DECODING

IN THE 21ST CENTURYSPICES

Jan 21st – 24th, 2016Hotel Grand Hyatt Goa, India

Dehydrated Onion & Garlic Crop ReportVinayak Narain, Olam Spices & Vegetable Ingredients

Crop Reports 2016

OverviewOverview

Crop Reports 2016

Dehydrated OnionCrop Report

2

Crop Reports 2016

Dehydrated Onion – Global Production(CY 2015-16 Estimates : 205-230,000 MT)

Prodn. : ~15-20,000 MT

Prodn. : ~55-60,000 MT

Prodn. : ~110-115,000 MT

Prodn. : ~10-15,000 MT

Prodn. : ~15-20,000 MT

Crop Reports 2016

Dehydrated Onion Supply & Demand~290-300,000 MT

Source: GTIS, USDA FAS, Olam Proprietary Data (2015)

• Industry CAGR - 3.5%• Origin market shares relatively unchanged in the last 4 years• US still remains the largest global source of dehydrated onion

Crop Reports 2016

Dehydrated Onion Global S&D Balance SheetCY 2014-15

Crop Reports 2016

Global Market Recap – CY2014-15

• US CY15 onion harvest 10-12% below plan

• Main causes : Unseasonal rains, reduced water availability and foliar disease pressure

• Sharpest drop in field yields and solids since 1998

• Reduced availability of piece fractions and low micro products

• Inflationary cost pressure likely for another season

• Egypt saw lower prices and better quality in 2015 compared to 2014

• CY14-15 winter harvest came in 4% higher; better quality than previous year

• CY15 summer crop size also higher by 7% over last year

• Weaker exchange rate

• Temporary halt on fuel/ electricity subsidy withdrawal

• Lower farm prices cause sharp drop in CY15-16 plantings.

Crop Reports 2016

Global Market Recap – CY2014-15

• Indian 2015 onion scenario mixed causing some pricing/ supply volatility

• CY14-15 winter crop delayed and lower by 17-20%

• Reduced raw material availability for dehydration

• CY15 summer crop acreage up by 12%; but yields down due to unseasonal rains

• Summer crop cold storage stocks drop sharply in 3 months

• Spike in wholesale prices prompt 2 increases in MEP

• Price Stabilization Fund activated

• China saw an average to good year for onion

• CY2015 production came in slightly better than planned

• No adverse weather incidents

• Exchange rate devaluation helped improve competitiveness

• Overall market share remained stable

Crop Reports 2016

Global Market Recap – CY2014-15

• Europe saw sharp volatility in onion supply and pricing in CY2014-15

• Fresh onion prices saw sharp declines H1 2015 due to

• Higher than average carry-in stocks with producers

• Russian export ban

• H2 2015 however saw a complete reversal in pricing behavior

• Higher exports

• Weaker exchange rate

• Sharp drop in end of season stocks

Crop Reports 2016

Key factors impacting Onion Supply & Demand in 2016

Onion S&D

Carry-in & New

Production

Weather&

Water

Govt. Regulations

Changing buyer

sensitivities

Factors affecting Dehydrated Onion S&D in 2016

Carry-In + New Production

• Tight carry-in inventories likely at for USA & Europe 2016 crops

• California drought impact

• Russia export ban

• Adverse dry weather in Europe in summer of ‘15

• Egypt 2015-16 winter crop planting down 20%

• Overall 2015-16 Indian crop likely to be up 10-15%

• Winter crop in Gujarat, Maharashtra & M.P. Likely to be up 10-15%

• However, overall Indian 2015-16 winter acreage down 25%

• Indian 2016 summer plantings up 15-20%.

Weather & Water

• El Nino Impact• Wet California winter

• Late monsoon in India ?

• US Water Regulations• US federal water allocations still

to be announced

• US Ground water legislation impact

• Senior water rights curtailment

• Statewide mandatory water restrictions could still be imposed

Factors affecting Dehydrated Onion S&D in 2016

Govt. regulations

India :

• MEP Regime

• NAFED purchases of onion for PSF (Price Stabilization Fund)

Egypt :

• Subsidy withdrawal on Utilities

China :

• Tightened environmental compliance norms

USA :

• FSMA - Enhanced regulatory scrutiny for traceability, food safety

• AB32

Changing Buyer Sensitivities

• Increased buyer scrutiny and emphasis on

• Product traceability and supply chain control

• Allergen contamination

• Pesticide Residues

• Trace irradiation

• Pathogen control

• Heavy metals & sulfites

• Micro profile measurement

• Defect level control

• Reduced carbon footprint

Global Market Outlook – CY 2015-16 USA

• Supply shortfalls possible in chopped, minced and ELB fractions in H1 2016

• 3-5% increase in re-contract pricing likely for 2016-17

• Strong USD could challenge US export competitiveness

Europe

• Tight availability in H1 2016 with corresponding pricing volatility

• Supply gaps to be filled from India, China and Egypt

Egypt

• CY2015-16 short winter crop could put upward pressure on pricing by end Q1

• Crop quality however is excellent, especially on color and low micro levels

India

• 2015-16 winter crop pricing and availability to be favorable to last year

• If monsoons are normal, lower prices could extend into H2, 2016

China

• Normal crop expected. Carry in Inventories are adequate

• Chinese RMB weakness could throw up cost saving opportunities

Crop Reports 2016

Dehydrated Onion Global S&D Balance SheetCY 2015-16

Crop Reports 2016

Dehydrated GarlicCrop Report

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Crop Reports 2016

Dehydrated Garlic – Global Production(CY 2014-15 Estimates : 110-130,000 MT)

