AK

SH

AY

A V

AN

AM

20

11

1

AKSHAYA VANAM INDIAN SANDALWOOD

P R O D U C T D I S C L O S U R E D O C U M E N T I N D I A N S A N D A L W O O D 2011

Siri Agri Group

AK

SH

AY

A V

AN

AM

20

11

2

CORPORATE DIRECTORY

Plantation Promoter & Manager Siri Agri Group Siri Agri Group Door # 22/7, GF Saptagiri Nilayam, Kothapet, Hyderabad – 500 035

Sales and Marketing 8am.in Siri Agri Group Door # 22/7, GF Saptagiri Nilayam, Kothapet, Hyderabad – 500 035

AK

SH

AY

A V

AN

AM

20

11

3

Important Notices

Electronic Product Disclosure Document

This PDD will be available for download on the following website: www.8am.in. Any person accessing the electronic version of this PDD for the purpose of investing must be an Indian resident.

Need Help?

If you have any questions about investing you should speak to your adviser. If you have questions about the Project investment in particular, call us on 040-64640606 or visit our website www.8am.in.

Photographs

Unless otherwise stated, the photographs contained in this PDD are for illustrative purposes only. They do not represent, or purport to represent assets of the Siri Agri Group or the Project Manager.

Siri Agri Group

AK

SH

AY

A V

AN

AM

20

11

4

Siri Agri Group engages a team

of Experts to carefully select land

suited for the growth of Indian

Sandalwood (Santalum album).

AK

SH

AY

A V

AN

AM

20

11

5

CONTENTS

An overview of Indian Sandalwood 6

Why Indian Sandalwood? 7

The Sandalwood Market 9 – Supply and Demand

What do we propose? 13

Project Details 17

Indian Sandalwood Plantation 21

Project Returns 22

Key Investment Features 23

Risks and Safeguards 24

Investment Options 29

An Ethical Investment 34 – The Environment and Community

The Siri Agri Group 37

Plantation Management 37

Expert Sandalwood Marketing 41 Report

Siri Agri Group

AK

SH

AY

A V

AN

AM

20

11

6

An overview of Indian Sandalwood:

andalwood is the name of a class of fragrant woods from trees in the genus Santalum. The woods are

heavy, yellow, and fine-grained, and unlike many other aromatic woods they retain their fragrance for decades. As well as using the harvested and cut wood in-situ, essential oils are also extracted from the woods for use. Both the wood and the oil produce a distinctive fragrance that has been highly valued for centuries. Consequently, the slow-growing trees have been overharvested in many areas. Two hundred years of public monopoly and preservation and harassment of those on whose land the plant grew were enough to make the royal wood vanish. Sandalwood species are found in India, Bangladesh, Sri Lanka, Australia, Indonesia, and the Pacific Islands. In India, Bangladesh and Sri Lanka it is called Chandan and India till recently was the world leader on the list of exporters by supplying over 95% of the global

demand. Indian Sandalwood Cultivation in India area has reduced from 5,400 square km in Karnataka and 3,500 square km in Tamil Nadu a few years ago, the acreage had fallen steeply and the yield had come down from 3,000 to 4,000 tonnes a year to just 200 to 300 tonnes now. Due to overharvesting and lack of re-forestation, India will soon be in an absurd position to import Indian Sandalwood from Australia, who would be world leaders in Indian sandalwood in the years to come. Samples collected from Australian trees of 6 years and 9 years confirmed the oil content and profitability. Sandalwood can be intercropped with fruit bearing trees like Grafted tamarind, Amla, Pomegranate, Drum stick, Karivepillai, etc, these give quick returns from 2nd to 3rd year to the farmer, to reduce the burden of maintaining the long term crop.

S

AK

SH

AY

A V

AN

AM

20

11

7

Why Indian Sandalwood? Indian sandalwood is a small tropical tree, the most commonly known source of sandalwood. This species has been utilized, cultivated and traded for many years, Asian cultures placing great significance on its fragrant and medicinal qualities. Indian Sandalwood has been the primary source of sandalwood and the derived oil. It has use as wood and oil in religious practices. It also features as a construction material in temples and elsewhere. The main source of true sandalwood, Santalum. Album is a protected species, and demand for it cannot be met. Many species of plants are traded as "sandalwood". Other species have low commercial value and the Sandalwood Oil content in not as much as Indian Sandalwood or Santalum Album. Producing commercially valuable sandalwood with high levels of fragrance oils requires Sandal trees to be a minimum of eight years old, but at least fourteen years is preferred. Unlike most trees, sandalwood is harvested by toppling the entire tree instead of sawing them down at the trunk close to ground level. This way, wood from the stump (heartwood) and root can also be used.

What is heartwood?

Heartwood is found at the core of the tree and has been sold at Indian auctions for an average of over 50 lacs per tonne (September 2009). This aromatic wood is a popular material for Asian carvings and handicrafts, particularly in Taiwan and China, where demand is growing. It is also used extensively for religious and cultural purposes throughout India and the Middle East. The renowned Sandalwood aroma comes from the oil found in the heartwood of the tree. Through a process of distillation the oil is extracted from the heartwood and is sold as a fragrance ingredient to the global beauty industry and flavoring agent in chewing products. This highly valued oil trades for around INR 7 Crores per tonne – that’s Rs 70,000 per kilogram. The value of heartwood is largely determined by the quantity and quality of the oil it contains. Indian Sandalwood is considered to be the super premium species of Sandalwood because it has the highest oil yield and the oil has the greatest concentration of the valuable constituent alpha and beta Santalols.

Siri Agri Group

AK

SH

AY

A V

AN

AM

20

11

8

Australian or Indian Sandalwood?

Indian Sandalwood (Santalum album) heartwood was sold for more than 50 lacs per tonne. The global supply of wild Indian Sandalwood is decreasing due to poaching and over-

harvest. In contrast large reserves of wild Australian Sandalwood are found throughout Western Australia. A difference in growth rate makes Indian Sandalwood the preferred species for private commercial cultivation. As a tropical hardwood Indian Sandalwood will grow to Harvest in 14 years under irrigation, whereas the Australian species is a slow-growing tree suited to an arid/desert climate. Indian Sandalwood oil has an established global demand and has been in use in perfumery since the Persian times. Indian Sandalwood oil has more than twice the Sandalwood Oil content compared to the Australian Sandalwood variety. Heartwood from mature Indian Sandalwood trees also has around 2 times the oil content of wild Australian Sandalwood trees. The higher value heartwood, fast-growing characteristics and supply-demand imbalance are reasons why Siri Agri Group chooses to grow Indian Sandalwood.

AK

SH

AY

A V

AN

AM

20

11

9

The Sandalwood Market – supply and demand

For thousands of years Indian Sandalwood has been traded for use in perfumes, carvings, medicines and worship around the globe. Different parts of the Sandalwood tree are used to produce this variety of products. Sandalwoods’ heartwood is used in religious carvings, medicines and to produce Indian Sandalwood oil, a valuable fragrance ingredient that features in many of the world’s most famous perfumes. The outer part of the tree known as sapwood and the spent charge (the wood by-product created once oil has been distilled from the heartwood) remain popular ingredients in incense and joss stick production.

Established Demand

The popularity of Sandalwood is seen in the wide range of countries that import the wood and oil. Sandalwood and Sandalwood oil is currently imported by the Middle East, Japan, China, Taiwan, Hong Kong, Singapore, Germany, Switzerland, France, Australia, the UK and the USA. Trade statistics show that Taiwan alone imported over 2,400 tonnes of Sandalwood wood in 2010. The USA imported close to 28,900 kilograms of Sandalwood oil in the same year. Strong demand for oil in the USA and Europe is driven by the fragrance industry, where Sandalwood oil remains an important ingredient in fragranced soaps, toiletries and perfumes. It is in the Asian markets, however, that Sandalwood has the most cultural significance. India, Taiwan and China remain significant consumers of Sandalwood globally. China was historically a major importer of Sandalwood. Since the end of import restrictions in 1999 Chinese demand for Sandalwood is reported to have grown significantly. It is expected that these changed regulations and the increasing wealth of China (population 1.34-billion people – 2011 est.) could continue to increase the Chinese import of Sandalwood.

