1 | P a l m O i l , N o v / D e c 2 0 1 3 Khor Reports Feeding Africa Asian companies eye West Africa consumers with palm oil, instant noodles and more Feature: Indomie, Unilever & Olam in W Africa. Instant noodles & global hunger? Indonesia’s landholding ceiling, Felda Global deals & more Biofuel policy cooling and boost, Neste Oil’s renewables Sustainability: more certification, snacks & supply chain Preview: RSPO hot topics Issue #5 Nov / Dec 2013 Khor reports’ Palm Oil 

editorial ______________________________________________________________________________________________ 2 | P a l m O i l , N o v / D e c 2 0 1 3 Khor Reports Khor Reports’ Palm Oil Nov / Dec 2013 ISSUE 5 Founder & editor: Yu Leng, Khor Associates & contributors: R Wong. ____________________ Enquiries Email: [email protected] Telephone: +6593830428 Khor Reports’ Palm Oil is published by Segi Enam Advisors Pte Ltd 1 Claymore Drive #08-14 Singapore 229594 Khor Reports’ Palm Oil and Khor Reports are owned by Segi Enam Advisors Pte Ltd © Khor Reports 2013 Khor Reports’ Palm Oil newsletter is an unregulated product. Information in the newsletter is for general information only and is not intended to be relied upon by individual readers in making or not making specific business and/or investment decisions. You should seek appropriate independent advice before making any such decision. Khor Reports has prepared this newsletter based on primary and secondary sources of information. Although every effort has been made to ensure that the information is accurate, Segi Enam Advisors Pte Ltd and its staff assume no liability for any actions taken based on the information contained herein. Should you wish to cite, reproduce, or adapt our content in any manner, please seek our prior written permission. This is a subscription-free publication. Certain sections or pages of Khor Reports’ Palm Oil may be supported by sponsors. We maintain our editorial independence and the views expressed in this newsletter are purely our own. ____________________ Khor Reports is a provider of market intelligence. We specialise in customized industry research and strategic analysis on agribusiness in Southeast Asia and frontier markets. We also focus on supply-chains, sustainability and reputational risks. Forex used in this issue: 1 USD = 3.17 RM, 1 USD = 11,355 IDR, 1 USD = 61.56 INR, 1 USD = 1.24 SGD, 1 GBP = 1.617 USD, 1 EUR = 1.366 USD Time for new strategies? There’s a pricey proposal from the RSPO and increased supply-chain pressure. Key markets cool while producer biodiesel efforts slowly get into gear. Add on Indonesia’s shift to implement a landholding ceiling and Malaysia’s policy adjustments for sustainability. Top this all off with no clarity on a trajectory for haze smog alleviation. Overall, the palm oil sector faces unprecedented cost parameter and growth model challenges. Time to restrategize? First, reconsider the role of palm oil in local energy use. Malaysia’s biogas directive is a good starting point. Set for 2014 launch, it requires every mill to set up a biogas facility for methane capture; presumably to improve the greenhouse gas (GHG) profile for Malaysian palm oil. Aside from implementation and technological risks, there are obvious suggestions to improve Malaysia’s feed-in tariff for biogas power and allow easier grid connection. Khor Reports suggests a feasibility study on microgrids for remote areas. In the semi-urban zone this might challenge an incumbent power utility and it would work less well in countries with subsidized power. However, could this help firmly establish the localized use of palm biogas, biomass and biodiesel in new places? Many developing countries sorely need power in certain rural areas. They could encourage mills siting next to a mining facility or another energy hungry user. Economists might plan for processing clusters that could aid rural development. How about on sustainability? Redd+ efforts are of interest to policy makers despite shortcomings and Ecuador’s Yasuni funding request finding insufficient takers. Opportunity cost may have long pointed to oil palm development instead of conservation. How can this be improved for viability? Peat lands are probably the prime areas for such efforts. Could new proposals at the RSPO tilt the financial calculus? What about the RSPO itself? It has helped some large plantations maintain market access to the large global brands. Khor Reports has long been of the view that its exclusive / non-inclusive strategy has obvious limits. Its planners poorly recognize the fact that small farmers in developing countries just aren’t like those back home in Europe. How will even more exclusivity via the Palm Oil Innovation Group become of general relevance? Notably, the RSPO’s gold standard approach already has limited if no hope of addressing key problems, including the annual peat smog. Thus, we challenge sustainability experts to this task: get rid of the peat smog problem within three years. NGOs and corporate players from various sectors (not just palm oil) need to get “down and dirty” to effect change at the local and provincial levels. Help small growers and farmers. Do something about raising the water tables in fire prone areas? Governments could facilitate. The current voluntary, top-down (so called market-led) efforts, hardly seem fit for such purpose. What can sustainability do for the peat smog that hits annually? We need a new bottoms-up approach. On the positive, US policy noises point toward future transfats bans in processed foods. Palm oil that does not need dangerous chemical additives in its processing, unlike other key oils. The world does seem to need palm oil while North Asia food scandals need to be dealt with. In this issue, we feature Asian palm oil and consumer good companies eyeing West Africa’s market prospects, with instant noodles as a key product. I eat more than the average 14 packs per year, helping global consumption exceed 100 billion packets in 2012. Some academics reckon it has helped alleviate global hunger. While interest of the EU and US in biofuels dips, Neste Oil’s renewable fuel business boosts its prospects. In sustainability, certification is expanding and NGO campaigning in the US is in the limelight. What are hot topics for the upcoming RSPO Roundtable? Its proposed HCV Compensation Procedure bares its financial teeth, with retroactive charges and fees on non-RSPO land deals. Khor Reports estimates an initial demand for USD 500 mill paid by growers, most likely into NGO hands for conservation. Yu Leng, Khor In this issue 3 briefing Indonesia ceiling on landholdings. Felda deals & more. 4 end uses Biofuels policies falter but Indonesia boosts. Neste Oil’s renewables. 5 sustainability More certification. RAN on snackfoods & supply chain. RSPO preview. 6-7 feature West Africa. Instant noodles. 8 prices & data Key vegetable oils. Weather outlook. CPO technical view. Price charts. 

