Market outlook

Jesus Benavides
Alex Rall
David Salamon
Jose Torbay
01.17.2008
1
Agenda

1 - Introduction

2 - Overview of Moringa Oil

3 - Potential Markets
 - Opportunities & Risks

4 - Strategic Recommendations
 - Tasks & Challenges

5 - Socioeconomic Benefits

6 -Q&A

2
Introduction

Who we are
Team of MBA students from MIT Sloan:
- Jesus Benavides (Mexico)
- Alex Rall (Germany)
- David Salamon (France)
- Jose Torbay (Venezuela)

What we are doing

Studying the viability of global commercialization of Moringa oil
- Examining potential markets
- Putting together the foundation for a realistic marketing strategy

3
Overview
of
Moringa

4
Overview of Moringa

What is Moringa?
• Moringa – Malunggay – Horseradish – Drumstick
• Easily grown in the Philippines
• 2 harvests every year
• Very high oil content (40%)

What is Moringa Oil?

• The oil is extracted from the seed through relatively

simple processes

• Vegetable Oil that can be used for many industries

(Cooking- Food Processing- Cosmetics – Biofuels- others)

• Low trans fatty; High content of beneficial fatty acids

•Comparable to premium vegetable oils like Olive Oil

5
Current Use of Moringa

No mass scale production

•Oil as a based for shampoo in low scales
•Food supplement – fortification
•Some Specialty Creams (cosmetics)
•Specialty “Energy” drinks

6
Possible Uses for Moringa

Leaves:
Nutrition and Medicine
Nutrition • Disease Prevention •
Ointment • Alley Cropping • Fertilizer • Trees:
Erosion Control • Water Purification • Alley Cropping Erosion
Cosmetics • Textile Printing • Control
Insecticide • Fungicide • Lubricants •
Tanning Leather • Dye • Fiber Products Flowers:
• Fences • Ornamentation & Shade • Medicine
Wind Barrier • Cane Juice Clarifier •
Honey Production & Clarifier •
Condiment • Cooking Oil • Food • Pods:
Traditional medicine: Anemia • Anxiety Nutrition Medicine
• Asthma • Blackheads • Blood
impurities • Blood pressure • Bronchitis
• Catarrh • Chest congestion • Cholera Roots:
• Colitis • Conjunctivitis • Cough • Medicine
Diabetes • Diarrhea • Dropsy •
Dysentery • Eye and ear infections • Seeds:
Fever • Glandular swelling • Gonorrhea Water
• Headaches • Hysteria • Intestinal Oil Purifier-Medicine-
worms • Jaundice • Lactation • Malaria
• Pain in joints • Pimples • Pregnancy • Gum:
Psoriasis • Respiratory disorders • Medicine
Scurvy • Semen deficiency • Skin
infections • Sore throat • Sores • Sprain
• Stomach ulcers • Tuberculosis • Bark:
Tumor • Urinary disorders • Wounds • Medicine
Biodiesel 7
Moringa Value Contributors

Moringa Moringa
Seeds Leaves

8
Moringa Value
Chain
•Cooking Oil  Commercial & Industrial
Moringa
Moringa •Cosmetics  Emollients
Oil
Seeds •Personal Care  Bath soaps
•Perfumery
•Industrial Oil  Biodiesel – Oleochemical
Shortenings
•Lubricants

Moring
a Meal
Animal Feeds
Water Treatment

Moringa
Leaves Nutritional supplements
Food Fortification

Note however 100ha would saturate the market

9
 Potential
Markets

Food
consumption/processing
High-end/Cosmetics
Industrial/Biofuel

10
 Food
- EU growing at a CAGR of 7.3% and US at 3.5% over 2003-2006
consumption/processing
period
- Limited domestic production capacity necessitates increased
Market Overview
imports
- Prices per liter for comparable oils higher than expected price of
Moringa
- Gap being formed for vegetable oils in this market due to shift to
biodiesels

Overall Vegetable Oil Use for Food Consumption (MMT)

