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
Human Resource Management
Technology
Procurement
Inbound
Logistics
Operations
Outbound
Logistics
Marketing
&
Sales
Service
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
2Q10
1Q10
4Q09
3Q09
2Q09
1Q09
4Q08
3Q08
2Q08
1Q08
4Q07
3Q07
2Q07
1Q07
4Q06
3Q06
2Q06
1Q06
4Q05
3Q05
2Q05
-5
1Q05
0
-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
Primary Agriculture
Jun-10
Mar-10
Dec-09
Sep-09
Jun-09
Mar-09
Dec-08
Sep-08
Jun-08
Mar-08
Dec-07
Sep-07
Jun-07
Mar-07
Dec-06
Sep-06
Jun-06
Mar-06
Dec-05
Sep-05
Jun-05
Mar-05
0
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
Jun-10
Mar-10
Dec-09
Sep-09
Jun-09
Mar-09
Dec-08
Sep-08
Jun-08
Mar-08
Dec-07
Sep-07
Jun-07
Mar-07
Dec-06
Sep-06
Jun-06
Mar-06
Dec-05
Sep-05
-10
Jun-05
-5
Mar-05
0
-15
Primary Agriculture
Agro-based Manufacturing
6
Agricultural Financing Contribution in Banking System by Market Segment
Fisheries
3%
•
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
2%
Livestock
7%
Forestry
10%
Rubber
Products
6%
Others
10%
Others
11%
Paper
Products
10%
Oil Palm
69%
Loans Outstanding as at Jun 10: RM19.9 bil
Wood
Products
21%
Food &
Beverage
30%
Palm Oil
Processing
22%
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
Sub-sector
8000
7000
6000
5000
Rubber Products
Palm Oil Processing
15.0
Food & Beverage
Rubber Products
14.6
Food & Beverage
9.8
Paper Products
4.9
Wood Products
0.3
4000
Palm Oil Processing
3000
Wood Products
2000
Paper Products
1000
Average
Growth Per
Annum (%)
Mar-05
Jun-05
Sep-05
Dec-05
Mar-06
Jun-06
Sep-06
Dec-06
Mar-07
Jun-07
Sep-07
Dec-07
Mar-08
Jun-08
Sep-08
Dec-08
Mar-09
Jun-09
Sep-09
Dec-09
Mar-10
Jun-10
0
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,
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) (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 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 Role
Roles
Govt funded loan schemes to target groups
with concessionary interest rates to promote
the development of priority agriculture
sectors
 Fund For Food (3F)
 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
Commercial Role
 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 Based Financing
=== Focus on Value Chain
AGRICULTURE
PRODUCTION
SMEs (Logistics,
processing, packaging
etc)
AGROBANKING
Consumer loans
(To assist business
banking/Agro banking)
hire-purchase, ArRahnu, property
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
• 10 KPIs
• WEIGHT 30%
• 7 KPIs
• WEIGHT 20%
Refer to Appendix 18
• 8 KPIs
• WEIGHT 30%
DEVELOPMENTA
LVALUE
CUSTOMER
VALUE
EMPLOYEE
VALUE
FINANCIAL
VALUE
• 11 KPIs
• WEIGHT 20%
17
DEVELOPMENTAL MEASUREMENTS (KPI)
N
O
VALUES
WEIGH
T
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
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
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
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
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
188
Integrated cage farming
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
400
High value herbal products
TOTAL
USD
MILLION
262
74
224
222
219
483
570
22
SOURCE : PEMANDU, MALAYSIA
23
SOURCE : PEMANDU, MALAYSIA
24
SOURCE : PEMANDU, MALAYSIA
25
SOURCE : PEMANDU, MALAYSIA
26
RM Billion
5.1
1.3
21.4
6.4
2.9
3.2
2.5
8.9
RM Billion
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
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
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