There is a lot of detailed information about Sandalwood contained in the Expert Marketing Reports contained in this PDD. This report should be read completely to understand the scope of Sandalwood Market.

Siri Agri Group

AK

SH

AY

A V

AN

AM

20

11

10

Dwindling domestic supplies of the species are also expected to drive India to import significant volumes of wood. In 2005 alone over 2,000 tonnes of Sandalwood was imported to supplement Indian demand. While the import of Sandalwood is currently banned in India, this is expected to be lifted as the domestic supply continues to drop. Demand for the heartwood of Indian Sandalwood is often derived from the demand for Indian Sandalwood oil, a valuable ingredient used in fragrances worldwide and chewing products in India. As the oil is made up of a large number of different molecules, it is extremely difficult to

match these in a synthetic substitute. Despite the availability of synthetics, commentators estimate that the natural cosmetic market is growing at a rate of 15% per annum, driven by consumer demand for natural ingredients. The unique properties of the oil and the growing trend towards natural products suggest that demand for the natural oil will remain high. This trend, as well as the availability of a sustainable supply of Indian Sandalwood is expected to stimulate demand in the global soaps, perfumery and cosmetics industries, alongside China and India where growing wealth is expected to drive demand for this culturally significant ingredient.

DWINDLING WILD SUPPLIES AND DEMAND CENTRED ON THE INCREASINGLY PROSPEROUS ASIAN NATIONS PRODUCE EXCITING MARKET DYNAMICS FOR THIS ANCIENT INGREDIENT WHICH FEATURES IN INCENSE, PERFUME, CARVINGS, MEDICINES AND WORSHIP AROUND THE GLOBE.

AK

SH

AY

A V

AN

AM

20

11

11

Dwindling Supply Supply of Indian Sandalwood has reached critical levels in India (around 95% of the total annual Indian Sandalwood supply comes from India); with the tree recognized as a vulnerable species on the World Conservation Union’s (IUCN) Threatened Species Red list. Wild sources and government stockpiles are expected to be at very low level. Supply from Indonesia and East Timor has already virtually ceased. There is now a growing demand for a sustainable source of Indian Sandalwood, with plantation-grown trees offering an important alternative to the traditional wild sources.

Even because of dwindling supply, Indian Sandalwood still offers superior characteristics, making other species substitutes. It is expected that when a reliable supply of Indian Sandalwood is available, consumption of Indian Sandalwood will increase further. Cultivation and harvest of Indian Sandalwood from India, is always expected to be better than Indian species growing someplace else. Even though supplies from Australia will bring some relief for few years, the quality of oil from Siri Agri Group’s (India) plantation is expected to be of much higher value.

Siri Agri Group

AK

SH

AY

A V

AN

AM

20

11

12

Auction Price

The price of Indian Sandalwood has continued to increase at a compounded rate of 18% over the last 18 years. At the auction held in September 2009 small volumes of wild heartwood were sold for an average price of Rs 50 lacs per tonne*. Due to the decline in the

supply of Indian Sandalwood in India, only small quantities of heartwood have been sold at recent auctions. Consistent price growth has been the result of the growing imbalance between the supply and demand for Indian Sandalwood that characterizes this market.

AK

SH

AY

A V

AN

AM

20

11

13

What do we propose?

1. Siri Agri Group engages a team of

Experts to carefully select land suited to the growth of Indian Sandalwood (Santalum album). We will plant Indian Sandalwood in and around Hyderabad. The region’s high levels of sunshine, suitable soil types and access to ample water resources make this the preferred area for cultivation. The land will be conditioned and prepared prior to planting.

2. Siri Agri Group, in association with

Acharya Muralidhar, has developed a seed orchard designed to improve the genetics of the seed stock to produce trees of the highest quality. Superior trees have been selected based on growth characteristics and oil content for the seeds. These are then control pollinated to produce seed for use in the project.

3. Sandalwood is a parasite and

needs to tap nutrients and water from other trees to survive. Watermelon and Raggi, have been selected as short-term host, Teakwood has been selected as mid-term host and Mango has been selected as a long-term host considering their genetic value for Sandalwood and there economic value, which will help project sustain as a self-financed project after 4

th year of

plantation. These are planted in careful configuration with the Sandalwood with the aim of maximizing the growth of the Sandalwood trees.

Siri Agri Group

AK

SH

AY

A V

AN

AM

20

11

14

4. At the end of the 4th year after

plantation, a tree count will be conducted to assess survival rates of Sandalwood and host trees and any necessary replanting will be conducted.

5. Wood will be processed and sold as

Cleaned Logs in the government auction in Salem, Tamil Nadu. As per the prevailing law, Sandalwood auction price would be decided by the government.

6. It is anticipated that Harvests will be

conducted at the age of 15 years. Heartwood – the most valuable oil bearing section of the wood – is concentrated in the butt and lower part of the tree. Advanced harvesting techniques are being implemented to maximize the recovery of this valuable resource. Fragrance industry will distil the wood to extract the valuable fragrance

ingredient Indian Sandalwood oil which is used in perfumes worldwide.

7. Wood will be processed and sold as

Cleaned Logs. It is anticipated that the major buyers and end users in India of Cleaned Logs will be Government of Karnataka, Karnataka Soaps & Detergents Ltd., Karnataka Handlooms etc.

AK

SH

AY

A V

AN

AM

20

11

15

Siri Agri Group

AK

SH

AY

A V

AN

AM

20

11

16

AK

SH

AY

A V

AN

AM

20

11

17

Project Details What are we offering?

Siri Agri Group’s ‘Akshaya Vanam’ Sandalwood Project 2011 gives you the opportunity to grow your own Indian Sandalwood, a wood with strong demand and diminishing supply. The average auction price for wild heartwood in the Indian auctions of Tamil Nadu and Kerala have risen from Rs 2 lacs per tonne in 1990/1991 to Rs 50 lacs per tonne in September 2009 (on small volumes), representing an annual compounded growth rate of 18% over 18 years. A diminishing supply, coupled with Sandalwood’s important role in Indian and other Asian cultures is expected to ensure that demand remains high and the upward price pressure continues. It should be noted that the Siri Agri Group’s Chief Executive Scientist Dr. Anantha Padmanabha is of the opinion that these prices will continue to rise at the rate of at least 5% per annum for the foreseeable future.

Siri Agri Group

AK

SH

AY

A V

AN

AM

20

11

18

How does the project work? Siri Agri Group invites you to invest in the ‘Akshaya Vanam’ Sandalwood Project 2011 (the ‘Project’). Siri Agri Group is the issuer of this Product Disclosure Document (‘PDD’) and of interests in the Project (called ‘Sandalwood farms’ within this PDD). The Project consists of up to 250 Acres. There is a minimum subscription to the Project of one fourth of an acre. As a Grower you will establish and maintain your own stand of Indian Sandalwood by: • Each land plot is one fourth of an acre. Each Sandalwood Farm will be identifiable by

reference numbers on a plan of the Plantation. This plan will be forwarded to you once your Sandalwood Farm is booked/registered on your name. • Siri Agri Group will manage the Sandalwood Farm as one collective and commercially viable plantation. This relation continues until all of the Indian Sandalwood has been harvested. • The Harvest is expected to take place during Year 15.

How will the Sandalwood be planted? Sandalwood needs host trees to help it to grow. As a hemi-parasitic tree, the roots of the Sandalwood tree attach to the roots of the host to draw nutrients and water. Over the course of its life each Sandalwood tree needs a selection of host trees. Host trees are planted in configuration with the Sandalwood seedlings. Tree counts are conducted regularly. The project has a targeted survival rate of at least 85% Sandalwood trees per acre at Harvest.