20
2003
10 2004
2005
0
2006
EuropeanUnion United States

Market Risks
- Technological advances (e.g.: other types of biomass replacing
vegetable oils)
- If biodiesel market does not pick up, this market will be saturated

11
 Food
consumption/processing
Moringa Oil - Pros
- Dietary benefits  responds to increased health consciousness in
US/EU, low in trans fatty acids
- Long product shelf life due to fatty acid content
- Relative cost advantage

- Would mostOil
Moringa likely require the use of a process to remove the nutty
- Cons
flavor/smell
- Acceptability of the market may require large marketing
investment
- Food processing companies incur a significant switching cost
- Requires FDA/EFSA approval (may take time or not pass)

12
 High-
end/Cosmetics
Market Overview
- Acceptability for new products higher than in food industry
- High margins
- Variety of applications
- High potential in certain key markets (such as the UK)
- Broad range of customers  reduced impact of dropout from one
customer
- Growing segment in EU and US

Market Risks
- Short product lifecycle
- Hypes/fads common and difficult to sustain
- Reputations difficult to build and negative reputations last for long
periods

13
 High-
end/Cosmetics
Moringa Oil - Pros
- Chemical composition and physical properties
ideally suited for the high end market
- High oleic acid content  good emollient
- Nutritional benefits  ideal particularly for
dietary supplements
- Cost advantage over main competitors such as
Sunflower oil or Olive oil
- Lower price sensitivity of potential clients than
in other markets

Moringa Oil - Cons

- Very extensive testing is required
- Requires FDA approval
-Government help is needed e.g. for
conduction of clinical test

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Industrial/Biofuel
Market Overview
- Biodiesel production, growing between 30% and 50% from 2006
onward, is expected to reach 12B liters by 2010 and 37B liters by
2016 [RNCOS, 2006]
- One of the main drivers of the price increases in vegetable oils and
shifts of oils from other uses

- High volatility of energy prices

Market
- Complex Risks
interrelations between alternative/competing energy
sources
- Regulations quickly changing (unpredictability of US government
programs)
- Potential price pressure from new entrants
15
Industrial/Biofuel

- LowMoringa Oil - Pros

iodine value (better than diesel)
- Low cetane (ignition) number (better than both coconut fat and
diesel)
- Cost is comparable to alternatives (e.g.: Soybean oil)
- Could potentially obtain carbon credits in future, which would
further enhance value of planting Moringa

Moringa Oil - Cons

- Not fully tested (CO, HC, NOx emissions)
- Existing capacity does not match the huge volume of demand
- Use in surfactants not ideal due to lack of C-12 carbon chains

16
 Sustainable
business

Geographic Advantages
- Lower transportation costs (due to regional proximity)
- Shorter transportation times
- Economic advantages from producing in the Philippines

- Economic trends  increasing market prices  stable/increasing

revenues
Market outlook
- Long term nature of contracts  reduced competitive pressure
- Importance of reliability of supply  sustainable business
relationships
- Nature of industry based on relationships  moving now is
important

 - Time is crucial; Need to act now

17
Prices increasing

Oil Price for Major Vegetable Oils ,[$/metric ton]

1400

1200
Soybean
1000 Cottonseed
Sunseed
800 Peanut
600 Palm
Canola
400 Coconut
Corn
200

0
1998/99 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07

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 Strategic
Recommendatio
ns

19
 Scarcity of resources and time
pressure necessitates focused
market approach
1 - Negative marginal output with increasing number of tasks
Output

Number of tasks

2 First-mover market
-Temporary gap in the worldwide vegetable oil supply
- Difficult break up of long-term contracts
- Commodity product  difficult differentiation
∴ Aggressive market strategy required

 - Focus on leading position in one core market/industry

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 Assessment of market
attractiveness leads to a 3-phase
market entry strategy
Market Outlook