briefing _______________________________________________________________________________________________ 3 | P a l m O i l , N o v / D e c 2 0 1 3 Khor Reports Ceiling on landholdings Indonesia’s Agriculture Ministry has issued a new regulation. No. 98/2013 on Plantation Business License (IUP), to replace the 2007 regulation, effective 30 September 2013. It will limit a plantation company or group to owning up to 100,000 ha of oil palm land throughout the archipelago under IUP (and not land-use permit or HGU). In this ruling, all companies, listed or not listed face the cap. Large plantations are relieved that existing land areas are not affected i.e. it is not retroactive. Indonesia-listed plantations may get an exemption if the majority (over 50%?) of its shares are public owned. Also exempted are state-owned companies and cooperatives. New palm plantations must offer a fifth of their land for development by local farmers (a current practice), and in a new move, 30% of new palm oil mills must be gradually divested (5% in year 5) to cooperatives within 15 years (Nomura, 11 Oct 2013; reuters.com, 18 Oct 2013). Earlier, it was reported that plantations would have to relinquish any land that has not been cultivated within three years of the company obtaining HGU (valid for 25 years and extendable for up to 25 years). 10 plantation crops have area limits per plantation group as indicated in the table above (ceiling in 1,000s ha, Nomura, 11 Oct 2013). This could shift more growth impetus to mid- sized estates, farmers and toward crop diversification. Many questions on implementation for regulation No. 98/2013 remain. How will it affect license renewal? What about expansion via merger and acquisition? Details can still be subject to manoeuvring. The short-term impact is limited but the long-term looks less expansion friendly for larger plantations on a single crop. R&D levy? Indonesia is mulling a levy of USD 0.75-1.00 per tonne on palm oil produced to fund research and development. In Malaysia, producers pay a cess of about RM 7 / USD 2.20 per tonne for the Malaysian Palm Oil Board’s research activities. Felda deals and more “Recently there have been a few acquisitions in Malaysia and Indonesia (both planted and unplanted land). The price of unplanted land in Indonesia seems to have gone up slightly to USD 700 - USD 1,500 per ha, depending on land permit level. In Malaysia, the prices of existing plantations in Sabah are holding up” (Nomura, 11 Oct 2013). Malaysia transactions for planted areas have perked up with the IOI and Felda Global 1 buys in Sabah. Why now? Analysts reckon that land prices have held up well despite the palm oil price down trend in recent years. Are sellers more willing to transact on muted views? Interestingly, Malaysia’s Federal Land Development Authority (Felda), flush with cash from last year’s Felda Global IPO, invested a chunk outside the sector; paying GBP 98 / USD 158 million for a London serviced apartment complex. Some recent land deals, pricing per ha IOI-Unico: RM 78,961 / USD 25,666, Sabah. Boustead-Uniglobal: RM 76,603 /USD 24,161, Sabah. Felda Global-Pontian: RM 74,800 /USD 23,592, Sabah. Kulim-PT Win: USD 1,425; 40,645 ha, Central Kalimantan. Felda Global: USD 1,050; 8,193 ha (9% planted), West Kalimantan. Note: Planted (Sabah) & greenfield (Kalimantan). Still in the books is a large 100,000 ha peat area plantation in Sumatra. It will be tougher to transact given its size and situation. KL Kepong emerges as the new major shareholder at Equatorial Palm Oil (concession areas in Liberia, 1 Other Felda Global deals: 1) 12,844 ha of rubber green-field site in West Kalimantan. 2) Planned purchase of the 51% stake in Felda Holdings that it does not own, from Koperasi Permodalan Felda. This will mean it will wholly-own most of its processing facilities. 3) Purchase of Mission NewEnergy’s 100,000 tonnes per year biodiesel plant in Kuantan for USD 11.5 million or USD115/tonne. Likely for biodiesel export (price of PME in Europe EUR 770-810/tonne now) and/or for B5 in Malaysia (AmResearch, 21 Oct 2013). Africa) while the plantation’s key investor Siva Group pulls out. Analysts point out that the Indonesia ceiling will push Asian growers to expand elsewhere. Papua New Guinea is another likely area, but Mindanao is beset by its on-off peace status. All will face NGO scrutiny and need well- integrated social programs. Hot topics RSPO’s proposed Compensation Procedure is a bold gambit at changing plantation company behaviour by altering and controlling certain cost parameters. Financial analysts will be reaching for their spreadsheets for the first time on a sustainability issue. Don’t be surprised if the growers trot out some lawyers to review this. We conservatively estimate an initial payment of USD 500 mill from growers, mostly to NGOs for conservation. RSPO’s Roundtable 11 is in Medan, Indonesia, on 12-14 November 2013. It will focus on the revised Principles & Criteria (RSPO Standard 2013). The size of the RSPO membership, at over 1,300, may make it more unwieldy along with its discussion group format. Key topics for RT11? 