8
                 VALUE
                 CHAIN
AGROBANK




           ACTIVITIES




      FINANCING

                         9
Agrobank has 6 objectives and 3 objectives shown below refers to
               Agriculture Value Chain Financing




 To provide loans,                               To carry on the general
advances and credit                               business of a modern
    facilities for    To uplift the well-being        and progressive
  development of        of the agricultural          financial services
  agriculture and          community;            institutions catering for
agriculture related                              the total financial needs
      business                                       of its customers.




                                                                             10
             TOTAL NEEDS OF AGRICULTURE COMMUNITY CONCEPT


                        Supporting The Whole Value Chain


                                                               Section 10 (2) (e):
                                                               provide financing to
                                                               the agricultural
                                                               community
                       Agriculture



 Primary                                           Retail &
Production      Processing     Marketing          Wholesale   Consumers




    Non-Agriculture     (eg: housing, education & vehicle)       Section 10 (1) (e):
                                                                 To uplift the well-
                                                                 being of the
                                                                 agricultural
                                                                 community

                                                                                       11
                                   SCOPE OF FINANCING


                              Section 10 (1) (f): To carry on the general business of a modern and
                              progressive financial service institution catering for the total financial
          Focus               needs of its customers



                                                               Non-Agriculture Community
            Agriculture Community


                                                 Non-Agriculture
       Agriculture                                 Activities
        Activities


Crops, livestock, fishery, plantation,       eg: education, housing, computer,
agro-based manufacturing                     vehicle,
processing & marketing.                      workshop, petrol stations etc




                                                                                                           12
                             Govt funded loan schemes to target groups
ROLE OF AGROBANK             with concessionary interest rates to promote
                             the development of priority agriculture
                             sectors
                              Fund For Food (3F)
                              Fund for SMEs
        Developmental Role    Micro Credit Scheme
                              Fund for Production of Food
                              Industrialization and Commercialization of
                               Bumiputra Entrepreneurs
                              Non-Food Credit Scheme
                              Paddy Credit Scheme
                              Fishery Boat Credit Scheme
                              Replanting of Oil Palm Credit Scheme
Roles                         Agro-Entrepreneur Graduates Credit
                               Scheme


                             Financing through Bank’s funds at competitive
                             interest rates to commercial enterprises,
                             corporations and individuals
         Commercial Role
                               Project loan         Educational Loan
                               Revolving Capital    Micro Credit Loan
                               Personal Loan        Contract Revolving Credit



                                                                              13
                       VALUE CHAIN AND CLIENT SEGMENT

Since 2008 move from production based financing
           to Client Based Financing
           === Focus on Value Chain                           AGRICULTURE
                                                              PRODUCTION



                                                             SMEs (Logistics,
                                                          processing, packaging
                                                                   etc)

                                                              Consumer loans
                                                             (To assist business
                                                           banking/Agro banking)
                                                             hire-purchase, Ar-
                                                              Rahnu, property
                    AGROBANKING                                  purchase)

                         BUSINESS
                         BANKING


                           PERSONAL BANKING
                                                   Unique marketing mix for each segment
                                                   Market oriented & client driven products & services


                                                                                                          14
15
16
             AGROBANK BSC - CORPORATE KEY PERFOMANCE INDICATORS




Refer to Appendix 18
                                                                  17
                          DEVELOPMENTAL MEASUREMENTS (KPI)

N                             VALUES                             WEIGH   2010   2011    2012
O                                                                  T
                                                                  30 %
 1    Concessionary loan portfolio growth (%)                     0.15   NM     15.0    15.4

 2    Number of entrepreneurs developed                           0.05   500    1,000   1,000

 3    Disbursement value of concessionary loan/budget (%)         0.10   NM     93.0    96.7

 4    Market share of primary agriculture financing (%)           0.10   13.3   14.0    15.0

 5    % of concessionary loan to total loans    (Num)             0.05   NM      8.3     8.4
                                                  (Value)         0.05   NM     18.5    18.9
 6    Disbursement value of New agriculture growth segment        0.10   NM     20.0    33.0
      /Total disbursement value (%)
 7    % of agriculture lending to gross value added for           0.10   NM     10.2    12.4
      agriculture sector
 8    Number of rural branches to urban branches                  0.05   NM      2:1     2:1