2 1
High End/ Biofuel
Cosmetics Aggressive
1 entry into

Food 3 Biofuels
Progression to
Consumptio 2 High End
Surfactants n
Lubricants market
Food Applications in
Processing 3 Food
industries

Unattractiv
e
Suitability of Moringa Oil

Socioeconomic
benefits
21
Market Entry Strategy: Phase 1

Tasks Challenges

1. Fill value chain - Timeliness/Speed

- Launch production program - Overcome interdependence
- Establish client contacts of supply & client base

- Satisfaction of volumes
Aggressiv 2. Ramp up
- Coordinated and quick
e entry - Cultivation of Moringa
cultivation of plants
into - Delivery of first lots - Establish stable supply chain
biodiesel - Creation of spare capacity
market 3. Establish long term
- Guarantee of supply
relations
stability
- Preempt the competition
- Contain organizational
- Build brand recognition
growth
4. Cement market
- Maintain stability of prices
position
on the production side
- Expand client base

22
Market Entry Strategy: Phases 2
&3

Tasks Challenges
1. Leverage brand - Maintain supply chain
recognition stability
- Build upon reputation - Deal with complexity of
Progressi - Find relations in new serving different customer
on into
industries types
High End 2. Diversify product
- Requires the right
market portfolio
and Food marketing mix (4 P’s and 5
- Invest in R&D
industry C’s)
- Create new product brands
- Disconnect from the initial
3. Differentiate via
perceptions that may have
branding
formed
- Invest in marketing
- Setting different price
initiatives
points

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Socioeconomi
c Benefits

24
Socioeconomic Benefits

Moringa Oil production

Employment Extraction Facilities

Earned Income Vs.

Opportunity Costs

25
 Employment
Farmers partners and
employers
- Planting season
- One time only
- Harvest season
- Twice a year
- Lasts for one month
- Significant job creation in the example of the biofuel market:
# of jobs created by farmers during each season
Market 5% 10% 15%
Share
Planting* 16,667 33,333 50,000
Harvesting 100,000 200,000 300,000
* Planting employment will be only in the first year
Assuming a Biofuel market of 16 billion liters per year by 2010
** 20 persons harvest 1 ha in 3 days

Others

- Employment will impact other functions such as:

Truck drivers, Port operators, others
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Earned Income Vs. Opportunity
Costs
Earned Income by
- Significant increase in income earned by rural population especially
Farmers
farmers
- Helps fight poverty in rural areas
- Assumption: Ten hectares per farmer
Expected Annual Income (PHP) per Farmer (land owner)
Year 1 3 4
Revenue 2,000,000 3,000,000 4,000,000
Expected National Impact in the Philippines
Market Share 5% 10% 15%
USD entering (mm) 514 1,028 1,542
Overall income to farmers (PHP 18,000 36,000 54,000
mm)
Opportunity Costs
- Most of the land needed is not being used
- Planting corn, a farmer would earn 1,440,000 PHP per year
- Planting coconut, a farmer would earn 814,000 PHP per year
- In addition, the meal of Moringa seeds used for animal feeding
(from the residual during the extraction process) 27
 Extraction Facilities

Investment
- An investment of 250 million PHP per extraction facility is needed
- A minimum of 1000 ha per facility is required for profitability
- Maximum capacity of facilities can be expanded at a marginal
investment as more hectares are added
- Estimation of 30 extraction facilities by the end of 2010

Employment
- The labor force per plant is estimated at 100 employees
-By 2010 around 3,000 employees are expected (30 manufacturing
sites)

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 Recommended Government
Actions

1 - Marketing campaign

2 - Planting materials

3 - Infrastructure (e.g.: roads network)

4 - Clinical tests

5 - Educational materials (e.g.: pamphlets)

6 - Access to credit for farmers

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Summary

1 - Attractive markets for Moringa oil exist

2 - Aggressive and focused strategy required

 - Biofuel Industry
- High End/Cosmetics industry, Food consumption/processing

markets
3 - Results in significant positive side-effects

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Q&A

31
Appendix

32