1. Certification of independent smallholders in Malaysia and Indonesia; fund & other support. 2. Executive Board joint-leadership? 3. Development of revised National Interpretations for Standard 2013. 4. Fire in oil palm plantations & reliable maps on landownership. 5. Potential demand for non-oil sustainable products (EFB, PK shell etc) and the need for a traceability mechanism (revision of the RSPO Supply Chain documents to come) 6. Members who need more challenging time bound plans for production and consumption. 7. China & India market development. 8. RSPO+ standard? Greenpeace advocates the Palm Oil Innovation Group. Contact [email protected] for a customized review of RSPO happenings RSPO M&A Indonesia 

end uses _______________________________________________________________________________________________ 4 | P a l m O i l , N o v / D e c 2 0 1 3 Khor Reports EU & US cool while Indonesia boosts In early September, the European Union (EU) fixed a 6% limit on the use of crop- based biofuels in ground transport; cutting back the previous requirement that at least 10% of energy for road and rail transport should come from renewable sources by 2020. This caps the potential for increased demand. In the longer-term, analysts say that this may reduce the EU’s imports of biodiesel. The USDA’s outlook for EU biodiesel consumption is +1.1% from 11.9 bill liters in 2013F to 12bil liters in 2014F, with imports forecast +5.9% from 1.7bil to 1.8bil liters respectively. USDA estimates EU biodiesel refining capacity at 24.5 bill liters in 2011, with utilization only at 45% (AmResearch, 19 Sep 2013). The EU states agreed to impose punitive duties on biodiesel imported from Argentina and Indonesia; provisional tariffs were in place in May and by end November, duties of EUR217-246 / USD296-336 and EUR122- 179/USD166-245 per tonne apply respectively. Both will challenge the duties (reuters.com, 23 Oct 2013). “The negative development in EU is expected to be mitigated by positive developments in Indonesia. Recall that Indonesia raised the blending rate for biodiesel to 10% from 7.5% this month. B10 will be imposed on industrial users this month while B20 will take effect for power plants starting from January 2014. In line with this development, Biofuels Digest reported that PERTAMINA will hold a tender this week to buy 6.6 bill litres of palm-based biodiesel for its requirements in the coming two years. National production is roughly 5.6 bill litres annually from 25 different producers” (AmResearch, 19 Sep 2013). Reuters reports (11 Oct 2013): “In a leaked proposal that would significantly scale back biofuel blending requirements next year, the U.S. Environmental Protection Agency (EPA) says the blend wall - the 10% threshold of ethanol-mixed gasoline that is at the crux of the lobbying war - is an "important reality." The agency's rationale for a cut in the volume of ethanol that must be blended echoes an argument the oil industry has been making for months: the US fuel chain cannot absorb more ethanol. Few retailers are able to sell ethanol blends beyond the 10% maximum, or willing to take the legal risk that comes with it, they argue. The words will cut deep for proponents of biofuels. They have argued for years that the blend wall is largely a fiction constructed by an oil industry that doesn't want to cede any more share of a shrinking US gasoline market.” The volume of corn-based ethanol will be reduced by 800 mill gallons to about 13 bill gallons versus the law’s required 14.4 bill gallons for 2014F. The EPA proposal has to be approved by the White House Office of Management and Budget. This would not be positive for biofuels and it could result in excess supplies of corn; the USDA expected about 33.8% of US corn to be used for ethanol in 2013F/2014F (AmResearch, 14 Oct 2013). Could this presage a lower blending of soybean oil in US biodiesel? Could there be a similar “blend wall” in biodiesel to impinge on higher blend rates in palm producing countries? Their political- economic situations are likely different enough from the US for a strong implementation push. In which case, a question remains: when will the legal risks of higher blends by covered? Neste’s renewables rise Despite the apparent dipping interest of the EU and US in biofuels, Neste Oil’s renewable fuel business is boosting its prospects. The Finnish refiner, one of the top buyers of palm oil in the world, is bucking the malaise in the European refinery sector with its strategy. Neste Oil – key stats Sales, FYE 31 Dec 2012: EUR 17.8 / USD 24.3 bill Sales – 5 Yr Growth Rate: 8.15% Capital Spending – 5 Yr Growth Rate: -2.72% Gross Margin – 5 Yr Avg: 10.93% Net Profit Margin – 5 Yr Avg: 1.25% Sales, Renewable Fuels, FYE2012: EUR 2.2 bill Palm & derived products handled per year: 1.4 