2012 Agribusiness Update        December 5, 2012
Agenda10:45 a.m. – 11:00 a.m.   Welcome Time & Registration11:00 a.m. – 11:05 a.m.   Sikich LLP                          •...
Industry Challenge      Agriculture is being asked to       do more today than ever in       the history of mankind……and ...
Tom Farms Today   Our goal is to leverage each and every asset to    maximize our returns.   We educate and empower empl...
Factoid: 1970 to 2007 Farmers grew 40% more cornand 30% more Soybeans on the same amount of land.
Fundamental Forces Shaping            Tom Farms Plans   Global Production   Growing and Diversified Global Demand   Con...
New Science and Technology   Simplify/automate processes     Seed traits     Robotic or GPS guided machinery.     Elec...
New Science and Technology ResultsCORN                             SOYBEANS        Tom Farms Resources per Unit of Output ...
Major Threats Consequences of Government Policy decisions  effecting agriculture production causing an  adverse impact to...
Thanks! Kip Tom Tom Farms LLC 8542 North Harper Road Leesburg, IN 46538 574.453.3300 www.tomfarms.com www.cereservi...
“Hang On! Theres Too Much        At Stake!” Post-Election Impacts onAgriculture and the Farm Bill      2012 Agribusiness U...
Overview•   The World Around Us•   Post-Election Results – A Recap•   The Lame Duck Session•   The Farm Bill•   Think Bigg...
The World Around Us…•   Global economic uncertainty – the growing    "middle class"•   Currencies and the US dollar•   Mar...
Post-Election Results – A Recap…President Obama Re-elected        Urban              O (70%) – R 62.1 mil. (51.4%) popula...
So…Not Much Change  But, Hopefully, Not A “Status Quo” Legislative     and Budget Outcome in the Lame Duck.The 112th Congr...
Will They Ever Rise Above "It"? "There is nothing which Idread so much as a division  of the republic into two     great p...
Lame Duck Session - Budget and Farm Bill?                   An exhausting "to do" list                   •   Sequestration...
Lets Look at the Unfinished Business…Sequestration cuts – begin Jan. 2, 2013  • $110 bil cut in non-exempt programs for FY...
Lets Look at the Unfinished Business…Alternative Minimum Tax (AMT) annual patch – expired Dec.31, 2011 • Exemptions fall –...
What About Spending?•   GOP Controls – net gain of 63 seats•   New approach in House    –   Committee chairs have more pow...
Where Do We Make the Cuts?                                                        Federal Budget            Net Interest  ...
2012 Farm Bill Status•   S. 3240 – Agriculture Reform, Food    and Jobs Act of 2012    –   Passed Senate June 21, 2012 by ...
A Full Chronology of U.S. Farm Bills• 2008 Food, Conservation       • 1973 Agricultural and  and Energy Act               ...
Senate Bill Sets the Tone•   Direct, counter-cyclical and ACRE payments eliminated –    Average Risk Coverage revenue prog...
House Committee Offers Different Version•    Eliminates direct payments – increases target prices•    Cuts nutrition progr...
Two Must-Dos in the Lame Duck SessionThe 2008 Farm Bill has expired…•    Reauthorize the funding for programs that expired...
No Consensus on Outcome…•   Option #1 – pass a five-year bill during the lame duck    – take the budget savings and wrap a...
Other Things to Watch…•   The Players – small change of change – but theres    always speculation    –   Lucas/Petersen st...
Future Policy/Regulatory Challenges to Agriculture –             More Diverse and Complex• Regulatory issues – EPA, OSHA, ...
Should We Just Give Up Now?
No…Hang On! Theres Too Much at Stake!
Focus on our long-term competitiveness criticalRemember the world around us…big challengesrequire big solutions • Feeding ...
Early-Stage InvestmentOpportunities in Food and       Agriculture     December 5, 2012                34      34      Open...
Opening Thoughts… “By 2050, the global population will surpass 9 billion people and agricultural systems will be increasin...
About Open Prairie Ventures• Midwest-based venture capital firm• Team of entrepreneurs, operators, and investors• Brand wi...