Prodn. : ~1-2000 MT

Prodn. : ~20-25,000 MT

Prodn. : ~90-100,000 MT

Crop Reports 2016

Dehydrated Garlic Supply & Demand(200-210,000 MT)

2014-15 Supply 2014-15 Demand

China, 87%

USA, 12%

Others, 1%

Asia Pacific, 7%

Europe, 17%

Central and Latin Am, 9%North

America , 47%

ROW, 20%

Crop Reports 2016

Global Market Recap – CY2014-15• US CY15 onion harvest 10-12% below plan

• Main causes : Unseasonal rains, reduced water availability and foliar disease pressure

• Reduced availability of piece fractions and low micro products

• Inflationary cost pressure likely for another season

• Chinese CY15 crop comes in 8-10% below previous season

• Carry-in flake inventory lower than previous season (<80k MT)

• Chinese flake prices spike sharply after Chinese New Year

• Active buying from Europe in Q2

• Chinese currency volatility by mid year

• By Oct ’15, dehydrated garlic prices up 37% since start of season

• New flake production limited to <100k MT

• July – Dec 2015 Dehydrated garlic exports 9% higher than last year

• Flake prices spike sharply by year end

Crop Reports 2016

Factors Affecting Garlic Supply & Demand in 2016

China Garlic S&D

China Macro Trends

Statutory Compliance challenges

Carry in Inventories

Fresh and Flake

pricing

Production and Yields

Crop Reports 2016

China Macro trends : Garlic exportsFresh Garlic Exports from Chinagrowing @ 3.75% per annum

Crop 2006 : 1.24 Million MTCrop 2013 : 1.66 Million MT

Fresh Garlic exports prone to pricingvolatility leading to stocking / de-stocking at destinationDespite this, export trajectory is stillpositive @ 1.90% per annum

Dehydrated Garlic Exports from China growing @ 2.10% per annum

Crop 2006 : 145K MT Crop 2013 : 171K MT

Dehy Garlic exports prone pricing volatility leading to stocking / de-stocking at destination. Despite this, export trajectory is positive @ 0.40% per annum.

Crop Reports 2016

China Macro Trends : Shrinking acreage

Average Acreages (Due to price volatility & Farm Returns) : Reduced by 0.45% per annum since Crop 2006. Main reasons1. Increasing labor cost2. Ageing farmer population3. Industrialization – lower arable land4. Garlic farming – cumbersome5. Hurdle Rate for Incomes from Garlic farming inching up vs easy crops like Wheat etc

Crop Reports 2016

Statutory Compliance ChallengesChina

• Tightened environmental compliance norms• Banning of coal driers• Limited life span for coal based boilers• Stricter BOD/ COD norms• Heightened sensitivity to direct water discharge near streams/ rivers/ lakes

• Changing raw material and customer profile• Reduced availability of natural extra low micro product• Higher % of garlic skin• Potential for reduced water washing in cleaning stages• Stricter testing of heavy metals and foreign matter • Increased testing for allergens, pesticides and radiation

USA• FSMA• Foreign Supplier verification• Allergen and pesticide residue MRLs

Crop Reports 2015

Chinese Carry-In Inventory plus New Flake Production

Chinese Fresh Garlic Availability and Pricing

• Production - the largest price driver • Low production years show sharp upward price movement ; fresh and flake pricing

convergence + extended volatility

CY2015 Chinese pricing forecasts (April 2015)

Chinese Garlic Flake Availability and PricingJan 2016

Bars represent relative carry-in (blue) and production (red) for given crop year.

Crop Reports 2016

Global Market Outlook – CY 2015-16 China

• CY2016 planted acreage expected to be 7-8% higher than last year.

• Carry in Inventories however, are severely depleted and enough to last only till Mid 2016

• Flake and dehydrated garlic prices likely to remain firm through Q3

• Shortsellers could face a potential squeeze

• Shipment delays and defaults maybe a possibility

• Allergen related rejections and CBP enforcement could cause supply disruptions

• Higher exchange rate volatility

• If 2016 crop is normal, prices could correct downwards by end of Q3

USA• Supply shortfalls possible in minced, granulated and ELB fractions in H1 2016

• Strong USD could challenge US export competitiveness

• Supply squeeze from China could cause spike unplanned demand for US garlic with accompanying pricing volatility

Thank You

For The Opportunity

Thank You

For The Opportunity