AK

SH

AY

A V

AN

AM

20

11

19

How will the Sandalwood be maintained?

The Plantation will be maintained by Siri Agri Group in accordance with a comprehensive Management Plan. Annual maintenance will include Weeding and Pruning, Nutrient Analysis to determine Fertilizer Requirements, Fire Control Management, Security Management and Regulatory Requirements.

How will the Sandalwood be harvested?

The heartwood is contained within the larger branches, log, roots and butt of the Sandalwood Tree. The butt and roots contain up to one-third of the heartwood. Harvest methods are being developed to maximize the recovery of this valuable resource. Siri Agri Group intends to commence harvest of the Sandalwood in Year 15 after plantation. The precise timing of the Harvest will be determined by forestry management criteria, the aim being to maximize the revenue generated by the Project.

*As shown above Indian Sandalwood is a hemi-parasitic species. The secondary host will naturally die after several years and the Indian Sandalwood tree will continue growing on a tertiary host tree.

How will the Sandalwood be sold? At the time of Harvest, Siri Agri Group will sell the harvest at the Government Auction in Salem, Tamil Nadu, as per the current regulatory requirement or will find a optimal market if the sale of Sandalwood is allowed in the open market. Proceeds of sale from the wood will be distributed to you after a

deduction of the Costs of Harvesting and Processing, and any additional costs associated with the Selling and Marketing Fee. Updates will be communicated to investors via a regular newsletter.

Siri Agri Group

AK

SH

AY

A V

AN

AM

20

11

20

What if there is damage to the Plantation or Trees on Sandalwood Farms? Siri Agri Group will take up the Re-plantation of the Sandalwood trees up till 4th year in case there is any damage to the plantation or if Siri Agri group feels the need for re-plantation.

Carbon credits Carbon Credits are not factored into the forecast returns for this project as there is no official carbon trading scheme in place at this time. Under the Lease and Management Agreement the Grower agrees to transfer all of

the Carbon Credits to which they are entitled to the Siri Agri Group.

*Regular maintenance such as weeding is undertaken in accordance with the Plantation Management Plan.

AK

SH

AY

A V

AN

AM

20

11

21

The Indian Sandalwood Plantation Growing considerations In order to grow Indian Sandalwood successfully the following growing conditions must be met: • A Tropical Climate; • Regular Watering; • Free-Draining Soils; • Land which has a flat to undulating topography and is not subject to water-logging; and • Freedom from termite attack. The Plantation in and around Hyderabad satisfies all of the above requirements. Soils are selected on the advice of experts who assess soil depth, fertility and moisture characteristics by doing a detail soil test. Soil test confirm that it is a free water draining soil. The land is flat with natural counter-bounding done by government officials to control soil erosion and has access to abundant irrigation water resources both within the farm (wells) or water can be taken on Subsidy from government using the Godavari Canal that

pass through the projected farm. This land has previously not been farmed making it nutrient rich. Dr. H.S Anantha Padmanabha with over 40 years of experience in Sandalwood Plantation and his active association with Australian Sandalwood industry (TPS: tropical Forestry Services) and Acharya Muralidhar extensive research on Seed genetics, has enabled Siri Agri Group to confidently minimize any risk of termite or pest attack on the crop. Where will the Plantation be located? Siri Agri Group has acquired significant land area (250 acres) suited to the growth of Indian Sandalwood. Siri Agri Group is currently engaged in further land acquisitions near the city of Hyderabad in Andhra Pradesh. Any land acquired or used will be subject to the land acquisition due diligence protocols Siri Agri Group currently has in place. Planting will take place after the dry season (usually July and August) and the land will be subject to an intensive preparation program during the preceding dry season.

Siri Agri Group

AK

SH

AY

A V

AN

AM

20

11

22

Project Returns

THE FOLLOWING SECTION PROVIDES GROWERS WITH INFORMATION ON PROJECT RETURNS. Price Dr. Anantha Padmanabha, Chief Executive Scientist and Forestry and Sandalwood Marketing Expert from Bangalore who has focused his expertise on the Indian Sandalwood Tree, has written an Expert Marketing Report included in this document. Indian Sandalwood heartwood sold at an average of over 50 lacs per tonne (on small volumes) at the State of Tamil Nadu Forestry Department and Kerala auctions held in September 2009. Average auction prices for heartwood have increased at a compounded annual rate of 18% over 18 years.

• The wood currently sold at the Tamil Nadu auction is of a high quality, tending to contain on average 4.0% to 5.5% oil. While it is possible that wood grown in plantation

conditions might achieve this oil content, it is more likely that a lower average figure of perhaps 3.15% oil content may be achieved. • Forest Produce includes host trees (Teak and Mango) and other parts of the Sandalwood tree (Sap Wood) (other than the Seeds). These products will have commercial value and the profits will be shared on 50:50 Profit sharing ratio after the expenses for the plantation management have

been covered.

• Dr. Padmanabha has indicated in his Expert Marketing Report that he anticipates ongoing price increases for heartwood of at least 5% per annum for the life of the Project.

AK

SH

AY

A V

AN

AM

20

11

23

Key Investment Features • This project aims to produce high quality Indian Sandalwood (Santalum album), a

commodity that has been traded for thousands of years. This aromatic wood is internationally prized for use in religious worship, joss sticks and to extract Indian Sandalwood oil, an important ingredient used in fine fragrances. • The average price of wild Indian Sandalwood heartwood has had a compounded increase of 18% per annum over the last 18 years due to strong demand and diminishing supply that has seen the tree recognized on the World Conservation Union’s (IUCN) Threatened Species Red list. • Auction prices for small volumes of heartwood in India averaged over Rs 50 Lacs per tonne in September 2009 - confirming Indian Sandalwood’s status as one of the world’s most valuable tropical hardwoods. • Siri Agri Group is a specialist Indian Sandalwood plantation manager, under the guidance of Dr. H.S Anantha Padmanabha with his over 40 years experience in the cultivation of Indian Sandalwood. • Siri Agri Group has an experienced team of professional foresters, agronomists, research officers and agricultural scientists who manage the Plantations. An ongoing program of monitoring and research is used to maintain good growth and survival rates. • Siri Agri Group is committed to the long-term development of Indian Sandalwood industry.

• The project is expected to be completed in 15 years, with the Harvest expected to occur when the Sandalwood trees are 15 years old.

Siri Agri Group

AK

SH

AY

A V

AN

AM

20

11

24

Risks and Safeguards

An investment in this Project is long term and we at Siri Agri Group work to safeguard our investors with our expertise and experience. Below are some of the specific and general risks and safeguards against such risk by Siri Agri Group.

AGRICULTURAL RISKS

Fire: Fire normally happens in unattended

surroundings such as in wild forests. However,

Siri Agri Group has understood the damage

capacity of such untoward incidents and has

planned well in advance.

a) The first step of security planning is done by constructing a boundary wall thus reducing the risk of intentional planned fire outbreaks.

b) The entire farm is sealed with single point entry system into the cultivation

area wherein the staff/guests are frisked for security reasons.

c) The farmland undergoes regular process of weeding wild grass thus reducing the fast growth of fire in case of one.

d) The drip system adopted by Siri Agri

Group are equipped with heat sensors which automatically start sprinkling at the top capacity when there is a sudden change in the temperature. These act like fire extinguishers in case any untoward incident happens.

AK

SH

AY

A V

AN

AM

20

11

25

e) The entire farm is well planned with approach roads for a fire- brigade vehicle to reach any point without hindrance.

f) The permanent staff stationed at the project is trained /equipped to handle minor fire outbreaks.