J.M. “Jim” Schultz• 5th Generation Agricultural Entrepreneur• International Farmland Developer• Founder, Open Prairie Vent...
Open Prairie Investment Philosophy• Efficient Innovation Model• Proprietary Deal Flow• Global Potential• Platform Technolo...
Where We Live…                 39
Disruptive Agricultural TechnologiesMechanization                 Hybrid     Plant      GMO                Synthetic     S...
Agriculture Drivers• Population• Technology• Globalization                                        41
“100 - 30 - 70 - 32” Global food demand will increase 100% over the next 30 years; 70% of this increase will be fulfille...
Value-Added Food Consumption              As the Developing World Becomes More Affluent Food                        Demand...
Agriculture Today• World Bank puts the food  and agriculture sector at 10%  of global GDP or $4.8  trillion• World food pr...
Global Population Projections                                                                                            ...
The DilemmaCan we feed the world without destroying it?                                               46
Where Will Food Be Produced…            Chinese Farmland                      U.S. Farmland       Arable land per capita: ...
Global Prospects for Future Food Production                                              48
U.S. Farms – Timeline and Consolidation                                          49
Farm Bifurcation                   50
U.S. Target Yield ProjectionsSource: Monsanto’s Yield Targets 3/10                             51
Midwest Region is Breadbasket of Innovation• Home to World-Class Universities in Agriculture• Vibrant Research Environment...
Ag Productivity ConvergenceCrop Nutrition                          Crop Protection                     Cloud Computing Mic...
Keys to Success in Early-Stage Investments People       Strong Management Team Product      Disruptive, Proprietary Tech...
Midwest Value Proposition     • Convergence of science, capital, infrastructure and talent               Strong agricultu...
Case Study for Disruptive Ag Technologies Industry:     Ag Biotechnology          Vestaron is developing a new generation...
Case Study for Disruptive Ag Technologies Industry:     Ag Biotechnology           Patented product that uses PPPMs (Pink...
Open Prairie “In the Field” Strategy• Agriculture Sector is Expanding Globally• Midwest Region is Epicenter of Agriculture...
“Harvesting EfficientInnovation in The Field”        J.M. “Jim” Schultz           Managing Partner       Jim@OpenPrairie.c...
Questions?
2012 Agribusiness Update: Indianapolis
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2012 Agribusiness Update: Indianapolis

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2012 Agribusiness Update: Indianapolis

  1. 1. 2012 Agribusiness Update December 5, 2012
  2. 2. Agenda10:45 a.m. – 11:00 a.m. Welcome Time & Registration11:00 a.m. – 11:05 a.m. Sikich LLP • Introduction11:05 a.m. – 11:45 a.m. Brent Gloy, Director, Center for Commercial Agriculture, Purdue University and Kip Tom, CEO and President, Tom Farms LLC • Boom or Bust? What Lies Ahead for Production Agriculture?11:45 a.m. – 12:00 p.m. Break – Box Lunches12:00 p.m. – 12:40 p.m. Beth Bechdol, Director of Agribusiness Strategies, Ice Miller LLP and President, Agribusiness Council of Indiana • Post-Election Impacts on Agriculture – Agricultural Policy and The Farm Bill12:40 p.m. – 1:20 p.m. Jim Schultz, Founder and Managing Partner, Open Prairie Ventures • Early Stage Investment Opportunities in Food and Agriculture1:20 p.m. – 1:30 p.m. Q&A
  3. 3. Industry Challenge  Agriculture is being asked to do more today than ever in the history of mankind……and do it with less.1970 to 2010 world population doubles. From 2010 to 2050 the worldspopulation grows from 6.8 billion people to 9.31 billion people.
  4. 4. Tom Farms Today Our goal is to leverage each and every asset to maximize our returns. We educate and empower employees and partners. Management delegation and operational guidelines. We look at out business as a manufacture and embrace principals such as S.O.P.’s., lean manufacturing, and programs similar to Six Sigma and others. We place a high value in long term relationships with business partners. We invest in planning to assure a smooth multi- generational transition in leadership, succession, and asset transfer.
