1. business and industrial
2. agriculture and forestry
3. crops and seed

World Agriculture
Investment
Conference
23 – 24 September 2010
Regents Park Marriott Hotel, London
World Agriculture Investment Overview:
Expert Insights
Contributors
Adam Oliver, Director, Brown & Co.
Detlef Schön, CEO, Aquila Capital Green Assets
Axel Hinsch, CEO, Calyx Agro
Rumen Beremski, CEO, InterAsset Development
Tom Eisenhauer, President, Bonnefield Financial
Gonzalo Fernandez Castro, Managing
Partner, Lumix Capital
Geoff Burke, Managing Director, Agro-Ecological Investment
Management
David Cornish, General Manager, Meredith Dairy Company Doug Hawkins,
Head of Global Agri-Business Research, Hardman & Co.
www. fcbusinessintelligence.com
World Agriculture Investment Overview: Expert Insights
Introduction
1-4
Why is the time right to invest in agriculture?
1-3
Where are agricultural markets headed?
3-4
Emerging Opportunities
4-15
Eastern Europe (Poland, Romania, Ukraine and Russia)
4-7
Bulgaria
7-9
Latin America (Argentina, Uruguay, Paraguay and Brazil)
9-11
Canada
11-13
New Zealand
13-15
Why is agriculture a unique and exciting opportunity for today’s investors?
16-17
Conclusion
17
“Agrinaissance” – Why now is the time to invest in agriculture
18-25
Exclusive Industry insight – The latest market news from the experts’
26-30
Appendix A
Contributor Biographies
31-35
Further suggested reading
36
World Agriculture Investment Overview: Expert Insights
Drought and wildfires in Russia, floods in China, India and Pakistan – agricultural production, always at
the mercy of Mother Nature, seems to have taken a particularly hard hit of late. In fact, at the writing of
this report in the late summer of 2010, the Russian government is so concerned about domestic wheat
supplies that it has imposed a ban on exports, triggering panic in commodities markets that has sent
wheat prices to their highest level since the 2008 food crisis. Prices of other crops, including barley, corn
and rapeseed also have climbed, while shares in food companies have tumbled on fears of they will
struggle to pass on the increased costs to households already strapped by the economic crisis.
Under the threatening cloud of global warming and changing weather patterns, among other challenges,
the potential risks of agricultural endeavors have perhaps never been higher, but experts say the only
thing greater than the risks are potential returns for investors. Some have gone so far as to call
agriculture “the best place to make money in the coming decade.” The trick is how and where to invest
to reap the rewards.
Why is the time ripe to invest in agricultural?
Largely ignored in recent decades, agriculture is capturing the attention of investors from around the
globe and not just by those leaving world stock markets to “chase headlines” in short-term
commodities. Driven by concerns surrounding food security, a growing world population and rising GDP
in the developing world, this once untapped asset class is garnering new attention, particularly among
large-scale and institutional investors looking for long-term opportunities.
Currency speculator, stock investor, businessman and philanthropist George Soros, known as the ‘Man
Who Broke the Bank of England’ to the tune of $1 billion in the 1992 Black Wednesday Currency Crisis,
in June 2009, went so far as to say that he is “convinced farmland is going to be one of the best
investments of our time.” And increasingly, as the fundamentals regarding food production and
agribusiness are demystified within the investment community, his view is gaining popularity.
Capital is being attracted to the asset class by a combination of drivers, including:

Population growth – By 2050 there will be an estimated 9.2 billion people in the world, up
dramatically from 6.9 billion today, with the heaviest growth coming in developing nations and
in nations where food consumption trends are changing. The United Nations predicts food
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production will have to rise 70% above 2005/07 levels to feed this rapidly growing global
population.

Rising incomes – Incomes in developing nations, particularly in Asia, are rising. And as people
become more affluent, their dietary patterns change and demand for meat increases. Because
feeding animals requires more grain than feeding people directly (it takes 8 kg of grain to
produce just 1 kg of meat), rising demand for meat in developing countries requires exponential
growth in grain output for livestock production.

