Investment in Agriculture

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Investment in agriculture and food has a wide priority for the global economy, comparable only to environmental issues. Analysing the sector in 2015, [1] McKinsey determined that, “if current trends continue, by 2050, caloric demand will increase by 70%, and crop demand for human consumption and animal feed will increase by at least 100%.

At the same time, more resource constraints will emerge: for example, 40% of water demand in 2030 is unlikely to be met. Already, more than 20% of arable land is degraded”.

With the large economies at varying levels of development and with substantial, often subsistence, agricultural sectors, like Latin America and Asia are more directly invested – in the broadest sense – than most developed regions in agribusiness.

Economic growth in itself is no solution to the challenges ahead.

Challenges and opportunities

Agribusiness represents a substantial opportunity as well as a priority. “Sensing an opportunity, strategic and financial investors are racing to capture value from technological innovation and discontinuities in food and agriculture. Since 2004, global investments in the food and agribusiness sector have grown threefold, to more than US$100 billion in 2013”, notes the McKinsey analysis.

McKinsey notes that “a projected surge in demand for protein in emerging markets, especially pork in China, would create opportunities for companies to grow in core production and supporting industries such as breeding, animal-health testing, feed, and vaccines”.

Additionally, “in China alone, the cold-storage-and-transportation market generates $12 billion to $18 billion in revenues and is expected to grow 10%-15% annually to meet the country’s expanding meat, dairy, and vegetable demand”.

Unfortunately, no one suggests that investment in agribusiness is risk-free. In fact, the Commonwealth Development Corporation’s (CDC) retrospective review of over 50 years of its own investment in “commercial smallholder and estate agriculture and agro-processing in Sub-Saharan Africa and Southeast Asia and the Pacific between 1948 and 2000” concluded that 49% of the projects “were classified as failures or moderate failures in financial terms”, leading CDC to conclude “that agribusiness investments are risky, particularly when the investment is in a start-up.”

Allocations to agribusiness

Despite the risks, some investment managers present agribusiness as a specific differentiating offer to institutions and high net worth (HNW) investors.

Singapore-based investment platform Milltrust International, for example, offers “institutional asset management and wealth management solutions”, with specialist expertise in agricultural as well as environmental themes, and offers several funds as well as other products.

“Investment in agriculture as an asset class can provide significant benefits including income generation, inflation protection and exposure to the very real themes of global food demand and land scarcity,” said Griff Williams, chief investment officer of Milltrust Agricultural Investments, upon the launch of the fund’s MAI Australia Buy & Lease Fund. The fund targets the acquisition of “cashflow-positive farms and farmland assets, including permanent crops, arable, and pastoral farmland”, in Australia and New Zealand.

Singapore-based dedicated Asian agribusiness investment fund Caudex Asia (Caudex) invests “from farm to fork – including seed production, tissue culture, crop sciences, land holdings, plantations, forestry, fertiliser, disease/pest control inputs, feed-meal, waste recovery, recycling, post-harvest technology, carbon credits, logistics, transportation, processing, distribution, marketing and farm equipment leasing”.

These are just one of many including options Family Offices and wealthy individuals involved in this sector. In South America, we have Los Grobo, El Tejar, and UAG, to name just a few.

Direct investment, meanwhile, investment in agribusiness is hardly a new theme for private equity firms. Take for example Olympus Capital Asia, one of the region’s longest established firms, which declares that since 1998 it “has made numerous successful investments in this sector, across multiple markets and subsectors”, as “Olympus believes the favorable demand dynamics and changing consumer preferences in the agribusiness and food sector in Asia make it a highly attractive area for investment”.

Significant investments by Olympus in the sector include Japan’s Arysta Life Science Corp, “the world’s largest privately held agrochemical company”, which it sold to Permira in 2007 for $2.2 billion, and China’s Huaxia Dairy Farm Ltd, which Olympus has, and remains invested in, through a series of rounds, one alongside Singapore’s GIC.

Shanghai and Singapore-based growth capital investor CMIA Capital Partners similarly maintains a strong agricultural focus, especially in China. Portfolio investments include China Minzhong Food Corporation Ltd, “a leading integrated vegetable processor in China”; Fujian Dongshan Haikui Aquatic Products Co Ltd (Fujian Dongshan Haikui), “a leading seafood processor and exporter in Fujian”; and Hunan Longzhou Farm Equipment Holdings Co Ltd, “a leading agricultural machinery manufacturer”. Fujian Dongshan Haikui was listed on the Frankfurt Stock Exchange in 2012.

For those who prefer to keep their investments public and liquid, meanwhile, exchange-traded funds (ETFs) can serve as another vehicle for investors targeting this area. For example, the PowerShares Global Agriculture Portfolio (Fund) is based on the NASDAQ OMX Global Agriculture Index, because it claims this “is designed to measure the overall performance of the most liquid, globally traded companies involved in agriculture and farming-related activities.”

Outside the US, which has 41.09% of its allocation, it allocates to Malaysia (8.37%), Canada (7.8%), Indonesia (5.78%), Australia (5.24%), and Singapore (4.82%). As of mid-June 2017, this fund had just under $22.53 billion in assets. Clearly, Asia is figuring largely in agribusiness allocations, even for sector-focused funds with no special geographical bias.

Later this year GTSA hopes to promote other farm syndicates in the South American region as options for the small investor.

[1] Pursuing the global opportunity in food and agribusiness, by Lutz Goedde, Maya Horii, and Sunil Sanghvi, McKinsey

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