Climate

a) Andhra Pradesh, especially Hyderabad and surroundings are known to experience moderate climate. Sandalwood Farming survival need of climate varies from 5 degree Celsius to 50 degree Celsius.

b) The current project involves plantation

of 1,12,500 trees which naturally decreases the environmental temperature upto 9 degree Celsius compared to the natural temperature thus ensuring that even in peak summer the temperature in the farms never exceed 40 degree Celsius.

c) The project area selected has never experienced extreme wind or cyclone; however Saplings are planted with a 6ft Rod/Bamboo for support till saplings are strong enough to support themselves.

Water / drought:

a) Sandalwood trees consume minimal water for its growth when compared to its counterparts. The trees need

watering only 5 months in a year and at the intervals of 14 days each.

b) The current project has water availability from 9 ft onwards. Bore-wells dug in the farm are done after a firm geological survey and are dug almost 10 times more than the current water availability.

c) As a contingency planning Ground Water Recharging Module is implemented wherein water beds are prepared within the entire farm by digging wells upto 30 feet and filling them with layers of rocks and sand beds.

d) As the last resort, in case of failure of all the above planning, water can be availed on subsidy from the Godavari canal which runs within our project.

Soil:

The land selected for plantation goes through proper soil test for their PH value. The current project at Aleru has been selected post this tests. Even in scenarios where the ph value reduces interim, out scientists have identified artificial means of substituting it.

a) The initial test have proved Aleru and

surroundings to be very fertile for Sandalwood cultivation specially (Santalum album)

b) The surrounding has living sandalwood trees aged 4-6 years in the surroundings proving its capability.

Siri Agri Group

AK

SH

AY

A V

AN

AM

20

11

26

Mortality/Failure %: Siri Agri Group considers this factor as the most important factor in which the company very well planned. Mortality/Failure % is very common in an unorganized farming. Freelancers, individual farmers, non agro based farmers like commercial real-estate ventures etc fall prey to this loss. This is a long term project and people try to cut the cost at the initial levels. I.E purchasing sapling at the least cost possible without knowing the crop genetics , not concentrating on soil fertility or pre-planning for soil erosion, not spending on water harvesting or contingency planning, compromising on security parameters, compromising on the cost to take expert assistance etc Let us give you an example of what we are trying to say : let say you have been assigned a project in hand and as per your analysis your target profit from that project is Rs 1000 and the cost to do the project is Rs 100. When you know the outcome ratio is huge when compared to the cost then it doesn’t make sense to compromise on the quality or cost which the project needs to complete successfully. At Siri Agri Group we handle this factor professionally without compromising as we are 50% share holders of the profit. The common mortality

rate in our project is upto 18% which we try to further bring down by following the below mentioned parameters:

a) SIRI AGRI GROUP has an independent seed orchard designed to improve the genetics of the seed stock to produce trees of the highest quality. Superior trees are selected based on growth characteristics and oil content. These are then control pollinated to produce seed for use in the project.

b) The saplings from this seeds are then

grown in nursery for a period of 12 months before planting it into the cultivation area to further reduce the count of dead, week, infertile and impotent trees etc) Further, the hand pick saplings are planted in the cultivation area and a back-up saplings are still maintained on a 100: 3 ratio to further replant dead trees until the fourth year. Mr. S V L Prasad who is a member of Siri Agri Group specializes in re-plantation of trees) Trees planted in the cultivation area are supported with rod/bamboo sticks till the 4 year to help its roots gain ground support.

FINANCIAL RISKS Demand and Supply: With the GO being realized it is very obvious for

individuals to take up Sandalwood farming and

we at Siri Agri Group invite healthy

competitors as we are strongly working towards

the restoration of Indian Sandalwood within

India. Demand would never be affected as

right on date Sandalwood needs 80,000

hectares of cultivation to pull-back its demand

and this demand is increasing at 18% per

annum and increasing.

AK

SH

AY

A V

AN

AM

20

11

27

Yield Estimates and Quality If the forecast yield is reduced due to higher than anticipated fatality rates, or lower than anticipated heartwood yields, the financial yields of this Project will be reduced. If the quantity or the quality of the oil is lower than expected this may also reduce the value of the Heartwood timber. Yield estimates given in this PDD are based largely on the experimental plantation and on the extrapolation of growth rates and characteristics of other individual and small groups growing in the area. This is supported by scientific literature of Indian Sandalwood which is largely based on trees growing in natural forests.

Competitor Risk:

(a) Indian government passing the GO for Indian citizens to cultivate/hold and enjoy Sandalwood has already make experts in Australia to draw back from re-cultivation of Indian Sandalwood as they realize the risk and competition with Indians counterparts growing Indian Sandalwood within India.

(b) Competition within India is very minimal

due to various reasons like

(i) The average per capita operational size of land holding in India is 1.33 ha, which is far below the world average of 3.7 ha per person. Further, land holdings have shown a marginal decrease from the holding size of that of a decade ago (1.41 ha)

(ii) Financial capabilities of Indian Farmers which is no hidden secret.

(iii) Even if our real-estate giants

realize the potential of Sandalwood and start selling their plots with Sandalwood trees, their quality would be beyond the market acceptability and the outcome can only be used for the carving industry which pays the least compared to the oil content bearing trees.

(iv) Small players and individual trying their hands would/might also face the same consequences of ending up their yields for the carving industry due to poor crop management, Security management, skills & expertise managements.

(v) Even if we get proper & healthy

competitors Sandalwood Industry current demand needs about 80,000 acres of cultivation each year to meet their current demands.

Siri Agri Group

AK

SH

AY

A V

AN

AM

20

11

28

MANAGEMENT RISKS

Theft:

a) Physical theft of Sandalwood starts from

the 6th year onwards and we have made

adequate precautions for the same. Siri

Agri Group spends upto 43 % of the

expenditure on security.

b) A very important point to be noted is the GO passed by Govt. of India. As per the GO, the individual/company possessing/farming Sandalwood trees is/are the absolute owners of the same and can enjoy the outcome of Sandalwood without restrictions. Earlier smuggling/theft prevailed as Sandalwood was considered as govt property and individuals possessing it were prosecuted.

c) 7ft walls for the entire farm with 2ft of Solar fencing form the 1st level of

security making it a single point entry and a secured gated farming module.

d) The entire inner layer within the boundary walls are once again sealed with a security software which has been specially designed for Siri Agri Group (Security software companies name and details will not be disclosed for security reasons).

(i) This software security walls are

designed to alert and

changes in the continuity of

the security chain I.E in case

of any breakage at any point

of the wall the security

software senses the

breakage and alerts,

(ii) Sensing of human

penetration by sensing heat.

e) Resident Full time security personal are available in the farm in case need arises. Also trained Dogs will be kept at the farm for monitoring of the boundary wall and the cultivation area.

f) Inserting of RF Ids (Radio Frequency Ids) in the stem of all Sandalwood trees at the age of four which is invisible to naked eyes however can trace the transportation of logs in worst to worst scenarios.

Loss of key role personal: Siri Agri Group’s management team realizes

that a long team project need proper planning

this includes back-up planning for the key role

personals. Our projects are carefully planned

reducing the dependency on single

individual/s by transferring the knowledge to

AK

SH

AY

A V

AN

AM

20

11

29

the next generation. We have a team of 12

interns from various agricultural universities

who are full time employees of Siri Agri Group

and have undergone complete training in

handling the crop module designed in case of

any unforeseen events.

Siri Agri Group abandoning the project in midterm: This is highly impossible as we do not get

profits at the beginning by selling land/s

however get continuous and adequate profit

right from the 3rd month of stating the project till

the project ends. As a company Siri Agri Group

would continue doing Sandalwood Farming

year after year thus capturing the Sandalwood

market from the fifteenth year and thereafter.

As income is shared on 50:50 Ratio the

company will continue to retain interest and

monitor the farming process in the best possible

manner. The profit volume increases as the

years pass and therefore reduces the risk of

abandoning the project in midterm.

Insolvency of Siri Agri Group:

(i) Siri Agri Group is a well planned establishment with strong financial background. As a company we have the financial capabilities of doing Independent farming without external funding.