mill tonnes, 73% certified (of which RSPO 21%) Source: Reuters.com, company website & announcements, 25 Sep 2012. “Neste Oil is the best-performing major European energy stock (rising 78%, year-to-10 September)… after saying full-year earnings will exceed analyst estimates as renewable-fuel sales gain… particularly in the North American markets. As Neste’s NExBTL product meets (California’s) own standards, it could sell about 290,000 tonnes this year of the biodiesel there, or about 18% of total production... Neste is benefiting from increased demand for biodiesel. The EU (encourages) land- transport energy from renewable sources… The guidance upgrade was mainly due to low palm oil prices and high Renewable Identification Number prices in the US (bloomberg.com, 10 Sep 2013). Neste Oil’s model focuses on serving local markets, ultra-modern technology and biofuels. Neste Oil targets mostly the Baltic markets (68% of its sales), Europe (20%) and the United States, Africa and Asia (12%). Neste's heavy focus on biofuels made from palm oil and animal fats turned profitable in the first quarter of 2013. It plans to increase annual renewables output by 15% to 2.3 mill tonnes by 2015. In the US, which buys 35% of Neste renewables, biofuels use was set to double by 2020, Neste said (reuters.com, 16 Sep 2013). The company has two fossil fuel refineries, in Finland, and three renewable diesel refineries (Finland, Singapore and Rotterdam). All Neste Oil’s NExBTL diesel plants are ISCC- certified and have an EPA Certificate of Registration, for the EU and US markets respectively. Neste Oil has also “developed its own voluntary sustainability verification scheme applicable to any renewable raw material… (it) broadly mirrors the ISCC certification… (with) separate sections devoted to the certification of renewable raw materials, fuel refining, and logistics (company website, 21 Oct 2013). Neste Oil reports only buying CPO that is traceable with known origins, and with reportable and verifiable Greenhouse Gas emission values. It is committed to only using 100% certified palm oil by end of 2015. (company report, 25 Sep 2012). Biodiesel Biofuels policies 

sustainability _______________________________________________________________________________________________ 5 | P a l m O i l , N o v / D e c 2 0 1 3 Khor Reports More and more Indonesia Sustainable Palm Oil (ISPO) has an ambitious target for end-2014 certification by its palm oil companies. Earlier, the Agriculture Ministry spoke of sanctions including revoking the licenses of palm oil companies if they do not attain ISPO, which is mandatory. This aims to enhance practices with better implementation of Indonesia legal and regulatory requirements. “Certain ISPO standards are less strict than CSPO standards, and the cost of certification per hectare is lower. The ISPO was created after the Indonesian Palm Oil Association (Gapki) exited the RSPO in 2011, after a series of conflicts linked to environmental standards.” In March, ISPO certificates were handed over to to 10 palm oil companies for their certified estates. These included Musim Mas, Sari Aditya Loka 1, Swadaya Andika, Laguna Mandiri, Ivo Mas Tunggal, Hindoli, Gunung Sejahtera Dua Indah, Gunung Sejahtera Ibu Pertiwi and Perkebunan Nusantara V (Investor Daily in jakartaglobe.com, 11 Mar 2013). The Roundtable on Sustainable Palm Oil (RSPO), a voluntary scheme, consisting of various stakeholders from growers, NGOs and financiers has enjoyed high visibility. However, it is the ISCC which has likely gained stronger commercial traction. Unlike the RSPO, it offers a decent premium to its users. It certifies for the EU biofuels market. Notably, one of the biggest palm oil buyers in the world, Neste Oil, reports only about 20% of its certified product being covered by RSPO certificate, while the ISCC is its mainstay. Recently, ISCC launched a certification for food, ISCC- Plus. RSPO NGO members brushed aside their worries over the food vs. fuel debate and allowed the introduction of a certification for biofuel users, RSPO- RED. How will RSPO and ISCC duke it out for market share, now that they are on the same turf? Is a RSPO+ standard in the offing? This could be triggered by the successful campaign by Greenpeace against Golden Agri / Sinar Mas. The NGO was at hand when the plantation giant studied some of its land concessions considered as degraded. NGOs prefer this land type for palm oil expansion. The findings were quite negative for land development as the carbon ceiling measure operationalized the definition of usable land to immature scrub land. Greenpeace successfully pushed for the 35 tonnes carbon per ha ceiling on the Indonesian group’s pilot. Working on this project was The Forest Trust (TFT, a facilitator to the timber trade). Nestle set to investigate its palm oil supply- chain but it is no longer named in the project. Instead TFT and GAR bravely brought in Greenpeace. RSPO says it welcomes the