Impact of International Commodity Prices on World Economic Recovery

1. Absa AgriBusiness Presented by Deon van Wyk 9 June 2016 Disclaimer: Although everything has been done to ensure the accuracy of the information, the Bank takes no responsibility for actions or losses that might occur due to the usage of this information.

2. International commodity prices trends to impact world economic recovery Two commodity price shifts over the past 60 years ended by two economic crises Slow recovery surplus capacity > 4% world GDP growth (Capitalism) Slow recovery Surplus capacity > 4% world GDP growth Industrialisation Fall of Communism as economic system in the world Berlin wall ‘98 / Hong Kong ‘99 Financial crisis Energy crisis Iraq / Iran

4. S A Trade Balance and Rand Dollar Exchange Rate

5. Economic Indicators • SA registered 2nd trade surplus in April • March 2016 R2.0bn • April 2016 R0.4bn • Cumulative deficit for 2016 = -R16.8bn • Lowest since 2012 • 41% less than last year • Inflow in Bond & equity markets of R29.3bn during past week. • Rand Strengthened: From R15.68 to R14.70 ($)

16. Government Debt comparison

17. Population Growth 1 Africa to lead population growth World Population Prospects: 1950 – 2100 • Africa is poised to deliver the highest population growth globally over the next 90 years, more than tripling from 1 billion in 2011 to 3.6 billion in 2100. • In just over 30 years (by 2044) Africa will add another billion people. • At the same time Asia’s population, which is currently 4.2 billion, is expected to reach a peak of 5.2 billion around the middle of the 21st century. • By the turn of the century Africa and Asia will make up 81% of the global population of 10.1 billion. Source: UN Dept of Economic & Social Affairs, Population Division, 2012 update

18. Future food & fibre demand 1 Global food demand history and forecast Estimated total food production demand of 730 Exacal over the 2010 - 2060 period Global Food Demand (petacal/day) Estimated total food production demand of 677 Exacal over the 1500 – 2010 period “The need to produce enough food will be greater over the next 50 years than in all human history combined”

19. There is an increased diversion of food away from the food energy chain into the fuel energy chain, e.g. 40% of US maize crops go directly to biofuels, the bulk of sugarcane in Brazil is converted to ethanol • Likewise more and more synthetic materials e.g. plastic bottles are produced by the food chain (sugar cane) rather than the fuel chain

20. Growth in demand can easily be met by unlocking production growth in Africa and South America. • Africa has around 60% of the world’s fallow arable land, which creates significant focus on Agri investments

21. Timber industry trends

22. Timber prices to increase further Current average timber prices are as follows: • Wattle: R1050 per ton (Bark R1300 per ton) • Eucalyptus: R800 per ton • Pine (pulp): R780 per ton These prices will differ slightly between regions and buyers. • This has increased the net value per hectare of eucalyptus over the past 3 years and 6 months from R38,000 per hectare to the current R92,000 per hectare. • Expected cost trends • Wages to increase inline with inflation +/- 6.7%, • Fuels to increase with 1.5% • Cost of capital to increase by 1.5%.

23. Growth in Productivity.

24. Timber Outlook • Rand will weaken which will push local prices and land values upwards • Demand for timber products will increase internationally and locally • Local increase in demand will be in the informal housing sector • Procurement of timber supply is of utmost importance • Increase in production of Wattle and Eucalyptus • Increase productivity to counter the “Cost Squeeze” • Beware of “Economy of Scale”

25. Thank you for the opportunity to share some ideas Contact details D van Wyk Tel (033) 2644564 Email: deonvw@absa.co.za