Food Security: Global Trends & Opportunities Seminar
Transcript of Food Security: Global Trends & Opportunities Seminar
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: Drivers of Global Food Prices
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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: Global Arable Land in 2007
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Source: Farrelly & Mitchell Research Department
0
20
40
60
80
100
120
140
160
180US
A
India
China
Russia
Brazil
Canada
Australia
Nigeria
Argentina
Ukraine
Mexico
Kazakhstan
Indonesia
Turkey
Pakistan
France
Iran
Thailand
Niger
South Afric
a
Ethiopia
Spain
Poland
Germ
any
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: Global Population Past & Future Trends
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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
Milli
ons
10.1 billion
people
4: Evolution of Large Scale Investment in Agriculture
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
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5: Principals of Responsible Agro-Investment Developed by: World Bank, FAO, IFAD, UNCTAD
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» 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 & Due Diligence
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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: Global Food Trade Flows
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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: Investor Strategies
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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: Global Value Chain Analysis of publicly listed companies in global agribusiness
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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: Building An Investment Strategy
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Investment Strategy
Risk
Time
Liquidity
Structure Sector
Currency
Loca9on
11: Valuing Farm Land
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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
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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: Potential Rates of Return Potential rates of return for selected sectors/opportunities -
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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: Sourcing the Right Opportunity
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» 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
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