AGRICULTURE VALUE CHAIN FINANCING CONTENTS 1 Concepts and

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AGRICULTURE VALUE CHAIN FINANCING CONTENTS 1. Concepts and Definition of Value Chain 2. Malaysian

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 Support Activity Firm Infrastructure n rgi Ma Human

CONCEPT AND DEFINITION OF VALUE CHAIN Support Activity Firm Infrastructure n rgi Ma Human Resource Management Technology Procurement Operations Marketing & Sales Service in Outbound Logistics Ma rg Inbound Logistics 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

MALAYSIAN VALUE CHAIN ACTIVITIES/ FINANCING 3

Agro-based Manufacturing Grows Faster than Primary Agriculture • The Malaysian economy grew at an

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, 1 Q 05 – 2 Q 10 4

Loans Outstanding for Agro-based Manufacturing is Bigger than Primary Agriculture • Loans outstanding for

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 5

Loans Growth for Primary Agriculture Stronger than Agro-based Manufacturing • The loans growth for

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 6

Agricultural Financing Contribution in Banking System by Market Segmen • Financing for the primary

Agricultural Financing Contribution in Banking System by Market Segmen • 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. Rubber Fisheries 2% 3% Livestock 7% Forestry 10% Rubber Products 6% Others 10% Paper Products 10% Oil Palm 69% Loans Outstanding as at Jun 10: RM 19. 9 bil Others 11% Wood Products 21% Food & Beverage 30% Palm Oil Processing 22% Loans Outstanding as at Jun 10: RM 27. 3 bil 7

Growth Prospects for Agro-Based Manufacturing Financing Are Promising • The loans growth for the

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 Sub-sector Average Growth Per Annum (%) Palm Oil Processing 15. 0 Rubber Products 14. 6 Food & Beverage 9. 8 Paper Products 4. 9 Wood Products 0. 3 8

VALUE CHAIN AGROBANK ACTIVITIES FINANCING 9

VALUE CHAIN AGROBANK ACTIVITIES FINANCING 9

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

Agrobank has 6 objectives and 3 objectives shown below refers to Agriculture Value Chain Financing To provide loans, advances and credit facilities for development of agriculture and agriculture related business To uplift the well-being of the agricultural community; To carry on the general business of a modern and progressive financial services institutions catering for the total financial needs of its customers. 10

TOTAL NEEDS OF AGRICULTURE COMMUNITY CONCEPT Supporting The Whole Value Chain Section 10 (2)

TOTAL NEEDS OF AGRICULTURE COMMUNITY CONCEPT Supporting The Whole Value Chain Section 10 (2) (e): provide financing to the agricultural community Agriculture Primary Production Processing Non-Agriculture Marketing Retail & Wholesale (eg: housing, education & vehicle) Consumers Section 10 (1) (e): To uplift the wellbeing of the agricultural community 11

SCOPE OF FINANCING Focus Section 10 (1) (f): To carry on the general business

SCOPE OF FINANCING Focus Section 10 (1) (f): To carry on the general business of a modern and progressive financial service institution catering for the total financial needs of its customers Agriculture Community Agriculture Activities Crops, livestock, fishery, plantation, agro-based manufacturing processing & marketing. Non-Agriculture Community Non-Agriculture Activities eg: education, housing, computer, vehicle, workshop, petrol stations etc 12

ROLE OF AGROBANK Developmental Roles Commercial Role Govt funded loan schemes to target groups

ROLE OF AGROBANK Developmental Roles Commercial Role Govt funded loan schemes to target groups with concessionary interest rates to promote the development of priority agriculture sectors § Fund For Food (3 F) § Fund for SMEs § 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 § Agro-Entrepreneur Graduates Credit Scheme Financing through Bank’s funds at competitive interest rates to commercial enterprises, corporations and individuals § Project loan § Educational Loan § Revolving Capital § Personal Loan § Micro Credit Loan § Contract Revolving Credit 13

VALUE CHAIN AND CLIENT SEGMENT Since 2008 move from production based financing to Client

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) AGROBANKING Consumer loans (To assist business banking/Agro banking) hire-purchase, Ar-Rahnu, property purchase) BUSINESS BANKING PERSONAL BANKING Ø Unique marketing mix for each segment Ø Market oriented & client driven products & services 14

A TH 1% P. 4 OW GR 15

A TH 1% P. 4 OW GR 15

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AGROBANK BSC - CORPORATE KEY PERFOMANCE INDICATORS • 10 KPIs • WEIGHT 30% •