(ii) The project is planned to be self funded for all its maintenance costs as Sandalwood farming needs host plants at various levels which manage continuous funding for management.

(iii) The project design is so made that the funding for END to END farming is collected from the investors’ right in the beginning to overcome any cash delinquencies from the investors.

(iv) Experts’ involvement and compensation has been well planned so as to sustain their continued interest in the project.

Investment Options We provide maximum security & Returns for your investments?

An investment involves your money being entrusted into someone else’s hand for which you expect some returns and it always involves risk. We are no exception. However what one needs to analyze is the amount of risk involved compared to the reward compensated for the risk taken.

In general everyone only concentrates on the outcome projected for an investment. The very important point which people tend to forget while investing is:

Siri Agri Group

AK

SH

AY

A V

AN

AM

20

11

30

i. Where is your money being invested?

Does that source have the capacity to achieve profits as projected?

ii. Does the instrument/person/company, who does the project, has the capacity & expertise to generate income from your investments

iii. What is the security being provided for

your investments and is it justified. iv. What, where and when is the benefit for

the person who handles your investment.

v. Does the investment plan provide a

profitable & anytime exit plan for you.

We at Siri Agri Group have an answer for the above questions.

1) We are investing your money to cultivate Indian Sandalwood which is the 2

nd Highest

Timber in demand in its kind world over and its capacity to generate in Crores is beyond doubt. 2) If anyone in this world can cultivate Sandalwood we challenge that we would stand the top amongst them. Our Chief Executive Scientist Dr. H S Anantha Padmanabha has 40+ years of experience in Sandalwood cultivation and was/is the part of the team (TFS : Tropical Forestry Services ) in Australia which has done successful cultivation in over 35000 acres of land. 3) We have shown the cost inquired to do Sandalwood Farming which proves that we do not profit from land sales. Therefore we are able to provide the land to the investors at the base price. Land is the only unmovable instrument involved in farming. All other assets like, saplings, bore-wells, drip, security walls, sump, guesthouse including, the time, effort & expertise of the team is invested on this unmovable asset and this instrument called

land is being registered in the name of the investors. 4) This is a very important point to be carefully examined before investing into any source. An individual/company can never get you profits for your investment unless they themselves are properly benefited. This applies even at ones workplace. WHAT: Siri Agri Group gets reasonably benefitted for the efforts which the company & its team put in. We get rewarded 100% of the benefits for the first four years thereafter we have a 50% share from the profits till the end of the project. WHERE: We get the profits from the short term crops like Raggi, Watermelon, vegetables etc. From the fifth year we get benefitted from the mango yields till the end of the project. Tenth year we get a bonus in the form of the profits from Teak wood and at the end of the project we get a huge share from the Sandalwood harvest.

AK

SH

AY

A V

AN

AM

20

11

31

Plantation idea

Land-acquired

Land clearence & pit filling

Borewells and Drip

Sapling Plantation

WHEN: We get this profits right from the beginning of the project till its end and only when we do our work.

5) Absolutely, since the investment is done on the base price required to do farming the investor has every option to exit anytime, with a benefit of course, Siri Agri Group adopts the Step-Up Pricing model.

We at Siri Agri Group follow Step-Up Pricing Strategy.

INR 0

INR 50

INR 100

INR 150

INR 200

INR 250

INR 300

Oct'2010 Dec'2010 Feb'2011 June'2011 Aug' 2011 Dec'2011 Mar'2012 Dec'2012

INR 116INR 125

INR 150INR 165

INR 185INR 210

INR 235

INR 285

Price/Sqr. Yrd

Project

Current Status

Siri Agri Group

AK

SH

AY

A V

AN

AM

20

11

32

AK

SH

AY

A V

AN

AM

20

11

33

Siri Agri Group

AK

SH

AY

A V

AN

AM

20

11

34

An Ethical Investment

– The Environment and Community

ENVIRONMENT

SIRI AGRI GROUP believes in thinking of tomorrow by adopting a proactive strategy to environmental management.

Reducing exploitation Plantations provide an alternative source of Indian Sandalwood, helping to limit the rapid deforestation of wild Indian Sandalwood. Siri Agri Group s’ policy of acquiring lands in the Semi-Forestry Belt helps reduce the Food Cultivation Farms turning into commercial plantations.

Lowering the Watertable Sandalwood is a deep-rooted tree that assists in lowering the watertable. This helps to combat the problem of salinity, where excessive salt in the land and water exists as a result of human activity such as crop farming.

Reforestation SIRI AGRI GROUP supports the protection of the locations natural ecosystems and unique environment which provides an important habitat for local bird and wildlife.

AK

SH

AY

A V

AN

AM

20

11

35

Reducing Pesticides Siri Agri Group is using innovation to continually minimize the use of pesticides. Having Dr. H.S Anantha Padmanabha, Acharya Muralidhar and others as part of the team, helps Siri Agri to make complete use of

their experience in Sandalwood Plantation and reduce the dependency of fertilizers and pesticides. The naturally occurring Santalols within the trees are also an effective preventative against termites and other pests.

ETHICAL BEHAVIOUR Siri Agri Group believes that it can be part of a better world, starting with Hyderabad. Through an awareness and engagement of all stakeholders, Siri Agri Group aims to promote community living and a culture of respect within the community and the environment. The company sees sustainable development as a way of ensuring shared long-term benefits for the community, environment and investors.

Happy Workers Siri Agri Group has a team of qualified staff dedicated to the cultivation, management and administration of Indian Sandalwood plantations and production. Our workers receive ongoing training to support a productive and innovative work environment.

Community Development Siri Agri Group intends to initiate a program that would give employment to Physically Challenged individuals through the self sustain agricultural employment model.

Indigenous Commitment Siri Agri Group is itself committed to many training programs and information sharing programs between the local farmers and individuals educating them to reduce the use of harmful chemicals that endanger the very habitat that an Indian farmer is so dependent for his living.

Siri Agri Group

AK

SH

AY

A V

AN

AM

20

11

36

Our values Respect

Reliability

Innovation

AK

SH

AY

A V

AN

AM

20

11

37

The Siri Agri Group Our Values:

• Best Practice Management. • Ongoing Research and Development into Indian Sandalwood to protect and benefit

individual investments. • Assess project risks and maintain and develop processes to limit these risks.

Siri Agri Group uses research, innovation and expertise to minimize the risks inherent in a pioneering project, with the aim of achieving the best possible outcome for Growers. Siri Agri Group is committed to becoming a single largest supplier of Heartwood and Sandalwood Oil to Indian Market by the year 2026.

Plantation Management Siri Agri Group will manage the Project solely from Plantation to Harvest and Sale. Siri Agri Group: • Is a group of an experienced Scientist, Agriculturist and Biologists with hands on experience of Indian Sandalwood Plantation growth and maintenance; • Has qualified professional staff with experience in all relevant disciplines.

Management plan The Plantation will be maintained in accordance with a Management Plan. The Management Plan outlines the procedures to be followed to ensure that the Project is carried out in accordance with Government directives for Sandalwood Plantations and in a

manner designed to both address the Project risks and maximize the growth and yield of the Plantation.

Key personnel The plantation management team is made up of people experienced in forestry, with significant experience in Indian Sandalwood and horticulture in India. Siri Agri Group plantation management team now has over 15 full-time employees, with about one third of these holding tertiary qualifications. More details about the skills and experience of the plantation management team are outlined below.

