Global Agri-food Investment Environment

Global Agri-food Investment Environment
Food Security: Global Trends & Opportunities Seminar
© Farrelly & Mitchell 2010
Malachy Mitchell, Managing Director
Riyadh, Saudi Arabia, October, 2009

www.FARRELLYMITCHELL.ie
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Presentation:
1: Drivers of Global Food Prices
2: Global Arable Land in 2007
3: Global Population
4: Evaluation of Large Scale Investment in Agriculture
5: Principals for Responsible Investment in Agri-Investments
6: The Research & Due Diligence Process
7: Global Food Trade Flows
8: Investor Strategies
9: Global Value Chain
10: Building an Investment Strategy
11: Valuing Farm Land
12: Investment Sector & Locations
13: Potential Rates of Return
14: Sourcing the Right Opportunity
www.FarrellyMitchell.com Food Security: Global Trends & Opportunities Seminar

1:DriversofGlobalFoodPrices
Source: Farrelly & Mitchell Research Department
s»» Increasing speculation & hoarding
»» Increasing trade protectionism
»» Rising correlation with oil prices
Feedback Loops
»» A severe Ei Nino event
»» Climate change
»» A renewed surge in oil prices
»» Further productivity improvements
»» Availability of additional land
»» Availability of water
»» Diverting land for biofuels
»» Population & income growth
Particularly Asia
»» Shifting diets - Higher calorie intake
»» Diverting food commodities to biofuels
Uncertainties
Key Supply DriversKey Demand Drivers
Price of
Food

2:GlobalArableLandin2007
Source: Farrelly & Mitchell Research Department
0
20
40
60
80
100
120
140
160
180
USA
India
China
Russia
Brazil
Canada
Australia
Nigeria
Argentina
Ukraine
Mexico
Kazakhstan
Indonesia
Turkey
Pakistan
France
Iran
Thailand
Niger
South
Africa
Ethiopia
Spain
Poland
Germany

Romania
Afghainstan
Bangladesh
Italy
UK
Japan
Saudi
Arabia
10
countries
hold
65%
of
the

world’s
arable
farm
land
and

48%
of
its
popula;on

»» 1.4 bn hectares of land currently in arable production
»» Additional 1.6 bn hectares could be added to production
Millions of hectares

3:GlobalPopulation
Past & Future Trends
Source: UN Department of Economics & Social Affairs
0
2000
4000
6000
8000
10000
12000
2,000

years
ago
1500
-‐
1825
1825
-‐
1927
1927
-‐
1960
1960
-‐
1975
1975
-‐
2000
2000
-‐
2008
2008
-‐
2050
2050
-‐
2200
Primitive
cultivation/clearing
forests
Population Forecasts:
Most of the growth will emanate from
Asia & Africa
Introduction of
artificial fertilizers /
agri research
Green Revolution:
Yield increase drive net
production
Global area extended
from 1 bn to 1.4 bn ha’s/
Plant breeding
commercialized
World’s Population in Millions
10.1 billion
people

4:EvolutionofLargeScaleInvestment
inAgriculture

Pioneer:

1980’s

United
States

Forest
product
companies

100%
8mber

Expansion:

1990’s

United
States

US
ins8tu8onal
funds
&

private
co’s

90%
8mber

10%
non
8mber

Ins/tu/ons:

2000’s

US,
Oceania,

Brazil,
Paraguay
&
Chile

Ins8tu8ons,
Private/public

co’s
&
REITS

75%
8mber

25%
non
8mber

Globalisa/on:

2008+

US,
Oceania,

S&C
America,

Europe,
Africa
&
Asia

Emergence
of
private

equity
interna8onal
funds

65%
8mber

35%
non
8mber


5:PrincipalsofResponsibleAgro-Investment
Developed by: World Bank, FAO, IFAD, UNCTAD
»» Respecting land and resource rights
»» Ensuring food security
»» Ensuring transparency, good governance, and a proper enabling environment
»» Consultation and participation
»» Responsible agro-investing
»» Social sustainability
»» Environmental sustainability

6:Research&DueDiligence
P E S T
1st
Stage

•  Country
proﬁling

•  PEST
analysis

2nd
Stage

•  Opportunity
search

•  Bench
analysis

3rd
Stage

•  Early
due
diligence

•  Site
visits
&
inspec@on
of
assets

4th
Stage

• Advanced
due
diligence

• Close
acquisi@on/investment

7:GlobalFoodTradeFlows
Rank
Country
Net
Food

Exports

(%
of
GDP)

1
New
Zealand
7.5

2
Uruguay
6.6

3
Argen7na
6.6

4
Costa
Rica
4.7

5
Chile
3.1

6
Malaysia
2.9

7
Thailand
2.7

8
Ecuador
2.5

9
Denmark
1.8

10
Brazil
1.8

Rank
Country
Net
Food

Imports

(%
of
GDP)

1
Hong
Kong
-‐4.4

2
Lebanon
-‐3.9

3
Bangladesh
-‐3.3

4
Algeria
-‐2.8

5
Sri
Lanka
-‐2.7

6
Egypt
-‐2.1

7
Morocco
-‐2.1

8
Saudi
Arabia
-‐1.8

9
Portugal
-‐1.8

10
Libya
-‐1.7

Top 10 Net Food Exporters Top 10 Net Food Importers

8:InvestorStrategies
Key
Metrics
Gov/SWF’s
P/equity,
Inst.
Investors
&

Hedge
Funds

ObjecAves
Strategic
/
Food
supply
Financial
returns

DuraAon
Long
term
Short
term
(4-‐10
yrs)