AGROBANK BSC - CORPORATE KEY PERFOMANCE INDICATORS • 10 KPIs • WEIGHT 30% • 7 KPIs • WEIGHT 20% Refer to Appendix 18 • 8 KPIs • WEIGHT 30% DEVELOPMENTAL VALUE CUSTOMER VALUE EMPLOYEE VALUE FINANCIAL VALUE • 11 KPIs • WEIGHT 20% 17

DEVELOPMENTAL MEASUREMENTS (KPI) NO VALUES WEIGHT 30 % 2010 2011 2012 1 Concessionary loan

DEVELOPMENTAL MEASUREMENTS (KPI) NO VALUES WEIGHT 30 % 2010 2011 2012 1 Concessionary loan portfolio growth (%) 0. 15 NM 15. 0 15. 4 2 Number of entrepreneurs developed 0. 05 500 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 0. 05 NM 8. 3 8. 4 0. 05 NM 18. 5 18. 9 (Num) (Value) 6 Disbursement value of New agriculture growth segment /Total disbursement value (%) 0. 10 NM 20. 0 33. 0 7 % of agriculture lending to gross value added for agriculture sector 0. 10 NM 10. 2 12. 4 8 Number of rural branches to urban branches 0. 05 NM 2: 1 9 % of Net NPL on concessionary loans /total concessionary loans 0. 15 13. 8 8. 6 5. 4 % of rural deposits/total deposits 0. 10 NM 44. 5 47. 5 10. NM – Not Measured for the year 18

SOURCE : PEMANDU, MALAYSIA 19

SOURCE : PEMANDU, MALAYSIA 19

Malaysia’s Economic Transformation Programme (ETP) for Agriculture Sector Transform Agriculture into Agribusiness Aspiration Case

Malaysia’s Economic Transformation Programme (ETP) for Agriculture Sector Transform Agriculture into Agribusiness Aspiration Case for Change • Increasing global demand • Double national income from agriculture by 2020 • Overcome challenges in agriculture: lack of scale, low value and low productivity • Create 74, 000 new jobs by 2020 • Replicate success of some domestic companies • Increase farmers’ income by 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

SOURCE : PEMANDU, MALAYSIA 21

ECONOMIC TRANSFORMATION PROGRAMME PROJECTS Public Funding ENTRY POINT PROJECTS Replication of industry aquaculture Private

ECONOMIC TRANSFORMATION PROGRAMME PROJECTS Public Funding ENTRY POINT PROJECTS Replication of industry aquaculture Private Funding 485 500 Increase productivity paddy Participations of MNC 833 534 73 Strengthening paddy productivity in other granaries Swiftlet farming 572 534 20 Premium market for fruits & vegetables 169 276 Overseas JV/ acquisitions Integrated cage farming 188 29 196 Dairy cluster 58 164 Seaweed mini estates 55 164 Others (5 EPPs) SOURCE : PEMANDU, MALAYSIA 88 985 833 607 572 554 445 400 High value herbal products TOTAL USD MILLION 262 74 222 219 483 570 22

SOURCE : PEMANDU, MALAYSIA 23

SOURCE : PEMANDU, MALAYSIA 23

SOURCE : PEMANDU, MALAYSIA 24

SOURCE : PEMANDU, MALAYSIA 24

SOURCE : PEMANDU, MALAYSIA 25

SOURCE : PEMANDU, MALAYSIA 25

SOURCE : PEMANDU, MALAYSIA 26

SOURCE : PEMANDU, MALAYSIA 26

RM Billion 5. 1 1. 3 21. 4 6. 4 2. 9 3. 2

RM Billion 5. 1 1. 3 21. 4 6. 4 2. 9 3. 2 2. 5 RM Billion 8. 9 16. 8 RM Billion 2. 9 11. 8 8. 9 7. 9 SOURCE : PEMANDU, MALAYSIA 27

KEY SUCCESS FACTORS FOR MOVING UP THE AGRICULTURE VALUE CHAIN No Key Success Factors

KEY SUCCESS FACTORS FOR MOVING UP THE AGRICULTURE VALUE CHAIN No Key Success Factors 1 Developing the right financial products and instruments to support downstream activities Current Account Trade Finance Facilities Overdrafts 2 Staff competency and skill on value chain activities and financing requirement Appraisal, Evaluation. Risk Management 3 Linkages and Strategic Alliances with right correspondent Financial Institutions Letter of Credit, Confirmation etc. 4 Location and Accessibility Customer convenience 28

Concluding Remarks The primary agriculture sector and the agro-based manufacturing sector in Malaysia account

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 RM 45 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