  5. 5. Factoid: 1970 to 2007 Farmers grew 40% more cornand 30% more Soybeans on the same amount of land.
  6. 6. Fundamental Forces Shaping Tom Farms Plans Global Production Growing and Diversified Global Demand Consumer Expectations New Science and Technology Changes in Ag Business Model Government Policy
  7. 7. New Science and Technology Simplify/automate processes  Seed traits  Robotic or GPS guided machinery.  Electronic measuring monitoring and controls utilizing the internet. Implications  Labor productivity  Production skills  Managerial skills/span of control  Biological manufacturing
  8. 8. New Science and Technology ResultsCORN SOYBEANS Tom Farms Resources per Unit of Output Indexed to Year 2000 Actual Values
  9. 9. Major Threats Consequences of Government Policy decisions effecting agriculture production causing an adverse impact to the challenge we face to feed a growing world. Risk Management in volatile markets. A divided Agriculture industry not working collaboratively to tell our story or serve as an advocate. Agriculture Industry image threats from special interest groups using emotion, not science and facts. 1
  10. 10. Thanks! Kip Tom Tom Farms LLC 8542 North Harper Road Leesburg, IN 46538 574.453.3300 www.tomfarms.com www.cereservinc.com kiptom@tomfarms.com
  11. 11. “Hang On! Theres Too Much At Stake!” Post-Election Impacts onAgriculture and the Farm Bill 2012 Agribusiness Update December 5, 2012 Beth Bechdol Director of Agribusiness Strategies Ice Miller LLP
  12. 12. Overview• The World Around Us• Post-Election Results – A Recap• The Lame Duck Session• The Farm Bill• Think Bigger…Complex Policy Issues Remain
  13. 13. The World Around Us…• Global economic uncertainty – the growing "middle class"• Currencies and the US dollar• Market liberalization/trade agreements• Biofuels production and policies• Energy and agricultural input prices• Regulatory climate• Biotechnology developments• Weather – climate change• Politics and policy
  14. 14. Post-Election Results – A Recap…President Obama Re-elected Urban O (70%) – R 62.1 mil. (51.4%) popular votes (28%) 332 (61.7%) of electoral votes Suburbs R (50%) – O (48%)Democrats Retain Senate Majority Rural R (60%) – O Democrats gain 2 seats (38%) 13th Congress: 55 Expected in Democratic Caucus = 53 Democrats + 2 Independents. 45 Republicans.Republicans Retain House Majority 113th Congress: 234-R/201-D 112th Congress (2010 Election): 242-R/193-D Over 1/3 of House members will be serving their first and/or second term in the 113th Congress
  15. 15. So…Not Much Change But, Hopefully, Not A “Status Quo” Legislative and Budget Outcome in the Lame Duck.The 112th Congress: “The Least Productive Body In a Generation”“The 112th Congress is set to enter the Congressional record books as the least productive body in a generation, passing a mere 173 public laws as of last month. That was well below the 906 enactedfrom January 1947 through December 1948 by the body President Harry S. Truman referred to as the “do-nothing” Congress, and far fewer than even a single session of many prior Congresses.” - Jennifer Steinhauer - New York Times. September 18, 2012 -
  16. 16. Will They Ever Rise Above "It"? "There is nothing which Idread so much as a division of the republic into two great parties, each arranged under its leader, and concerting measures in opposition to each other. This, in my humble apprehension, is to be dreaded as the greatest political evil under our Constitution." JOHN ADAMS - 1789
  17. 17. Lame Duck Session - Budget and Farm Bill? An exhausting "to do" list • Sequestration • Tax cuts • AMT patch • Unemployment measures • Tax extenders • Debt ceiling • Farm Bill
  18. 18. Lets Look at the Unfinished Business…Sequestration cuts – begin Jan. 2, 2013 • $110 bil cut in non-exempt programs for FY 2013 - half from Defense.Bush Tax Cuts - expire Dec. 31, 2012 • Income Tax Rates - increase from 10% - 35% to 15% - 39.6% • Capital Gains Rate - increase from 15% to 20% • Estate Tax - exemption decreases from $5 million to $1 million. Top rate increases from 35% to 55%. (Pre-2001 levels.) • Dividends - increase from 15% for most to top income tax rate • Other expiring provisions: Child tax credit (halved and no longer refundable), Marriage penalty relief, various tax benefits for education, retirement savings, and low-income individuals.
