www.agrobank.com.my

1. 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

2. CONCEPT AND DEFINITION OF VALUE CHAIN Firm Infrastructure Human Resource Management Support Activity Margin Technology Procurement Inbound Logistics Outbound Logistics Marketing & Sales Operations Service Margin 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.

4. 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

5. 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

6. 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

7. Agricultural Financing Contribution in Banking System by Market Segment • 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. Loans Outstanding as at Jun 10: RM19.9 bil Loans Outstanding as at Jun 10: RM27.3 bil

8. 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

10. Agrobank has 6 objectives and 3 objectives shown below refers to Agriculture Value Chain Financing

11. TOTAL NEEDS OF AGRICULTURE COMMUNITY CONCEPT Supporting The Whole Value Chain Section 10 (2) (e): provide financing to the agricultural community Agriculture Primary Production Retail & Wholesale Processing Consumers Marketing Non-Agriculture (eg: housing, education & vehicle) Section 10 (1) (e): To uplift the well-being of the agricultural community

12. SCOPE OF FINANCING 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 Focus Non-Agriculture Community Agriculture Community Non-Agriculture Activities Agriculture Activities Crops, livestock, fishery, plantation, agro-based manufacturing processing & marketing. eg: education, housing, computer, vehicle, workshop, petrol stations etc

13. Govt funded loan schemes to target groups with concessionary interest rates to promote the development of priority agriculture sectors ROLE OF AGROBANK • 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 Developmental Role Roles Financing through Bank’s funds at competitive interest rates to commercial enterprises, corporations and individuals Commercial Role • Project loan • Revolving Capital • Personal Loan • Educational Loan • Micro Credit Loan • Contract Revolving Credit

14. VALUE CHAIN AND CLIENT SEGMENT Since 2008 move from production based financing to Client Based Financing === Focus on Value Chain AGROBANKING BUSINESS BANKING PERSONAL BANKING • Unique marketing mix for each segment • Market oriented & client driven products & services

17. AGROBANK BSC - CORPORATE KEY PERFOMANCE INDICATORS Refer to Appendix 18

18. DEVELOPMENTAL MEASUREMENTS (KPI) NM – Not Measured for the year

19. SOURCE : PEMANDU, MALAYSIA

20. Malaysia’s Economic Transformation Programme (ETP) for Agriculture Sector Transform Agriculture into Agribusiness SOURCE : PEMANDU, MALAYSIA

21. SOURCE : PEMANDU, MALAYSIA

22. ECONOMIC TRANSFORMATION PROGRAMME PROJECTS 485 500 833 534 73 572 534 20 169 276 400 188 74 196 29 58 164 55 164 483 88 SOURCE : PEMANDU, MALAYSIA

23. SOURCE : PEMANDU, MALAYSIA

24. SOURCE : PEMANDU, MALAYSIA

25. SOURCE : PEMANDU, MALAYSIA

26. SOURCE : PEMANDU, MALAYSIA

27. RM Billion 1.3 21.4 5.1 6.4 2.9 3.2 2.5 8.9 16.8 2.9 11.8 RM Billion RM Billion 8.9 7.9 SOURCE : PEMANDU, MALAYSIA

28. KEY SUCCESS FACTORS FOR MOVING UP THE AGRICULTURE VALUE CHAIN

29. 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.