Switch to biofuels – Governments around the world are encouraging a switch to biofuels, driving
demand for the sugar, corn, soybeans and rapeseed from which biofuels are produced and land
to grow these crops on. For instance, more than one-quarter of all the corn grown in the US in
2008 went into making biofuels. To meet current targets set by the US, EU, Canada, Japan,
Brazil, India and China, Agcapita predicts 240 million acres will have to be committed to biofuel
production worldwide. According to the group, that represents about 50% of the arable land in
North America and about 6% of the arable land in the world.

Loss of arable land worldwide – Some experts warn quality topsoil may be disappearing faster
than it is being replaced. The US National Academy of Sciences estimates we are losing soil 10
times faster than it’s being replaced and the United Nations says on a global basis the rate of
loss is 10-100 times faster than that of replacement.

Dwindling water supplies – In the US, 13% of all farmland requires irrigation, and 42% of
America’s fresh water is used for this purpose. In contrast, in China, 40% of all farmland must be
irrigated, using 90% of the vast nation’s fresh water supplies.

Slowing improvement of crop yields – Although global crop production has experienced strong
growth in recent decades, the rise has not resulted in a build-up in grain stocks. In addition, crop
yield improvements are not expected to continue at these rates. Over the past 40 years, yield
per acre increased 2.1% per year, but since 2000, the increase in yield per acre has averaged less
than 1% per year.

Availability of a growing array of agricultural investment products – A growing number of
investment products and tools are coming available to capitalize on this asset class, including
new funds (some of which are “green” funds), trading teams and indices.