  19. 19. Lets Look at the Unfinished Business…Alternative Minimum Tax (AMT) annual patch – expired Dec.31, 2011 • Exemptions fall – without retroactive 2012 patch, 30 mil. will pay AMT--up from 4 mil.Job / Unemployment Measures - expire Dec. 31, 2012 • Payroll taxes rise from 4.2% to 6.2% on first $110,000 in income • Number of weeks of unemployment benefits reducedTax Extenders - expired Dec. 31, 2011U.S. Debt Ceiling - will reach at end of 2012Farm Bill - a number of provisions ALREADY expired Sep 30, 2012 • Full Farm Bill as Budget Offset for Fiscal Cliff Costs? • If Extension only, how much deficit reduction will be required?
  20. 20. What About Spending?• GOP Controls – net gain of 63 seats• New approach in House – Committee chairs have more power – House will go first on most issues – Unlike last time GOP controlled House…GOP leaders in House and Senate work well together• House Agriculture Committee – chaired by Frank Lucas (R-OK) – 23 new members
  21. 21. Where Do We Make the Cuts? Federal Budget Net Interest Outlays 12% Medicare - Medicaid • Still few specific plans 24% on reductions to Defense defense, Medicare & 18% Medicaid, social Social Security security – nearly 2/3 of 21% the budget Discretionary and Other Spending Agriculture is 4.5% of $3.6 trill 25% budget ($162 bil) 78% goes to food/nutritionSource: Congressional Budget Office – Aug. 2012 spending ($126 bil)
  22. 22. 2012 Farm Bill Status• S. 3240 – Agriculture Reform, Food and Jobs Act of 2012 – Passed Senate June 21, 2012 by 64-35 vote• H.R. 6083 – Federal Agriculture Reform and Risk Management (FARRM) Act – Passed House Ag Committee July 11, 2012 by 35-11 vote
  23. 23. A Full Chronology of U.S. Farm Bills• 2008 Food, Conservation • 1973 Agricultural and and Energy Act Consumer Protection Act• 2002 Farm Security and • 1970 Agricultural Act Rural Investment Act • 1965 Food and Agricultural• 1996 Federal Agriculture Act Improvement and Reform • 1956 Agriculture Act Act • 1954 Agriculture Act• 1990 • 1949 Agriculture Act Food, Agriculture, Conserva • 1948 Agriculture Act tion and Trade Act • 1938 Agricultural Adjustment• 1985 Food Security Act Act• 1981 Agriculture and Food • 1933 Agricultural Adjustment Act Act• 1977 Food and Agriculture Act
  24. 24. Senate Bill Sets the Tone• Direct, counter-cyclical and ACRE payments eliminated – Average Risk Coverage revenue program created – regional concerns• Tinkering with crop insurance – Conservation compliance and income limits• Consolidation of conservation and rural development programs• Gradual scaling back of CRP acreage – 25 mil acres by 2017• Reduces SNAP benefits by $4.5 billionTOTAL BUDGET SAVINGS - $24 billion
  25. 25. House Committee Offers Different Version• Eliminates direct payments – increases target prices• Cuts nutrition programs more ($16 bil over 10 yrs from $800 bil baseline)• CRP acreage cap reduced to 25 mil acres• No mandatory funding for energy programs• Eliminates unnecessary pesticide permit requirements – opens up regulatory reform debate• Biotech expedited USDA approvalsTOTAL BUDGET SAVINGS - $35 billion
  26. 26. Two Must-Dos in the Lame Duck SessionThe 2008 Farm Bill has expired…• Reauthorize the funding for programs that expired on September 30 – If not – they lose baseline funding. Most are trade and conservation programs.• Continue suspensions of permanent law provisions for the 1938 and 1949 acts for dairy and other commodity programs. – If not we are back to acreage allotments and marketing quotes – totally untenable in todays global markets