Siri Agri Group

AK

SH

AY

A V

AN

AM

20

11

38

Dr. H.S. Anantha Padmanabha Chief Executive Scientist

Dr. H S Anantha Padmanabha, the forestry consultant, is an expert on sandalwood cell biology, who mastered the technology of artificial cultivation of sandalwood. A scientist of 40 years experience in forestry in India, he had worked as a senior scientist at the Institute of Wood Science and Technology in Bangalore (India) from 1964 to 1998 and was responsible for guiding research projects on sandalwood and other forestry species including but not limited to techniques of growing sandalwood and decease and pests affecting forestry tree species. Currently he is a Director of Karnataka Research Foundation and Advance Technology Transfer, Bangalore, Consultant to Tropical Forestry Services Western Australia, consultant to Forest Rewards, Western Australia, and had served as consultant to Department of Conservation and Land Development (CALM) and Forest Product Commission (FPC) Government of Western Australia from 1998 to 2002. He is honorary consultant to Karnataka Soaps and Detergents Ltd, Bangalore, assisting and providing guidance to farmers, corporate bodies and NGO’s in growing sandalwood in

India.

He has co-authored books on sandalwood and have published over 150 publications in both Indian and International journals. He was designated as chief Technical Advisor for sandalwood projects with the World Bank

FREE project (ICFRE) Government of India.

K Muralidhar Reddy (Acharya) Executive Environmental Scientist

Acharya Muralidhar, a Master of Science (environmental science & engineering) University of Maryland College Park, MD, USA has worked as consulting engineer for over 10 years in USA. He has developed an innovative low cost water disinfection technology, which is in the final stage of product development (Patent Pending, US Patent Office,

Washington, DC).

Acharya has developed a simple & effective three step cow-based sustainable farming technique. He is currently working in over four districts of Andhra Pradesh conduction training for farmers on cow-based

sustainable farming.

Developed a rice cooking (traditional) process to enhance and promote health, especially for diabetes and musculo skeletal

problems.

Acharya also participated in core organizing team for several antipollution movements including a major Uranium mining project

Nagarjuna Sagar area.

His varied interest in Vedic sciences including Ayurvedha, Holistic Healing, Astrology, Yoga, Meditation, Agni Hothra,

Traditional Knowledge Systems

AK

SH

AY

A V

AN

AM

20

11

39

S V L Prasad Executive Horticulture Scientist (Advisory team)

Post Graduate in Botany & Researcher in the field of Cytogenetic & Plant Physiology.

He is an expert in Tissue Culture, Breeding Resistant Mutants for Gama radiation & Environmental Pollutants, especially industrial

effluents.

Mr. Prasad has had exposure since child hood in the field of Landscaping from Father Dr. S. Rama Rao, The Corporate Director of Landscaping & Horticulture, of IHCL (Taj

Group of Hotels) globally.

He has taken up Landscaping as profession

since it is one of the prime hobbies.

Officially Having 23 years of Experience in

the Landscaping & Horticulture field,

Initial 14 months focused in Landscaping of Goa University premises, which is of Lateritic

Rocky Strata.

Then Joined Leela Venture ltd, taken up the role of Project in charge and instrumental in building up The Leela Goa & Landscaping @ Mobar Cavelosim, Goa, which became part of

the leading hotels of the world within 1 year.

He spent 21 years within Taj Group of Hotels developing landscape of prime

properties country wide.

Mr. Prasad has been instrumental for winning the award for The Taj West End as ‘Best Environmental Hotel of the year’ 08’. He is

also Honorary Consultant for Urban

Landscaping of Bangalore for BBMP & BET.

Mr. Prasad specializes in transplantation of

very old (100+) years old Trees.

He takes part in assisting the government in transplanting Heritage trees instead of cutting

them during road widening program.

Kandalagunta Srinivas Rao, Agriculture Execution (Full Time)

President, All India Sandalwood Growers Association (INDIA)

His prime intension is to encourage green environment, green income and therefore has worked for the past 7 years trying to locate a suitable land for Sandalwood

plantation in Andhra Pradesh.

Nagaraju Prodduturi, Prime Financer, Pre Project Requirements.

Andhra Pradesh (Carry & Forwarder) for GEE PEE Mobiles. A firm believer in green environment and plans to only Finance projects which cater to environment thus benefiting the believers.

Siri Agri Group

AK

SH

AY

A V

AN

AM

20

11

40

AK

SH

AY

A V

AN

AM

20

11

41

Expert Sandalwood - Marketing Report

Dr. H.S. Anantha Padmanabha Forestry Consultant #31, AMBIKA, BSK 3rd Stage Bangalore-560085, INDIA Dr. H.S Anantha Padmanabha is a qualified

scientist with over 35 years experience in

forestry in India. He was a senior scientist at

the Institute of Wood Science and

Technology in Bangalore (India) from 1964

to 1998, responsible for guiding research

projects on Sandalwood, including but not

limited to techniques of growing

Sandalwood, diseases and pests affecting

Sandalwood. He has also co-authored books

on Sandalwood and have published over

150 publications in both Indian and

international Journals. Dr. Padmanabha

was also designated as the Chief Technical

Advisor for Sandalwood Projects as part of

World Bank Free Project (ICFRE) in India

between 1994-1998. He is a consultant to

Karnataka Soaps and Detergents Ltd,

Bangalore, a major long-term buyer of

Sandalwood who manufactures sandalwood

oil, billets and Mysore Sandal Soap. He has

also been attending auctions to assess and

buy quality Sandalwood for 10 years.

Dr. H.S Anantha Padmanabha is a suitably

qualified person to provide information on

Sandalwood Markets and Prices, both past

and present, whilst being well placed to

consider trends in future.

Siri Agri Group

AK

SH

AY

A V

AN

AM

20

11

42

SANDALWOOD – A VALUABLE COMMODITY Sandalwood and its oil has been one of the most valuable and wanted perfumery materials in the world from the earliest times of civilization. Powder of Indian sandalwood (Santalum album) heartwood, upon distillation, yields what is known as ‘East Indian Sandalwood Oil’ which is highly rated for its fixative properties and for its persistent, heavy, sweet, woody scents. A good fixative agent, it will also bind other odour molecules to it and impart its characteristic properties on them. Indian sandalwood fetches the highest export price of any Indian forest product.

HABITAT AND PROPERTIES Apart from India, Santalum album can be found in Indonesia, Sri Lanka, New Caledonia, Fiji Islands, Philippine Islands and the Northern Territory of Australia. In India, sandalwood is found throughout the length and breadth of the country but particularly in South India, where the states of Karnataka and Tamil Nadu account for nearly 80 percent of the total Indian resource.

HEARTWOOD FORMATION The Indian Sandalwood tree is harvested for its heartwood, which is rich in fragrant oil. The heartwood is found in the center of the roots, trunk and major branches and is surrounded by sapwood. The formation ad development of heartwood is dependent on age, growth, soil

and ground moisture; and generic factors seem to play an important role. Dr. Padmanabha had considered the Siri Agri

Group’s Plantation Management Plans, and

had reviewed the Siri Agri Groups’ plantations

recently. He is of the opinion that the forecast

of an average yield of around 27.5 Kg of

heartwood per Sandalwood tree is achievable

in the plantation time frame.

The heartwood is described as astringent,

bitter, antipyretic, moderately hard, heavy,

durable, slow seasoning, pleasantly and

strongly scented, yellow or brown in

appearance, even textured(straight, close

grains and uniform fibers) with an oily feel

and almost free from knots. Once harvested,

s Sandalwood tree will need to be seasoned

– that is stored- for six months or greater to

provide for moisture loss.

AK

SH

AY

A V

AN

AM

20

11

43

COLOUR OF HEARTWOOD AND OIL CONTENT In trade, superiority of wood is generally judged based on colour and the portion of the

tree from which it is taken. Sandalwood’s heartwood ranges in colour from light yellow to dark chestnut brown, with merchants preferring the light brown to yellow colour.

Colour of wood Oil (%) Santalols* (%)

Colour of Wood Oil (%) Santanol*(%)

Yellow 2.7 – 3.5 90

Light brown 2.5 – 6.0 85 – 90

Brown About 2.5 Less than 85

Dark Brown less than 2.5 75 – 85

*Alcohol contained within sandalwood oil.

ood with higher oil content will receive a greater sale price than that with lower oil content. Dr. Padmanabha analyzed the plantation site and the plans and can confirm that analyses have proven the presence of oil within those trees – earlier than would

normally be found in a natural environment in India. Heartwood is contained within the trunk, butt, roots and major branches. The oil content in the butt and roots is slightly more than in the trunk and the branches. It is said that one ton of good sandalwood roots and butt will yield a lower percentage of oil. Within the tree, there will be slight progressive reduction in the oil content from roots to butts to stem and ultimately to the branches.