A new focus on emerging markets – As stock markets falter worldwide, new asset classes,
particularly those focused on developing nations, are gaining traction with investors. Analysts
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broadly agree that emerging markets will be the next growth engine of the global economy –
and agriculture is a key component to the economic growth of these regions.
“With the growth in population from 6.5 billion to 9.5 billion, agricultural production also must rise
decade on decade,” says Axel Hinsch, CEO of Calyx Agro. “The outlook is very positive for the agricultural
value chain. After all, there’s a lot of work to be done to keep feeding the world.”
Chris Mayer, an investor analyst for the Daily Reckoning and editor of Capital and Crisis, says “as a
longer-term theme for investors, agriculture should be a great place to be. I can think of no better asset
to own during any kind of financial crisis than farmland or investing in agricultural stocks.”
Where are agricultural markets headed?
Mayer says there are opportunities for companies in everything from fertilizers to irrigation equipment.
“Right now, this sector remains locked in underinvestment, so there’s opportunity here, considering the
case of future demand,” he notes.
But Adam Oliver, Director of Brown & Co., a leading agri-business consulting firm, warns that volatility,
particularly in commodities markets, will remain a challenge. “We see a widening gulf opening up
between very stable land markets and those markets that suffer macro-economic instability and political
interference,” he warns.
As Joachim von Braun, director of the Centre for Development Research at the University of Bonn, noted
in a recent Financial Times editorial prompted by the Russian wheat export ban, “Even a small decline in
the world’s expected wheat harvest by about 3 to 4 percent induces large price swings.” But that level of
volatility, driven by the broader economic climate and specific geographic events, is part of what makes
agriculture an interesting asset class says Tom Eisenhauer, President at Bonnefield Financial in Canada.
“That’s part of what makes it an opportunity for investors.”
Land-based agricultural investments tend to lend themselves to a medium- or longer-term investment
thesis, however, says Oliver. “The volatility of commodity markets takes time to feed through into land
markets,” he says.
Hinsch says he believes investors increasingly are looking for tangible assets. “In Europe and the US,
there is ongoing discussion of what’s going to happen to monetary markets worldwide – what’s value
and what isn’t? We’ve learned that companies – like AIG and Lehman, any company really – can
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suddenly disappear. But land is there; every year it appreciates and serves as a value reserve. It’s a very
safe investment and one the world needs. And there’s a scarcity component. You can’t move land
around. You can move people and capital, but land is where it is.”
Detlef Schön, CEO of Aquila Capital Green Assets, says the biggest risk, from an investor standpoint, is
not uncertain returns, but that farmland supplied with fresh water is going to be a strategic resource not
unlike an oil field, so government involvement will increase, and within decades, there may well be local
as well as geo-strategic conflicts.
Emerging Opportunities
In the May 2010 issue of Marc Faber’s Gloom Boom & Doom Report, Mark McLornan said investing in
agriculture today will be like investing in the oil sector in 2001-2002 (that’s when oil reached $143 a
barrel from its $30 low). But the real issue, Oliver says, is one of execution: what to actually invest in and
where.
Schön says to justify investments, a land or region must meet a number of criteria, including political
stability, investor protection, land ownership for foreigners, free flow of capital, well educated
managers, a flexible labor market and transparent taxation rules. As US and European agricultural
markets top out in both available land and yields, emerging markets of interest for investors include:
Eastern Europe (Poland, Romania, Ukraine and Russia)
Market dynamics, demand transparency, returns and competitiveness:
In Poland, Oliver says market dynamics are now fully integrated with world markets. Operating returns
from freehold land are approximately 6-10% and direct EU subsidies, which are critical to the market,
will increase until 2013, Oliver says. Schön cautions, however, that investors should be aware that
subsidies may then be scaled back, which is why he is not interested in regions where expected EBITs
are lower than current subsidies.
In Romania, commodity markets trade at a discount to world levels (approximately 10-15%), but Oliver
says opportunities to acquire leasehold land in Romania and convert to freehold over a period of time
4
are very compelling. Again, EU subsidies are important in the Romanian market and are increasing, he
says. In Ukraine, the leasehold market has dropped 85% over the past two years. Ukraine’s major
advantage is the ability and opportunity to operate at scale, Oliver says. The same is true in Russia, he
adds.
Local policies, legal frameworks and ownership restrictions:
In Poland, Oliver says, the government is fairly supportive of the sector and although some foreign
ownership limitations are in place until 2016, he believes they can be avoided by putting assets into
corporate vehicles prior to acquisition. In Romania, he says, there are no meaningful ownership
restrictions, but in Ukraine only leasehold land is available. And this is unlikely to change in the near
future, Oliver predicts. In Russia, where the government is supportive and provides preferential credit
lines to the sector, direct foreign ownership is not permitted. But many investors adopt cross
shareholding structures to access freehold land, he says.
Schön, however, is a somewhat less optimistic about opportunities in the region. Although he says the
picture for foreign land ownership may improve in countries like Poland and Russia, he cautions
investors against operating through holding companies. "People will tell you this is doable and safe, but
it's a real gray area and some who have done it have actually gone to jail," Schön says. Land ownership,
however, is more straightforward in the Baltic countries - Lithuania, Estonia and Latvia, he says.
Although Ukraine has incredible potential, Schön says, corruption is rampant and investors stand to lose
much of what they might make. “I personally know of more people that are coming back than people
that are going there now,” he says. “The world will ultimately need their production capability, but while