  27. 27. No Consensus on Outcome…• Option #1 – pass a five-year bill during the lame duck – take the budget savings and wrap a Farm Bill into a larger "fiscal cliff" package – only 5 weeks left! – Two issues remain: cuts to nutrition spending (how big?) and can target price supports be maintained in some form• Option #2a - pass a short-term extension during the lame duck – 6 months – 1 year• Option #2b – will need to start over with the new Congress on a multi-year bill – need to pass a new Senate and House version and then conference
  28. 28. Other Things to Watch…• The Players – small change of change – but theres always speculation – Lucas/Petersen stay in House and Stabenow in Senate – Rumored challenge of Roberts by Cochran – Villsack to stay? Kent Conrad (ND), Blanche Lincoln (AR) in the wings• Is this the last "Farm Bill"? – Some political leaders view it as a "Food Bill" – Agriculture would have a tough time "going it alone" though
  29. 29. Future Policy/Regulatory Challenges to Agriculture – More Diverse and Complex• Regulatory issues – EPA, OSHA, DOL, DOT, FDA• Climate Policy• Energy Policy• Trade – FTAs, China, Cuba• Immigration Reform• Food Safety Policy• Infrastructure Policy• Financial Services Regulation• Anti-trust Review and Oversight• Tax Policy
  30. 30. Should We Just Give Up Now?
  31. 31. No…Hang On! Theres Too Much at Stake!
  32. 32. Focus on our long-term competitiveness criticalRemember the world around us…big challengesrequire big solutions • Feeding the world • Human health and nutrition • Natural resource constraints • Public understanding and perceptionsThe next generation of agricultural leadership isinspiring and up to the task!
  33. 33. Early-Stage InvestmentOpportunities in Food and Agriculture December 5, 2012 34 34 OpenPrairie.com
  34. 34. Opening Thoughts… “By 2050, the global population will surpass 9 billion people and agricultural systems will be increasingly challenged bywater scarcity, climate change and volatility, raising the risk of production shortfalls” The Economist Conference February 2012 35
  35. 35. About Open Prairie Ventures• Midwest-based venture capital firm• Team of entrepreneurs, operators, and investors• Brand with National Recognition• Partnership that values our Midwest roots 36
  36. 36. J.M. “Jim” Schultz• 5th Generation Agricultural Entrepreneur• International Farmland Developer• Founder, Open Prairie Ventures• Kellogg MBA, DePaul JD 37
  37. 37. Open Prairie Investment Philosophy• Efficient Innovation Model• Proprietary Deal Flow• Global Potential• Platform Technologies with Multi-Channel Distribution• Syndicate Development for Optimal Growth 38
  38. 38. Where We Live… 39
  39. 39. Disruptive Agricultural TechnologiesMechanization Hybrid Plant GMO Synthetic Seeds Protection Biologicals Fertilizers Chemicals 40
  40. 40. Agriculture Drivers• Population• Technology• Globalization 41
  41. 41. “100 - 30 - 70 - 32” Global food demand will increase 100% over the next 30 years; 70% of this increase will be fulfilled with new agriculture related technologies; Using 1/32nd of the world’s land mass (currently 1/20th).Source: Steinfoeld et al 42
  42. 42. Value-Added Food Consumption As the Developing World Becomes More Affluent Food Demand Will Grow Dramatically Germany 375.39 Euros Mongolia 41,985.85 togrogs or $500.07/week or $40.02/weekSource: MacroGain Partners, Steinfoeld et al 43
  43. 43. Agriculture Today• World Bank puts the food and agriculture sector at 10% of global GDP or $4.8 trillion• World food prices are at all time highs and experts predict they may double again by 2030• The underlying cause of soaring food prices is the lack of investment in agricultural and food productionSource: FAO Food Price Index; www.forbes.com; UN Secretary General Ban Ki-Moon, June 4, 2008 44
