Agcapita January 2012 Briefing

Agcapita UpdateJanuary 30, 2012

Agcapita UpdateIn my last briefing I began to discuss two of three trends I wantto cover in detail over the course of 2012 - pension solvency andEROEI. Today I want to examine the third trend which is wateravailability.As people in the emerging economies make the transition towestern standards of living there is a growing and overlookedissue - their water consumption will rise dramatically. The world’spopulation is expected to increase 1.7 billion people by 2030which at today’s average per capita water consumption wouldrequire an additional 2,040 cubic kilometres of water per year. Toplace that number in perspective its approximately 24 Nile rivers.Let’s examine the water needs of the two most populous emergingmarkets in more detail - China and India:China (population - 1.3 billion): China has only 8% of the world’sfresh water to meet the needs of 22% of the world’s population.China is already facing shortages as water resources are 2,200cubic meters per capita, 31% of the world average. By 2030,China’s water resources are expected to drop to 1,760 cubicmeters per capita - almost 25% lower than today. Seventypercent of the grain produced in China comes from irrigated land,but the country’s irrigation supply is being depleted by urbanwater use; the depletion of underground aquifers; and pollution. Atcurrent crop prices, China’s farms can’t compete with factories forwater. A thousand tons of water produces one ton of wheat, whichhas a market value of around $300, whereas the same amountof water used in industry might yield $14,000 of output - over40 times as much. A 2001 Chinese groundwater study revealedthat the water table under the North China Plain, an area thatproduces over half of the country’s wheat and a third of its corn, isfalling quickly. A World Bank study confirmed that China is miningunderground water. By way of example, the shortfall in China’sHai basin is estimated at nearly 40 billion tons of water per yearwhich means that when the aquifer is depleted, the grain harvestin this region will drop by 40 million tons - enough to feed 120million people (1,000 tons water = 1 ton wheat). At the same time,Chinese non-irrigation water consumption is expected to increase 1

Agcapita Update (continued)by 75% by 2025 (over 1995 levels), leaving even less Obviously water is difficult to import - it currentlywater available for irrigation and creating additional has a low value to weight/volume ratio. Water isneed to import food crops. also a difficult commodity in which to invest directly. As it is much easier and cost effective to importIndia (population - 1.1 billion): By 2025 urban water by proxy - by importing food - the solutionwater demand is expected to double and industrial is obvious. For investors seeking to invest in waterdemand to triple. India’s 100 million farmers operate demand the simplest route may just be to invest inapproximately 21 million wells. A 2005 World Bank wheat producing farmland in a country that is a netstudy reported that 15% of India’s food supply is agricultural exporter. As the Canadian prairies haveproduced by mining groundwater. Stated otherwise, been massive net exporters of wheat for decades,175 million Indians are fed with grain produced with they are effectively one of the worlds leading waterwater from irrigation wells that will go dry. exporters without anyone having given it much thought. 2

DISCLAIMER: The information, opinions, estimates, projections and other materials contained herein are provided as of the date hereof and are subject to change without notice. Some of the information, opinions, estimates, projections and other materials contained herein have been obtained from numerous sources and Agcapita Partners LP (“AGCAPITA”) and its affiliates make every effort to ensure that the contents hereof have been compiled or derived from sources believed to be reliable and to contain information and opinions which are accurate and complete. However, neither AGCAPITA nor its affiliates have independently verified or make any representation or warranty, express or implied, in respect thereof, take no responsibility for any errors and omissions which maybe contained herein or accept any liability whatsoever for any loss arising from any use of or reliance on the information, opinions, estimates, projections and other materials contained herein whether relied upon by the recipient or user or any other third party (including, without limitation, any customer of the recipient or user). Information may be available to AGCAPITA and/or its affiliates that is not reflected herein. The information, opinions, estimates, projections and other materials contained herein are not to be construed as an offer to sell, a solicitation for or an offer to buy, any products or services referenced herein (including, without limitation, any commodities, securities or other financial instruments), nor shall such information, opinions, estimates, projections and other materials be considered as investment advice or as a recommendation to enter into any transaction. Additional information is available by contacting AGCAPITA or its relevant affiliate directly.#205, 120 Country Hills Landing NW Tel: +1.403.608.1256 www.agcapita.comCalgary, AB T3K 5P3 Fax: +1.403.648.2776Canada

Agcapita January 2012 Briefing

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Agcapita January 2012 Briefing Document Transcript