Strategy for Agriculture Exports METRO AG 2006

Strategy for Agriculture Exports © METRO AG 2006

1 Flow Of Presentation § Global Trends § § Concentration of Modern Retailing Agriculture Trading shares by Channel Consumer, Product & Business dynamics Global Super Market supply chain § Where do we stand § § Strengths Weaknesses § Strategic Framework for Agri-Exports § 360 Degree Model § Policy Issues & Way forward § Export Opportunities © METRO AG 2006

2 GLOBAL TRENDS © METRO AG 2006

Global Trends 3 Concentration of Modern Retailing & Trends Top 30 retailers: $2. 1 trillion=31 % of global market n Over concentration of Modern retailing in developed markets: Reduced ROI’s for Retailers & Suppliers. n $1. 3 trillion food sales n $175 billion F&V n Carrefour , Tesco, Metro F&V: $29. 5 b n Increasing internationalization: Asia & Eastern Europe n Growth of discounters and specialty formats n Growth of Private label brands: 30 to 50% of top 30 retailer sales & 20 to 47% of market share by value. n Food= 60 -75%, Non-food=25 -40% © METRO AG 2006

Global Trends 4 Agriculture Trading Shares by Channel Modern Retailing: Hyper. Markets, Super Markets, Discounters Traditional retailing: Street stalls, Growers, Traditional Markets, Growers, Others Country Modern Retailing Traditional Retailing Germany 78% 22% France 73% 27% UK 75% 25% Spain 37% 63% Holland 69% 31% Modern Retailing share in E. U= 70 -80%, Developed Asian Economies: 50 -80% © METRO AG 2006

Global Trends 5 §Consumer Trends: §Greater demand for convenience= fresh cut, processed foods. § More diversity of choice, for prolonged seasons § Growth of demand for ethnic and exotic products § Increased demand for organic and fair-trade Business Dynamics: • Buying Consolidation and emergence of Modern Retailing: • Straight line sourcing: Elimination of • products § More ready-cooked, take-out foods § Growth of out-of-home market • • • §Product : § Food safety • §Traceability §Quality systems: Global Gap, HACCP, IFS, BRC §Farm to fork value chain. • Supplier’s response: • Increasing collaboration: Marketing §Uniformity of sizing and product appearance § Precision agriculture §Consistent and stable quality. middlemen Large scale trading by retail chains: Uniform, consistent quality over prolonged seasons Large centrally controlled purchasing systems Control of supply chain from production areas: Farm to fork Long term business partnerships rather than trading mindset Channelizing of fruit through large and sophisticated specialized companies • • boards, large scale farming, cooperatives and collaboration between all stake holders of the value chain. Specialization of functions/ activities Marketing focus on customer demands and changing trends Extension of seasons: Production in multiple regions and countries. Customized growing for customers © METRO AG 2006

Global Trends 6 Super Market Supply Chain (Farm To Fork) Farmers & Exporters Customer demand assesment Customized Product Development Exporters Processing & Packaging Inland sea logistics Specialized handling Co’s Importer/ Handling company of Super market Distribution Centers= repackaging / break bulk operations, JIT deliveries Super Markets Consumers HORECA Traders Offices Hotels Resturants Carteres Cash & Carry Food Services Channels © METRO AG 2006

7 WHERE DO WE STAND TODAY © METRO AG 2006

Strengths of Agriculture 8 < Low Labour cost < 4 seasons and variation of climates < Plenty of land

Strategic Framework for Agri-Exports 10 NATIONAL AGRICULTURAL STRATEGY Market Research & Product identification n n Value/ Kg Seasonality Freight Solutions Product economics Hire experts: Why re-invent the wheel? : Do we have the luxury of time? n Product Based: Project teams for value chain solution n Precision growing, drip irrigation, Agricultural engineers. n R&D focus: Reverse engineering of value chain hardware. n Local solutions for cost efficiencies n 10 acre experimental training farms n Product clusters from South-North n Product specific pack houses n Cold chain near production area n Model Projects: PPP: Farmers have eyes, not ears n ERP solutions for value chain n National Food Security Exports Production/ R&D/ Transfer of technology Production & Process Management n Supply Chain is built around a product. n Identification of supply chain synergies critical, for cost optimization and increased capacity utilization. Quality Standards Freight Solutions n n Global Gap, HACCP, IFS, BRC Traceability SPS, QA & MRL standards Product Handling guides to shelf n n n Reefer, CA, MAP technologies Customs regulations Cross docking platforms © METRO AG 2006