 9    % of Net NPL on concessionary loans /total concessionary    0.15   13.8    8.6     5.4
      loans
10.   % of rural deposits/total deposits                          0.10   NM     44.5    47.5
NM – Not Measured for the year



                                                                                                18
SOURCE : PEMANDU, MALAYSIA


                             19
Malaysia’s Economic Transformation Programme (ETP) for Agriculture Sector

                      Transform Agriculture into Agribusiness

             Case for Change                                                  Aspiration
                                                                   • Double national income from
      • Increasing global demand                                     agriculture by 2020

      • Overcome challenges in
        agriculture: lack of scale, low                            • Create 74,000 new jobs by
        value and low productivity                                   2020

      • Replicate success of some                                  • Increase farmers’ income by
        domestic companies                                           two to four times




                                          Proposed Broad Plans of Action
                  • Capitalize on Malaysia’s advantage, i.e. biodiversity and agriculture
                    expertise
                  • Tap premium export markets
                  • Active participation in the regional value chain
                  • Address food security concern
                   SOURCE : PEMANDU, MALAYSIA
                                                                                                   20
SOURCE : PEMANDU, MALAYSIA
                             21
            ECONOMIC TRANSFORMATION PROGRAMME PROJECTS

                                                                                           TOTAL
                                                   Public              Private              USD
         ENTRY POINT PROJECTS
                                                  Funding              Funding            MILLION


Replication of industry aquaculture                           485                   500     985

Increase productivity paddy                                                   833           833

Participations of MNC                                                   534                 607
                                            73
Strengthening paddy productivity in other                                                   572
granaries                                                            572

Swiftlet farming                                                                            554
                                            20                       534
Premium market for fruits & vegetables                                                      445
                                                 169                 276
Overseas JV/ acquisitions                                                                   400
                                                               400
High value herbal products                                                                  262
                                                      188       74
Integrated cage farming                                                                     224
                                            29          196
Dairy cluster                               58                                              222
                                                        164
Seaweed mini estates                                                                        219
                                            55         164
Others (5 EPPs)                                                        483                  570
                                                 88
SOURCE : PEMANDU, MALAYSIA                                                                          22
SOURCE : PEMANDU, MALAYSIA


                             23
SOURCE : PEMANDU, MALAYSIA
                             24
SOURCE : PEMANDU, MALAYSIA
                             25
SOURCE : PEMANDU, MALAYSIA


                             26
RM Billion                                                     1.3    21.4
                                                         5.1

                                                   6.4

                                      2.9
                          3.2
     2.5




                                8.9         16.8                     RM Billion    2.9   11.8
             RM Billion
                                                                             8.9



                  7.9




    SOURCE : PEMANDU, MALAYSIA
                                                                                                27
KEY SUCCESS FACTORS FOR MOVING UP THE AGRICULTURE VALUE CHAIN


            No                  Key Success Factors

             1   Developing the right financial products and             Current Account
                 instruments to support downstream activities            Trade Finance Facilities
                                                                         Overdrafts
             2    Staff competency and skill on value chain activities   Appraisal, Evaluation. Risk
                 and financing requirement                               Management
             3   Linkages and Strategic Alliances with right             Letter of Credit,
                 correspondent Financial Institutions                    Confirmation etc.
             4   Location and Accessibility                              Customer convenience




                                                                                                       28
                                 Concluding Remarks


   The primary agriculture sector and the agro-based manufacturing sector in Malaysia account
    for almost 10% of the economy, comprise over 40,000 business enterprises, offer about 2
    million jobs to the people, and require a combined total of about RM45 billion bank financing.


   The diversification of the financing market into primary agriculture and agro-based
    manufacturing has helped strengthen the whole value chain of the agriculture sector in
    Malaysia over the years.


   Financing market for the agro-based manufacturing sector is much bigger than that for the
    primary agriculture sector in Malaysia. Nevertheless, the loans growth for the primary
    agriculture sector has been generally higher than that for the agro-based manufacturing
    sector over the years.


   In line with the mandated development role, Agrobank will continue to increase its financing
    for the primary agriculture sector. Meanwhile, Agrobank will tap the vast financing market in
    the agro-based manufacturing sector.




                                                                                                     29

				
DOCUMENT INFO