Greenpeace-led Palm Oil Innovation Group (POIG, launched Jun 2013), which has lured in just a handful of its grower members including Golden Agri / Sinar Mas. The WWF (founder and key mover of the RSPO) has come out to criticize its own creation and jumped onboard with POIG. So, what’s next in the small world of voluntary palm oil certification? Keep an eye on WWF – Greenpeace moves while Unilever is expected to set its new commitments. Malaysia Sustainable Palm Oil (MSPO), a certification standard developed by the Malaysia Palm Oil Board was launched mid-year. We hear that the logistics of the certification process is being established. Might there be an announcement on this during 4Q2013 with an eye to certificate issuance in 1Q2014? This is voluntary, but a mandatory scheme is being considered. The creation of national eco- certifications such as ISPO and MSPO should be no surprise. It is standard practice in various agricultural crops that national schemes sit alongside global and regional voluntary schemes. Few governments and national industries are so fully trusting as to outsource policy making to voluntary multistakeholder bodies. These often become de facto dominated by a few NGOs and companies. With the proliferation of eco-certification available for palm oil buyers, the question is how well each scheme is marketed and how buyer acceptance evolves. In the timber sector, recent data shows that 2/3 market share has gone to national certification and 1/3 to voluntary stakeholder schemes. Key NGOs in palm oil certification? Ranked by FYE 2012 total expenses: WWF: USD 250 million Greenpeace: EUR 69 / USD 94 million* RAN: USD 4 million Data: NGO Annual Reports. Note: *non-fund raising expenditure. Snacks & suppy-chains Rainforest Action Network (RAN), a US- based NGO has recently been active on a campaign targeting snack food brands on “conflict palm oil” that “contaminates” the products. RAN is concerned about “deforestation, child or forced labour, plantation expansion on carbon-rich peat lands, or violations of forest-dependent communities’ rights” and uses the orang-utan as a symbol. The campaign targets the “Snack Food 20” group of companies — Campbell, ConAgra, Dunkin’, General Mills, Grupo Bimbo, Hillshire Brands, Heinz, Hormel Foods, Kellogg, Kraft, Krispy Kreme, Mars, Mondelez, Nestlé, Nissin Foods, PepsiCo, Hershey, J.M. Smucker, Toyo Suisan Kaisha, and Unilever. The NGO talks about the big companies having supply-chain power to “drive a transformation.” In recent media focus are Kraft and Wilmar. This is reminiscent of the Greenpeace vs. Nestle (anti-Kit Kat) campaign in Europe in 2010. The overall goal of RAN is in accord with the RSPO which aims for the largest companies in order to effect market “transformation.” Thus, another NGO is “muscling in” on the incumbent WWF-RSPO turf. Together with Greenpeace, RAN is part of the Palm Oil Innovation Group (POIG) which is still lacking buyer members. The snack food company campaign must hope to bring some on board POIG. RAN and other NGOs are also asking more questions about the supply-chain. Willmar, commonly said to control one-third of the global palm oil trade, is in the cross- hairs of NGO questions about its trade in non-certified products. Questions are also being asked on FFB sourcing from third parties. This stage of NGO campaigning on palm oil takes it to the US and focuses on the supply-chain. NGOs Certification 

feature _______________________________________________________________________________________________ 6 | P a l m O i l , N o v / D e c 2 0 1 3 Khor Reports West Africa’s outlook for economic and population growth and its relatively low annual oils and fats consumption (often estimated at 10kg/head) has both palm oil and consumer good companies eyeing its market prospects. Its growth story is promising. Market studies point to the region having among the highest population, consumption and GDP growth rates for the next two decades. The changing demographic profile points to increased urbanisation and higher discretionary spending as key growth drivers. Its growing middle class will demand value added packaged food products (Olam report, 30 Sep 2013). Big FDI projects for palm oil face delays Khor Reports’ mid-2012 review found about 3 mill ha of announced projects. They show greatest focus on Liberia, Gabon, Cameroon and Nigeria. Further to this, Cameroon said that six FDI projects sought 1 mill ha of land area. Congo DR project status were rather uncertain, but Wah Seong Corp (a Malaysia building components supplier) said in June 2013 that it has a 51% stake in 180,000 ha of oil palm plantations. For the last year and more, the key focal points for the Africa take-off of large-scale oil palm developments was Liberia. Here, Sime Darby, Golden Veroleum (GVL, part of Golden Agri- Resources) and Equatorial Palm Oil are the key players; with 330,000 ha, 260,000 ha and nearly 170,000 ha respectively. Some key foreign investors in Africa palm oil projects Bollore/Socfin Group: planted area of 59,000 ha for all crops (mostly oil palm & rubber) & 23,000 ha unplanted in DR Congo. Feronia Inc: Majority stake in Plantations Huileries du Congo developed by Unilever (Lever Bros) with over 100 yrs of history. 