Geographic
Focus
Emerging
Markets
Today
OECD/Brazil/

ArgenGna

Ownership
Long
term
leases
Preference
for
land

ownership

*Deal
Size
10,000
–
2m
ha
Up
to
15,000
ha

Risks
Accepts
high
poliGcal
risks
Favours
low
poliGcal
risk

countries

*Refers to size of individual deals – aggregated size of hectares under management by funds or investment
companies can also reach 1m hectares and above

9:GlobalValueChain
Analysis of publicly listed companies in global agribusiness
Suppliers

• 22.7%
of

value
add

• 39.6%

of

market
Cap

Farming

• 22.2%
of

value
add

• 0.2%
of

market
cap

Processing

• 14.8%
of

value
add

• 9.7%
of

market
cap

Logis3cs

• 14.7%
of

value
add

• 9.7%
of

market
cap

Packing
&

Distribu3on

• 25.6%
of

value
add

• 40.8%
of

market
cap

»» Agriculture globally is dominated by family owned and operated farms
»» Processing and distribution are characterized by significant economies of scale
»» Three factors are critical determinants to the development of farm structures:
- Access to credit & insurance,
- Lumpy inputs (machinery & skills)
- Nonagricultural wage rate
Source: The World Bank

10:BuildingAnInvestmentStrategy
Investment

Strategy

Risk

Time

Liquidity

Structure
Sector

Currency

Loca9on

11:ValuingFarmLand
Land
acquisi+on
price

Lease
price

Discounted
value
of
all
net
future
income
streams

Net
return
to
land
a7er
all
other
factors
(labour,

capital
&
management)
have
been
remunerated
–

35%
to
50%
of
crop
gross
value

Soil
quality
Plot
size

Irriga2on/

water

Local
climate
Infrastructure
Loca2on

Development

poten2al

Land value drivers -

12:Investment Sectors&Locations
Sector
Comment
Sample
Loca/ons

Grain
Weather/climate
factor
very

important

Argen5na,
Ukraine,
Sudan,
Kenya,

Balkans,
Bal5c's
&
Canada

Dairy
Access
to
stable
quality
feed

supplies
and
local
market
are

important

North
America,
Pakistan,
Chile
,

Paraguay
&
New
Zealand

Rice
Weather/climate
factor
very

important

Vietnam,
Argen5na
&
India

Beef

Intensive
system
most
proﬁtable

but
highly
vola5le
market

Brazil,
Argen5na,
&
Australia

Poultry

Specialist
sector
-‐
access
needed
to

ver5cally
integrated
buyer/
processor

Brazil,
Egypt
&
North
America

13:PotentialRatesofReturn
Potential rates of return for selected sectors/opportunities -
Opportunity
Loca.on
*Transparency

Index
(rank)

**Poten.al
Returns

(%IRR)

Intensive
dairy

produc1on

United
Kingdom
12
20%
plus

Grain
produc1on
Balkans
64
20%
plus

Intensive
dairy

produc1on

United
States
20
15
-‐25%
plus

Grain
produc1on
South
America
72
&
105

(Brazil
&
Argen1na)

15-‐20%
plus

Grain
produc1on
Ukraine
118
30%
plus

Source: Farrelly & Mitchell Farrelly & Mitchell Research Department
*Source: The 2006 Transparency International Corruption Perceptions Index : Rankings; Finland – highest (1) & Somalia lowest (179)
**IRR calculations Includes discounted annual net cash flows and residual (movement) value of fixed assets

14:SourcingtheRightOpportunity
»» Financial history
»» Physical performance
»» Capital structure
»» Management team
»» Information & control systems
»» Location climate
»» Location geopolitical / economic stability
»» Infrastructure / water availability & sources
»» Route to markets
»» Scalability
»» Future upside potential: Cash flow /
improvements / investment/ assets
»» Planned exit strategy
Our initial Screening Check List

Head Office:
Malachy Mitchell
Managing Director
Unit 5A Fingal Bay Business Park
Balbriggan
Co. Dublin
Ireland
Tel: 00 353 1 690 6550
Fax: 00 353 1 883 4910
Mobile: 00 353 86 806 0843
Email: mmitchell@farrellymitchell.com
Web: www.farrellymitchell.com
Middle East Office:
Mohammed Hajjar
Regional Director
Al-Rusais Building
Suite 510
Olaya Main Road
P.O. Box 616, Riyadh 11421
Kingdom of Saudi Arabia
Tel: 00 966 11 4634406
Fax: 00 966 11 4648952
Mobile: 00 966 54 338 7199
Email: mhajjar@farrellymitchell.com
Web: www.farrellymitchell.com
Please Note:
The information in this presentation is intended to give information in general nature, great efforts has been exerted to ensure the accuracy of this data at the time
the initial presentation was made. Farrelly & Mitchell Business Consultants Ltd. and its Branch offices or affiliates does not provide any implicit or explicit guarantees
on the validity, timing or completeness of any data or information in this presentation. Also we assume no responsibility on the appropriateness of the data and
information for suiting any particular purpose or reliability in trading or investing. Unless provided otherwise and in writing from us, all information contained in
this presentation, including logo, pictures and drawings, are considered property of Farrelly & Mitchell Business Consultants Ltd.

Global Agri-food Investment Environment

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