  44. 44. Global Population Projections  1999: 6B people  2011: 7B people 6000 2011  2030: 9B peoplePopulation (millions) 5000 2030 4000 3000 2000 1000 0 Africa Asia Latin Oceania North Europe America America Source: UN Report – World Population to 2030 45
  45. 45. The DilemmaCan we feed the world without destroying it? 46
  46. 46. Where Will Food Be Produced… Chinese Farmland U.S. Farmland Arable land per capita: .08 Arable land per capita: .53Source: The World Bank (figures in hectares) 47
  47. 47. Global Prospects for Future Food Production 48
  48. 48. U.S. Farms – Timeline and Consolidation 49
  49. 49. Farm Bifurcation 50
  50. 50. U.S. Target Yield ProjectionsSource: Monsanto’s Yield Targets 3/10 51
  51. 51. Midwest Region is Breadbasket of Innovation• Home to World-Class Universities in Agriculture• Vibrant Research Environment• Global Headquarters for Premier Ag Companies 52
  52. 52. Ag Productivity ConvergenceCrop Nutrition Crop Protection Cloud Computing Micronutrition IPM Integrated Precision Precision Decisions Mechanics Agricultural Productivity (DDM) Seed Microfarming TreatmentEquipment and Data Convergence Seeds &Cultural Practices Biotechnology 53
  53. 53. Keys to Success in Early-Stage Investments People Strong Management Team Product Disruptive, Proprietary Technology Scalable and Executable Go-to-Market Production Strategy Pricing Value Proposition to End Users Promotion Multi-Channels of Distribution 54
  54. 54. Midwest Value Proposition • Convergence of science, capital, infrastructure and talent  Strong agricultural presence and output  C-level talent and management teams  Thriving deal flow pipeline • Capital efficiency is the Midwest’s competitive advantage to deliver superior venture returns Top Venture Midwest Markets VC Dollars Invested per Company (million) $15.7 $9.8 Average Acquisition Value (million) $134.9 $125.4 Multiple: Acquisition Value / VC Invested 8.6x 12.8xSource: VentureXpert; 2007-2011; Seed, Early, Growth and Later Stage. Top Venture Markets: CA, MA, NY, TX. Midwest: IL, IN, MI, OH, WI 55
  55. 55. Case Study for Disruptive Ag Technologies Industry: Ag Biotechnology Vestaron is developing a new generation of insecticides Stage: Early (pre-revenue) derived from peptides produced by spiders. These peptides are potent insecticides, yet are environmentally Market Size: $21 billion benign, making them ideally suited for the environmentally conscious, twenty-first century People Product Production Pricing Promotion• Expert team • Disruptive • Demonstrated • Less use of • Four market with strong technology scale-up from toxic channels advisory board with broad IP bench to pilot insecticides exceeding scale • Increased $20 billion grower flexibility 56
  56. 56. Case Study for Disruptive Ag Technologies Industry: Ag Biotechnology Patented product that uses PPPMs (Pink Pigmented Stage: Early (pre-revenue) Facultative Methylotrophs) to improve plant health and crop yield. Market Size: $5 billion People Product Production Pricing Promotion• Highly • Patented • Scalable • Increased • Applicable to qualified team bacterial seed manufacturing yields multiple crops and leaf process • Ease of • Low regulatory inoculant adoption requirements 57
  57. 57. Open Prairie “In the Field” Strategy• Agriculture Sector is Expanding Globally• Midwest Region is Epicenter of Agriculture Innovation• Increasing Deal Flow and Exit Opportunities as Global Ag Companies Look to Enhance their Research and Development Pipelines 58
  58. 58. “Harvesting EfficientInnovation in The Field” J.M. “Jim” Schultz Managing Partner Jim@OpenPrairie.com Direct: 217.347.1017 Mobile: 217.821.9000 Office: 217.347.1000 OpenPrairie.com 59
  59. 59. Questions?

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