70,000 ha in DR Congo. Herakles Farms: 70,000 ha in Cameroon and 4,000 ha in Ghana. Olam International: JV interest in SIFCA, soon to have direct oil palm planted area in Gabon; 52,000 ha initial concession and another 250,000 ha. Siva Group: new to palm oil, but in 2010 reported to have committed USD 200 million in the sector in West Africa, Indonesia and Papua New Guinea. It has interests in over 600,000 ha (including via minority stakes) in Africa*. Wilmar International: interest in 63,000 ha (as controlling shareholder) and 48,000 ha (as a minority) in Uganda, Ghana and various countries via its joint venture with SIFCA (in which Olam also a JV partner). Source: Khor Reports from company announcements, May 2012. Note: *Sale of shareholding seen in Equatorial Palm Oil project, Liberia in Nov 2013. The approach of the FDI players can be contrasted with some well-established Africa players which tend to be more diversified, with significant smallholder / outgrowers projects. SIAT Group is active in Belgium, Nigeria, Ghana, Gabon, Côte d'Ivoire and Cambodia. About 85,000 ha oil palm nucleus, excludes significant smallholder / outgrower of 14,000 ha and rubber interests. Significant recent Nigeria land bank expansion. SIFCA reports some 48,000 ha in oil palm land bank, including 39,000 ha in Cote d’Ivoire (and supervises 32,000 outgrowers with 128,000 ha) and 9,000 ha in Liberia. It also grows other crops, notably rubber and sugar. Many key Africa investors have pledged RSPO standards but several key projects have been beset and delayed by land grab complaints or other social issues. In contrast to earlier Southeast Asia developments, we think that social programs need to quite well designed and implemented. Khor Reports’ channel checks in Africa (conducted in late 2011) found consistent warnings that people are sensitive to land issues and conscious of their land rights. There was doubt that very large-scale projects would be easily implemented under these circumstances. Indeed, 115,000 ha (66% of Africa total) of new plantings notified to the RSPO up to mid-2012 had attracted some form of complaint; either formally to RSPO or informally e.g. Forest Peoples Programme on Sime Darby Liberia. Khor Reports also expects larger set-asides in Africa compared to plantation development experience in Indonesia. Packaged foods – Olam’s hopes Downstream, we look at the status and hopes of two Asian companies operating in West Africa: Indofood and Olam. Indomie is the brand name of the world’s largest instant noodle manufacturer, Indofood Group of Indonesia. It has manufactured noodles in Nigeria since 1995. Olam is a West Africa-origin, Singapore-headquartered, agri-supply chain group. It has strong hopes to develop its consumer foods business in its base of origin. Olam sees opportunity in West Africa for its target packaged foods, to the tune of USD 4.4 bill and it expects its target products to grow 6-12% per annum (see table, for food categories). Key buyers will be aspirational consumers moving up the chain. In West Africa, it finds that there is relatively lower levels of clutter in products, brands and media. As an early entrant, Olam reckons on entry barriers fast building up. It aims to be a top two player in 4 out of 8 categories it has selected, and targets organic top line growth of 36% CAGR, with high growth in its market shares across categories. Distribution in West Africa’s retail sector is highly fragmented and modern trade is small, although with high growth. The wholesale channel contributes to over 90% of retail reach and sales for the industry in most categories. Nigeria is the target market and production base for West Africa. With a population of nearly 170 million, it is ranked #2 in global key markets for highest demand growth for consumer facing products (food, non-food and beverages) for 2001-2010 and 2011-2020F by Euro monitor with annual growth of 15.6% and 8.7%. Olam is building significant manufacturing presence in Nigeria and Ghana with 10 manufacturing facilities (2 greenfield and 8 acquired; including an instant noodle plant in Lagos via a joint venture with Sanyo Foods, Japan) 85% of its products sold were locally manufactured or packaged, up from less than 20% just 2 years ago (company report, 30 Sep 2013). Olam: West Africa market of USD 4.4 bill in selected food categories Juices / Dairy Beverages, USD 1,200 mill Biscuits, USD 850 mill Milk Powder, USD 300 mill Instant Noodles, USD 550 mill Tomato Paste, USD 400 mill Candies, USD 350 mill Seasonings, USD 750 mill West Africa beckons Asia palm oil producers & CGMs salivate at market prospects. Indofood’s Indomie noodles and Olam’s hopes. 