360 Degree Model, inclusive of all stake holders 11 Direction Policy making Strategic intervention Legislation for Private sector facilitation n Diplomacy & FTA’s Investment Marketing/ lobbying Adoption of technology/ standards n MNC’s: Quality inputs & local manufacturing n Global Retailers: Access to markets, Marketing n n n n Farmer mobilization Capacity building & technical training Product based project teams: Production & value chain. Demand driven R&D with private sector. Farm management HR Farm economics models Transfer of technology & R&D for local adaptation Exporters/ Private Sector Government Adoption of technology/ standards n Precision agriculture n Group cooperation n NGO’s Academia 360 Degree Farmers Donors n n n Funding Technical experts International best practices © METRO AG 2006

Policy Issues & Way forward 12 n. Structure to support strategy: n Centralization & Empowerment of government departments within one organization: Private sector culture n. Complete financial and administrative authority n HR: representatives & experts from within Pakistan as well as expatriates n. Solid Business plan, compensation linked to KPI’s n. Reduce duplication of efforts & better utilization of public money n. Excellence in execution & better utilization of public money n. Large Scale Farming & JV’s with foreign companies: Govt structure: function specific. n Product based project management: cross functional teams. n n. Sell the benefits: n. Large local market, greater consumer propensity to spend n. Regional markets of Gulf, Central Asia and Asia: Reduced freight costs: Better margins and lower consumer price: Growth in market size. n Tax breaks and other benefits n. MNC seed and pesticide companies inclusion Legislation: n. Seed Act & Nursery reforms n. International buyers protection against fraud: Criminal cases n. Legislation for enforcement of business contracts: e. g. farmers & exporters: criminal cases. n. Compulsory Pre-shipment inspections for all export consignments by 3 rd parties. n. Production Technology & R&D: n Drip Irrigation: 90% government subsidy for export based farming. Essential for supermarket quality. n Hybrid seeds & customized agronomy: Development of product engineers. n CA and Reefer experimentation facilities at UAF for global freight solutions n Government to underwrite losses of private sector for pioneering projects, of new product and new market development. n 20 to 40% R&D subsidy for new projects on CNF value for limited time, till technical issues resolved. n. New certified mango orchards, with drip irrigation and precision agriculture. Recovery of young mango orchards. n Sponsor project based transfer of technology and foreign learning. © METRO AG 2006

Policy Issues & Way forward 13 Proposals by Engro: n Information system for individual farmer profiles: n Details of farming activities, land, usual crops, revenues and loans status. n Form as a basis for unsecured loans by Banks n Develop reliable crop reporting system (GIS) based: Govt structure: function specific. n Product based project n. Project to replace primitive crop reporting system management: cross functional n. Form basis for reliable information for planning crop commodity imports, exports, storage, distribution teams. n. Develop Standardization laws and verification and certification agency for exports: n With collaboration of USAID & Foreign Agriculture Service (FAS) of USDA n n Agency to have accredited & well equipped labs and equipment n. Develop single new non governmental organization with public/ private sector representation n. Interest free lending for corporate farms: n Loan channelizing by USAID through commercial banks. n 90% interest free USAID funding & 10% funding with interest. n. Corporate Meat farm by Engro: Exports to Middle East. n. Channelizing of funds through USAID to Basmati Rice farmers, with Engro guaranteeing Buy-back. n. Export oriented floriculture farms in Sind © METRO AG 2006

Export Opportunities 14

15 All stake holders need to act UNITED and play their respective roles in a FOCUSED AND SYNERGISED effort to: §Make §By §To § up for lost time making 360 degree efforts on a war footing develop world class products & services in next 3 -5 years to capitalize on the emerging global trade opportunities Metro’s support to act as a catalyst will always be there. THANK YOU © METRO AG 2006