W

Siri Agri Group

AK

SH

AY

A V

AN

AM

20

11

44

DEMAND FOR SANDALWOOD Demand for Sandalwood is centered on a number of markets in India and around the world. The majority of the wood is sold for the extraction of Sandalwood Oil, however the heartwood is also used for carving and religious uses. Other products from the tree are sold into a variety of markets in India and internationally.

Sandalwood Usage FINE FRAGRANCE Powered heartwood upon distillation yields

East Indian Sandalwood oil, which is a highly

prices raw material in the perfume industry. In

perfumery, it is valued for its non-varying

composition and fixative properties and for its

persistent heavy sweet, woody scent.

Due to limited supply of Indian Sandalwood,

the demand for oil is higher than the current

levels of consumption in the global fragrance,

cosmetics and aromatherapy industries.

Current exports of Indian Sandalwood oil are

very limited. It achieves a premium price of

approx. Rs 55 Lacs per ton. Sandalwood

production has drastically gone down from

1400 tons in 2003 to 400 tons in 2009.

It is expected that if greater supply of Indian

Sandalwood oil is available from plantation

sources for the global fragrance, cosmetic and

aromatherapy markets will use more Indian

sandalwood Oil, driven by consumers in Asia

and Europe who are becoming increasingly

conscious and demanding of the user of only

natural ingredients.

ATTARS The production of attars consumes around

60% of India’s annual supply of Indian

Sandalwood Oil; this is a traditional Indian

Industry where by natural Sandalwood Oil and

Flower oil are blended through a process of

distillation.

The strong demand for Sandalwood oil-

based fragrances in the chewing tobacco

and pan masala (mouth fresheners)

industries has resulted in 90% of the attars

produced being consumed by these

industries. When greater volumes are

available from plantation sources the

demand for natural fragrances and growing

wealth of Indian consumers may again

stimulate the use of attars as a personal

fragrance.

BETEL NUT (PAN MASALA, MOUTH FRESHENERS) Chewing Tobacco also emails a major

market for Sandalwood Oil in India, Southern

Asia and the Middle East. Chewing tobacco

is consumed by up to 20% of the population

in these regions. Due to shortages in supply

some attar, pan masala and chewing

tobacco companies are forced to use the oil

from inferior Sandalwood species or fragrant

woods to make up to the estimated 120

Tonnes of Sandalwood oil used by the

AK

SH

AY

A V

AN

AM

20

11

45

chewing tobacco and pan Masala industries.

Many of these companies report that they

would buy Indian sandalwood oil if available

due to its higher quality and more effective

properties.

Due to the short supply of natural oil, some

industries making incense sticks and pan

masala (scented chewing tobacco) hive also

switched over to synthetics, unmindful of the

harmful effects to human beings.

SOAPS AND TOILETRIES The good fixative properties of Sandalwood oil

are due to its high boiling fragrant constituents

and Santalols (which have a high boiling

range). The oil is used extensively in the

cosmetics industry in the manufacture of

soaps, face creams, toilet powders and air

fresheners.

Between 10 and 15 percent of the total Indian

Sandalwood oil produced is used in the

manufacture of soaps and toiletry products.

Resiniod, a product extracted in low

concentrations from ‘spent powder’. Is also a

valuable ingredient values at approx 35, 00,

000/- per ton in the international market and is

used in the production of soaps and toiletries.

CARVING AND RELIGIOUS USES Sandalwood is one of the finest woods for

carving and turning to intricate workmanship.

Sandalwood is used for carving idols and

utility items like furniture, jewel boxes, cabinet

panels, chess boards, pen holders, paper

weights, picture frames, caskets, wall plaques

and other curios.

It is estimated that around 800 tonnes of

heartwood can be consumed by India’s

carving industry. Demand for Sandalwood

carvings is increasing in India and

internationally. It is expected that china will be

major market for finished Sandalwood

Carvings and for heartwood suitable for

carvings. Heartwood logs suitable for carving

achieve premium prices of approx. INR 55,

00,000/- per ton.

Sandalwood has many important cultural

used. Sandalwood paste is smeared on the

forehead during puja (prayer), and used as

cleansing agent for ‘Sins’ and used in funeral

pyre by Hindus. Muslim countries use

Sandalwood during the burial in order to

ensure a quick ascent of the soul to heaven,

the Chinese use Sandalwood in religious

ceremonies, the Japanese use Sandalwood

to honor Buddha and so on.

INCENSE STICKS Powdered heartwood from which the oil has

been extracted is known as ‘spent charge’

and is used in the manufacture of incense

sticks, which are burned during religious

ceremonies and for meditation. Incense has

cultural and religious significance in Asia,

where it is burnt by millions of people as part

of daily religious ritual, amounting to billions

of sticks burned each year.

The spent powder is further grained in to fine

powder and with other additives a value

added product ‘Doop’ is made for burning,

which is gaining popularity in Asian

countries.

It is estimated that more than 10,000 tonnes

of spent charge and sapwood (white chips)

Siri Agri Group

AK

SH

AY

A V

AN

AM

20

11

46

that is removed from heartwood and dead

tress is currently within the Indian incense

market alone, with the demand for spent

charge exceeding the current supply. Spent

charge is a highly saleable commodity, valued

at approx. INR 70,000/- per ton, while

Sapwood achieves about approx. INR 1,

00,000/- per ton.

MEDICINAL AND THERAPEUTIC USE Medicinally, Sandalwood is used as an

antiseptic, antipyretic, diuretic and expectorant

stimulant ad for treatment of bronchitis,

gonorrhea and urinary infections. Sandalwood

is an important ingredient in Indian Ayurvedic

medicine and Traditional Chinese Medicine;

both of which are gaining popularity in western

cultures. Pure Sandalwood Oil is used in

Aroma Therapy.

HARVEST OF SANDALWOOD IN INDIA

In India, the proportion of wood harvested

officially is small in proportion to that illegally

harvested. As the wood has become

increasingly valuable, the amount of would

illegally harvested has grown and this has in

turn necessitated a reduction by government

of its annual harvest, due to concerns over

sustainability.

Unfortunately, in the period since 1970 when

the official government harvest was around

5,000 tonnes per annum, the harvest has

dwindled to a current level of a mere 400

tonnes per annum.

However, it is estimated that the annual

harvest of Sandalwood is currently

approximately 2,000 tonnes per annum. The

difference between the government harvest

and the estimated annual harvest is that which

is illegally harvested of approximately 1,600

tonnes.

During 1958 to 1970 India was officially

producing nearly 180 to 200 tonnes of oil, with

the total production (legal and illegal) oil)

estimated to be much higher, meeting 90

percent of the world demand. Official

production of Indian Sandalwood oil has

fallen over the years and since 2004 has

remained at a low level of 25 tonnes per

annum.

The size of the illegal harvest is difficult to

prove. However newspapers reports

describe harvest of this size, and greater.

Further, there are some 10-15 Sandalwood

oil distilleries throughout India, including

areas where Sandalwood trees are not

found. The State Government of Kerala and

Maharashtra have recently closed private

Sandalwood distilleries. Dr. Padmanabha

also visited many of these distilleries and

has checked their capacity and production.

He confirms the figures total much greater

than the quantity of official wood harvest.

Concerns are held over the sustainability of

current Sandalwood harvests unless the

illegal harvesting can be restricted.

Sandalwood is on the endangered list in

India, but there has been little effort to

encourage further growth.