feature _______________________________________________________________________________________________ 7 | P a l m O i l , N o v / D e c 2 0 1 3 Khor Reports Unilever Nigeria Before we get to Indomie and instant noodle tussles, it is worth taking a look at Unilever Nigeria Plc. It started operations in 1923, as a soap manufacturer and it now produces and markets foods and food ingredients, and home and personal care products2. Its manufacturing plants are in Lagos and Agbara, Ogun State. Nigerians currently own 49% of its equity holdings. It sells some finished goods to Ghana and Cote D’Ivoire but virtually all its product is sold domestically. Unilever Nigeria’s growth over the last five years was 10.3% per annum with its rate of profitability on an uptrend, with net margin ranging 9-13%. In comparison, while Hindustan Unilever’s (India market) net margin was 12-15% on a declining trend. Analysts expect both Unilever’s Nigeria and India businesses to enjoy expanded margins for FYE2013 but this is forecast to "normalize" subsequently (consensus forecasts compiled in reuters.com, accessed 5 Oct 2013). However, due to a business mix skewed toward home and personal care, Unilever Indonesia’s margins are significantly higher than both these countries. Indomie Nigeria & noodle wars Indomie is the key brand of Indofood CBP Sukses Makmur. 90% of its revenue is from domestic sales and its next biggest markets are Saudi Arabia, Nigeria, Vietnam, Australia and Thailand. The Indofood Group is owned by the Salim family. Outside of Indonesia, Indomie is also produced in Nigeria by Dufil Prima Foods, a joint venture between the Tolaram Group of Singapore and Salim Group of Indonesia. It built the first instant noodles manufacturing plant (the largest in Africa) in Ogun State in 1995, north of Lagos. The factory’s Ota locality even has a road named for Coca-Cola. In 2004, the Salim- Tolaram joint venture produced 1 mill cartons per month of Indomie in Nigeria. In 2009, per capita consumption in Nigeria was still only about 1.5 packs. Its third factory opened in 2011 in Kaduna, northern Nigeria and a fourth is planned. In 2012, an oil palm refinery was set up in Lagos. Currently, Indomie has a 74% market share in Nigeria. This is down from 100% in 2006 with competition from 16 instant noodles producers and more to come. Annual growth of 8% drives continued expansion. A similar story is playing out in India, with Nestle’s Maggi instant noodles 30-year dominant position drops to new entrants such as GlaxoSmithKline's Horlicks Foodles, Hindustan Unilever's Knorr Soupy noodles, Big Bazaar's Tasty Treat, Indo-Nissin’s Top Ramen and several other smaller players. Maggi’s market share dropped to 87% in July 2010, but Nestle has the potential to expand the Rs 1,300-crore/ USD 211 mill instant noodles category – which was growing 15% annually (economictimes.com, 30 Aug 2010). 2 Since the mid-1980s, Unilever has sold its packaging companies, most of its agribusiness and its speciality chemicals business. Much of its Africa oil palm interests seems to have been more recently divested; including its 100-year old DR Congo estates to Feronia. On the ramen front, “Pot Noodle” is Unilever’s well known instant hot snack. It was launched back in 1977 by Golden Wonder, “when convenience was the future and noodles were exotic”. 155 mill pots are made each year in Crumlin, South Wales but it has also since launched other noodle products (bbc.com, 22 Feb 2000 & Unilever website). Momofuku Ando (1910-2007), the founder of Nissin Food Products Co., Ltd. was the inventor of instant noodles or ramen. Born into a wealthy Taiwan family, he settled in Osaka and became a Japanese citizen. In August 1958, after months of trial and error in a kitchen lab in his garden, he perfected his flash-frying method and Ando marketed the first package of precooked instant noodles. It was called “Chikin (chicken) Ramen”. At first, it was a luxury item priced about six times a traditional noodle bowl. Ando’s Cup Noodle was developed in 1971, with the use of a waterproof polystyrene container. This had a key role in popularizing instant noodles around the world. 2012 saw over 100 billion servings of instant noodles being sold worldwide. For 2008-2012, among the top 15 consuming countries, fastest growth was in the Indian subcontinent; while Nigeria, Thailand and Brazil grew 36% over 4 years, Taiwan and Russia saw some shrinkage. The big two markets are China and Indonesia, which account for 57% of 2012 consumption; with a 3-4% increase over the period. Instant noodles’ main ingredients are flour, starch, water, salt and flavouring. The noodles are shaped and then steamed to gelatinize the starch, to improve texture. The noodles can be dried by oil fying or non-fried noodles are dried with hot air. In North America common frying oils consist of canola, cottonseed and palm oil mixtures, while only palm oil or palm olein are used in Asia. More than 80% of instant noodles are fried as it results in more evenly dried noodles and the product cooks faster. The oil content in fried noodles is about 15-20% while hot air dried noodles have at most 3% oil content. The shelf life of instant noodles ranges from 4–12 months (note: excerpts from Wikipedia, 20 Sep 2013). Oil use in instant noodles 101.4 billion packets, assuming average size 80gm, indicates 8.1 million tonnes of instant noodles. 80% fried and 20% non-fried; resulting in about 1.2 million tonnes of oil (est.) used in instant noodle manufacture. Source: Khor Reports from online sources. "Real food" advocates complain about the rising consumption of industrial foods. Instant noodles are often criticized as an unhealthy or junk food. Three academics3 who authored a book on the subject call instant noodles or ramen a "virtually unstoppable" phenomenon. They say: “Instant noodles do good by alleviating the hunger of millions of people around the world. These supercheap, superpalatable noodles, help the low-wage workers in rich and poor countries alike hang on when the going gets tough.” Manufacturers can transform them to every cultural taste. They suggest that a better way to help the poor is to make instant noodles more nutritious. They could be "reduced-sodium, lower-fat, higher-fiber, better fortified," though that will also translate into a slightly higher price. 33 “Ramen To The Rescue: How Instant Noodles Fight Global Hunger” (npr.org, 20 Aug 2013), interviews Frederick Errington of Trinity College, Tatsuro Fujikura of Kyoto University and Deborah Gewertz of Amherst College, three anthropologists who authored the book “The Noodle Narratives.” Oodles of noodles 