16 Back up slides © METRO AG 2006

17 Developing countries F&V exports to E. U 35 % of E. U market 7 billion Euros exports Top importing countries: U. K, France, Germany, Holland, Begium, Italy. Vegetables Fruits Country % of total E. U imports South Africa 12 Ecuador 10 Colombia Chile % of total E. U imports 14 Costa Rica Country Morocco 32 Kenya 15 8 Turkey 11 8 Egypt 6 Peru 5 Thailand 4 © METRO AG 2006

18 Steps to Mango Exports Fruit development • • • Identification of disease free orchards Customized agronomy for each farm Develop strong fruit for sea exports Farmers + Metro Harvest & Packing • • • Reception Selection HWT Drying Waxing Grading Packing Pre-cooling Cooling Farmers + Third party Post shipment handling Shipment • • • Loading Temperature and CA settings Transit conditions monitoring Metro + Maersk • • Developing special Mango ripening chambers across E. U. Special equipment in Metro stores for Mangoes Metro © METRO AG 2006

19 Short term & Long Term volumes Containers / wk Volume / season Required Land (Acres) (Tons) 2009 5 1320 440 2010 10 2640 880 2011 onwards 20 5280 2000 © METRO AG 2006

20 Tentative Cost of Project Cost Head Building Processing plant Cost (million Rs) Capacity 7 -10 4 -10 million 5 tons/ hour Forced air cooling 8 million 44 tons Cold Store 8 million 88 tons Working Capital 10 million Total Minimum 37 million Total Maximum 46 million 4 containers/ day © METRO AG 2006

21 Benefits of Metro • Above average buying price for Mangoes. • Guaranteed buy back • No middle men = better profits • Long term profitable, reliable business partner. • State of the art, transfer of technology. • Global supply chain excellence. • Massive reach and depth in 31 countries. ** Metro provides a comprehensive farm development, supply chain and marketing solution. © METRO AG 2006

22 Mango VISION Pakistan Mangoes: Oil/ Gold of the future Build exotic, premium positioning for Pakistan Mangoes = High vaue/kg Build before India. © METRO AG 2006

23 FOUR MAIN EXPORT DESTINATIONS VOLUME AND VALUE FOR PAKISTAN MANGOES No. 1 2 3 4 Export (Mt) 33, 604 13, 224 9, 245 Value us$000 9, 395 4, 810 2, 098 Value usd/KG 0. 28 0. 36 0. 23 8, 052 2, 834 0. 35 77468 Country United Arabic Emirates Arabia Saudi Oman 23426 0. 30 UK TOTAL PAKISTAN EXPORTS PRICES PER KG FOR PAK MANGOES IN EUROPE RETURNS PER KG MAJOR EXPORTS NATIONS Country Value usd/KG Belgium 0. 48 Sweden 0. 47 Norway 0. 45 Germany 0. 43 Italy 0. 40 Switzerland 0. 37 Denmark 0. 37 Australia 1. 79 Philipines 1. 59 China Country Value usd/KG 0. 91 South Africa 0. 79 Peru 0. 75 Brazil 0. 55 Mexico 0. 54 India 0. 48 Thailand 0. 46 Pakistan 0. 30 FRUTOPIA GROUP © METRO AG 2006

24 FOUR MAIN EXPORT DESTINATIONS VOLUME AND VALUE FOR PAKISTAN MANGOES No. 1 2 3 4 Export (Mt) 33, 604 13, 224 9, 245 Value us$000 9, 395 4, 810 2, 098 Value usd/KG 0. 28 0. 36 0. 23 8, 052 2, 834 0. 35 77468 Country United Arabic Emirates Arabia Saudi Oman 23426 0. 30 UK TOTAL PAKISTAN EXPORTS PRICES PER KG FOR PAK MANGOES IN EUROPE RETURNS PER KG MAJOR EXPORTS NATIONS Country Value usd/KG Belgium 0. 48 Sweden 0. 47 Norway 0. 45 Germany 0. 43 Italy 0. 40 Switzerland 0. 37 Denmark 0. 37 Australia 1. 79 Philipines 1. 59 China Country Value usd/KG 0. 91 South Africa 0. 79 Peru 0. 75 Brazil 0. 55 Mexico 0. 54 India 0. 48 Thailand 0. 46 Pakistan 0. 30 FRUTOPIA GROUP © METRO AG 2006