AK

SH

AY

A V

AN

AM

20

11

47

RATE OF DEPLETION OF WORLD RESOURCE

Apart from India, Santalum album is found in

Indonesia, Australia Philippines Islands and

Sri Lanka. Indian contribution to world market

is around 95 percent, Indonesia contributes

about 2-3 percent and the rest would barely

contribute 2 percent.

The rate of depletion of India’s Sandalwood

resource is very rapid and is because of illicit

felling, biotic interferences (such as fire,

grazing, browsing and hacking) and spike in

diseases.

The level of annual government harvest

illustrates the depletion of the resource, which

has been in decline over the past 13 years.

Efforts have increased to raise new

plantations, with the State Government

amending ownership laws to vest ownership

with the plantation owner. However, the

Government has retained control of when

the tress can be harvested and to whom to

sell, and as sandalwood offences are non-

bailable, the general public remains

cautious. General public is yet to come

forward to grow sandalwood plantations to

meet the demand. If they were to commence

it, it will take atleast another 20 years to reap

the harvest.

In Indonesia, there has been a sharp decline

in the production of Sandalwood over the

past 12 years and it is estimated that there

may not be any production in the current

year because of a logging ban. To prevent

Siri Agri Group

AK

SH

AY

A V

AN

AM

20

11

48

collapse of the established industries, India

may have to import wood from Australia.

Due to high domestic demand and less

supply, merchants have compromised with

alternate material from Australia, Africa, West

Indies and other countries. The import of

substitutes was more than 3000 tonnes up to

mid 2006. By adding Indian and Imported

Sandalwood the quantity of wood must have

crossed over 6000 to 7000 tonnes however

the superior qualities of Indian sandalwood

(Santalum Album) make it the preferred

ingredient.

Already the long-term supply of one substitute,

Osyris from Tanzania and Kenya, is

threatened and government regulations have

been implemented in these countries to low

the deforestation.

EXPORT OF SANDALWOOD FROM INDIA The Government of India controls the export of

Sandalwood and oil. Increasing domestic

consumption of Sandalwood in India has

reduced the quantity of Oil and Wood

available for export.

At present Sandalwood material comes from

Tamil Nadu, Karnataka and Kerala state in

India. The quantity of wood auctioned every

year depends on the extracted stock

position. The sale of Sandalwood in 2009

was reduced to 400 tonnes from 1400

tonnes in 2003. The concerned Forest

Departments has negligible stock of

unfinished wood with which to hold regular

auctions. The Indian buyers either use it for

the distillation of oil or export oil to different

countries after obtaining permits. India is

currently not in a position to regularly

produce these quantities of wood annually.

The major export markets for Indian

Sandalwood Oil are France, Taiwan, Hong

Kong, Japan, Malaysia, Singapore, Dubai,

South Africa, the UK and the USA.

The demand for Indian Sandalwood oil is

predicted to be much higher than the current

levels of consumption in export markets.

International demand for Sandalwood Oil is

growing as an ingredient in the traditional

markets of perfume, Soaps and toiletries, but

also within new markets such as

pharmaceutical applications, aromatherapy

and natural cosmetics.

AK

SH

AY

A V

AN

AM

20

11

49

MARKETING TRENDS From 1990 to 2010, the sale price of

Sandalwood in India has increased from

approx. INR 1, 75,000/- per ton to approx. INR

55, 00,000/- per ton. This rise is sale price,

which has become a trend over the past few

years, is due to increased demand for

Sandalwood and its Oil. It is likely that this

trend will continue due to the dwindling

supplies.

PRICE TREND (AVERAGE)

Dr. Padmanabha is of the opinion that price

rises we have seen in recent years are

unsustainable in the long term, taking a very

conservative approach to the price trend, an

annual price increase of at least 5 percent

per

annum

is

achieva

ble and

sustaina

ble into

the near

future.

Year Price* (INR) 1990-1991 178,500

1991-1992 266,000

1993 - 1995 332,500

1996-1997 612,500

1998-1999 777,000

1999-2000 770,000

2000-2001 1,081,500

2001-2002 1,288,000

2001-2003 1,911,000

2003-2004 2,054,500

Jan-2005 2,985,500

July-2005 3,262,000

April-2006 3,690,785

May-2007 3,443,650

Dec-2007 3,779,475

Nov-2008 3,850,000

Sep-2009 4,025,000

Siri Agri Group

AK

SH

AY

A V

AN

AM

20

11

50

INTERNATIONAL PRICE TRENDS

Prices in the regulated Indian market are lower

than the prices achieved in the international

market. Currently Sandalwood has to be sold

to other countries above the domestic auction

price. Similarly, the price of Indian

Sandalwood Oil is around INR 87,500/- per

kilogram on the international market.

INFORMATION ON THE CURRENT DEMAND Evidence suggests that the current demand

for Indian Sandalwood is much higher than the

current consumption levels due to declining

supply from India. It is estimated that the

global demand for Indian Sandalwood is well

in excess of 8000 tonnes per annum

supported by growth in demand in the global

cosmetics, fragrance and toiletries market,

plus prosperity in India, Taiwan and China.

Due to the lower oil content of plantation-

grown trees at age 15 years, a larger quantity

of plantation grown heartwood may be

required to satisfy the global demand for oil,

perhaps in the order of 12000 to 13000 tonnes

of Plantation grow heartwood.

In India, alone the demand for Sandalwood is

estimated to be 5,000 tonnes per annum to

satisfy the multitude of domestic Sandalwood

markets. Consumption of Indian Sandalwood

(Santalum Album) in India has fallen below

5000 tonnes due to decreasing supply,

deforestation and lack of a sustainable

plantation industry.

The supply is declining and the demand is

increasing in both domestic and international

markets for wood and oil. This gap between

the supply and demand is expected to

continue to cause ongoing price increases.

It may be possible to meet the growing

demand of this natural, essential oil if new

plantations with suitable management

practices are not raised elsewhere.

EFFECT OF WOOD PRODUCTION FROM INDIAN PLANTATION PRODUCERS

Dr. Padmanabha had been asked to

consider the issue as to the ability of

Plantation producers to enter the market

place for Sandalwood, and the potential

impact on prices with their entry.

It is important to note that due to the lower

oil content of plantation grown wood (due to

reduction in harvesting period). There is a

greater requirement of plantation grown

Heartwood than heartwood grow in the wild.

For Example, 2,400 tonnes of Heartwood

grown in the wild would be required to

produce 120 tonnes of Oil. Around 4,000

tonnes of plantation grown heartwood would

be required to produce the same amount of

oil. Dr. Padmanabha considers that perhaps

there might be 2200 Acres per annum

harvested, which would equal approximately

9,000 – 10,000 tonnes of heartwood per

annum.

AK

SH

AY

A V

AN

AM

20

11

51

As noted throughout this report, He estimates

that the current market supply of 2000 Tonnes

per annum and diminishing, with the global

demand estimated to be 8,000 tones(equal to

around 13,000 tonnes of plantation grown

heartwood) or more, and increasing annually.

As mentioned by Dr. Padmanbha’s future

demand predictions, in my opinion the 9000 –

10000 tonnes per annum of Sandalwood

production from Siri Agri Group ’s plantation

will be easily absorbed into the market at that

time.

Dr. Padmanabha assessment of the demand

for Indian Sandalwood does not include the

demand in the Indian cremation and worship

market for artificial or fake sandalwood that is

marketed as genuine sandalwood. Or does it

include the potential demand from the western

pharmaceutical market for Sandalwood oil for

therapeutic use in dermatology products.

It is his opinion that this supply will not affect

the long term pricing of Sandalwood though

there will need to be marketing efforts made

by Siri Agri Group to maximize their

realizable sale. Siri Agri Group has been very

proactive in its marketing efforts to date,

which has already led to considerable

interest from buyers for Siri Agri Group’s

grown Santalum Album.

H.S. Anantha Padmanabha

October 2010

Siri Agri Group

AK

SH

AY

A V

AN

AM

20

11

52