outlook & prices _______________________________________________________________________________________________ 8 | P a l m O i l , N o v / D e c 2 0 1 3 Khor Reports IMF: Bumper crops, food costs to drop 6% in 2014? The US Department of Agriculture (USDA) is scheduled to update its US and world supply and demand estimates on 8 November after October’s report was cancelled due to a 16-day partial shutdown of the US federal government that started 1 October. In its September report, the USDA reported that low August rainfall in the Midwest cut soybean yield forecasts. “This year’s soybean crop is expected to total 3.149 billion bushels—down 106 million against last month’s forecast… a reduced soybean crop cuts this month’s forecast of season-ending stocks by 70 million bushels to 150 million.…. In Brazil, strengthening soybean prices are expected to raise its 2013/14 soybean area by 4 percent to 28.9 million hectares. That could boost Brazil’s soybean crop to a record 88 million metric tons, which—if realized—would top US production (85.7 million) for the first time.” “Bin-busting output in Canada is compounding record global supplies as planting expanded from Brazil to Ukraine to the US Midwest after last year’s drought sent futures surging. Goldman Sachs Group Inc., Citigroup Inc. and Rabobank cut their price forecasts in the past month. Global food costs that reached a three-year low in September probably will drop 6% in 2014, the International Monetary Fund said on Oct. 8…. (Canada’s) Canola production will jump 16 percent to an all-time high of 16.03 million (bloomberg.com. 22 Oct 2013). ENSO neutral, Malaysia & Indon wet season On 8 October 2013, the Australia Bureau of Meteorology reports that the El-Niño Southern Oscillation (ENSO) “remains neutral (neither El Niño nor La Niña), with virtually all indicators at near-normal levels. International climate models surveyed by the Bureau of Meteorology suggest that the tropical Pacific will remain ENSO-neutral for the remainder of spring and the austral summer.” Jabatan Meteorologi Malaysia (JMM) notes that Malaysia is in its northeast monsoon season up to January. Nourtheast winds blow across the South China Sea. In this season, the states in the Peninsula East Coast and the Sarawak Coast will experience heavy rain. Continued rain may cause flooding in the East Coast states and the Southern Peninsula in November and December. JMM forecasts higher rainfall in Kudat Division, the West Coast and Interior of Sabah in November 2013 and drier weather in Southeast Pahang and South Johor rainfall 20 to 40% below average. Miri, Bintulu, Mukah and Kuching in Sarawak could face floods in low areas and river basins (access 16 Oct 2013, met.gov.my). The Indonesian Meteorology Agency (BMKG) forecasts mostly above average rainfall conditions for its early rainy season. Overall, this season expects 56% of areas with above average rain, 31% to be average, while only 13% of areas will get below average rainfall. Wetter areas expected in southern Riau and below average rainfall in the rest of Riau and Jambi for Oct-Nov 2013. In East Kalimantan, its interior is expected to face relatively wet weather, as is much of the Papua region. Neutral mid & long-term, short-term bullish The technical view by 4-Traders.com points to a neutral mid and long-term with price range USD 701-784 / RM 2,222-2,485 and USD 671-792 / RM 2,127-2,510. In the short-term, the expected range is USD 744-762/ RM2,358-2,415 with a bullish view. Technical analyst, Benny Lee rekons that downward price pressure may let up in Jan-Feb 2014, with a price climb toward RM 2,900 (USD 915) by year end, to give an average price of RM 2,600 (USD 820) for 2013. Lee points out that the above view holds if price stays above RM 2,250 (USD709; July 2013 at MPOC Pointers). Very recent developments include Bloomberg.com (22 Oct 2013), reporting that “palm oil imports by China are poised for the slowest expansion in three years, at a time when record production fuels a global glut… Rising purchases of soybeans that are crushed to produce feed meal for China’s growing livestock herds are also boosting the nation’s vegetable oil output, at the expense of palm from exporters including Indonesia and Malaysia.” The USDA forecasts inventories to reach a record in 2013- 2014. Earlier, reports pointed to “palm oil stockpiles and output in Malaysia, the world’s second-largest producer, (increasing) less than analysts’ expectations last month,” (bloomberg.com, 10 Oct 2013). Khor Reports’ CPO Price Expectations Survey* found the average at RM 2,298 / USD 725. * Our mini-survey asks “What Malaysia CPO price do you base your expectations on for 2H2013?” Next survey: Feb 2014. Key vegetable oils Chart: Prices & CPO price expectations Weather outlook CPO technical view - 200 400 600 800 1,000 1,200 1,400 1,600 Malaysia PO futures (1st contract) + adjt Khor Reports' Price Expect. Survey (n=15)+adjt @21 Aug Dorab Mistry @27 Sep James Fry @6 Mar Oil World @21 June Chicago soybean oil futures (1st contract) + adjt Rapeseed Oil; Crude, fob Rotterdam Brent crude, light blend, fob UK Palm, soy & rapeseed oils and Brent crude with key price outlook views Indicative monthly prices for NW Europe (USD/mt)