I see enormous potential for individual farmers that burn their bridges and become locals, I definitely
wouldn’t put other people's money there right now.”
Relative returns for existing operations:
In Poland, operating returns on freehold land investment run about 6-10%, while in Romania, returns in
the 8-12% range are common. Returns for existing operations in Ukraine are 15-20% or more, while in
Russia investors can expect 12-15% or more.
Local infrastructure, trade channels and risks:
5
The Baltic countries, Schön says, are highly productive and sport good soil and logistics, with big ports.
And the Czech Republic, he notes, has good arable land and logistics.
In Poland, Oliver says roads are a major limiting factor, but EU infrastructure funds are now beginning to
be spent on improvements. Poland, he says, is an increasingly important trade channel exporting out of
the northern ports into the Baltic. Schön notes Slovakia, Hungary, Romania and parts of Bulgaria all
export along the Danube River, on which Romania has the biggest export port.
Schön believes Russia has major bottleneck issues on the Black Sea for large vessels. “Most of Russia’s
Black Sea shipping is through the Ukraine, which has several Paramax and even Cape Size ports on teh
Black Sea,” he says.
Regional analysis:
Oliver says an interesting market in which to observe the effects of commodity market movements on
leasehold land values is Ukraine. Because the country’s market is entirely leasehold, if wheat prices
increase 10%, for example, there is a multiplier effect on what the market will pay (or not pay) for the
5-, 10- or 15-year lease rights to farm that land. One of the reasons it takes time for commodity markets
to impact on land values is because land markets are relatively illiquid, he notes. The impact on
leasehold values of commodity market movements are felt much more quickly than freehold values simply because a larger proportion of the investment return is derived directly from the short-term
commodity market, Oliver says.
The “buy-in” cost of leasehold land in Ukraine has been hit particularly hard by the global economic
crisis. Before the crisis (2007) 10-15-year leasehold rights were trading at up to US $1,500 per hectare.
Today, the same leasehold rights trade at US $200-300 per hectare, a nearly 85% reduction. Oliver says
the steep drop can be blamed on a lack of available financing, macro-economic and political instability
and the falling away of commodity prices and the multiplier effect on leasehold values.
“Looking forward, we see this trend of volatility and a widening of land markets with regard to the highs
and lows they are traded at,” Oliver says. “As more institutional investment funds flow into the sector
over the coming years, stability will attract a premium – both in land markets but also in demonstrable
operating returns. As a general rule though, we expect an upward trajectory of the markets as the
fundamentals long-term are inescapable.”
6
In many parts of the region, the complicated political environment makes hanging onto any profits
realized difficult, Schön says. “The region definitely needs to stay on investors' radars,” he urges. “Pure
commodity trade is okay. If you team up with the right people, you’ll make money. Otherwise, investors
simply must have stringent controls in place to head off corruption and other problems still commonly
encountered in this region.”
Oliver cautions against a broad brush approach to the region however. “The region is very diversified
now and includes countries that are very conservative and safe and sensible (e.g. Poland) – to countries
that are much more risky – but with the correspondingly higher returns," he says. “The key is in the
execution; the importance of getting management right, cannot be overestimated.”
Bulgaria
Traditionally, Bulgaria has specialized in orchards and vegetables, says Rumen Beremski, CEO of
InterAsset Development, and brought gardening to central Europe. During the former Eastern
Communist Bloc, Bulgaria was one of the largest producers of annual crops and perennials, serving as a
huge exporter to all of Eastern Europe and the former Soviet Union, Beremski says. Bulgaria’s rich
agricultural tradition built on its desirable climatic conditions make it a great place for agricultural
investment, he says.
Market dynamics, demand transparency, returns and competitiveness:
After 1989, there was a process of restoring land ownership to its original owners throughout Bulgaria.
And while Berermski says that was a good thing in terms of property rights, it did serve to break up
Bulgaria’s successful and efficient large, formerly state-run farms. This resulted in severe deterioration,
he says, of production volume and quality as centralized mechanization and soil treatment practices
reverted to less modern agricultural approaches practiced by smaller owners without the necessary
financial means. This has driven at least a temporary shift for Bulgaria from an exporter of agri-products
to an importer. Beremski says as much as 70% of the country’s agri-products for local consumption are
imported.
“There are great opportunities to supply local markets and to restore positions of traditional export
markets, so there are interesting investment possibilities available in Bulgaria, particularly over the next
five to 10 years,” Beremski says.
7
Although markets are fairly transparent, they are very fragmented, making it difficult to access
information, he says. By setting up large scale fruit production, Bulgaria’s agri-producers could “achieve
better bargaining power and make it easier to talk to large exporters, wholesalers and distribution
chains,” Beremski says.
Local policies, legal frameworks and ownership restrictions:
Land ownership has been returned to Bulgaria’s citizens since the break-up of the former communist
bloc government. Although Bulgaria is now a member of the European Union, Beremski says there are
restrictions on land ownership by foreign entities. Investors may, however, simply register a 100%
owned subsidiary that can hold the assets.
Relative returns for existing operations:
Orchard production (one of Bulgaria’s main areas of focus) requires a 15-year horizon or so, Beremski
says, but investors can expect to see a return in excess of 25%. Land prices, which can be three to six
times less expensive than in other European countries, are a major competitive factor in Bulgaria, he
notes.
Local infrastructure, trade channels and risks:
Although Bulgaria’s roads could stand improvements, Beremski says the country’s large distribution
network for agriculturally based businesses is an advantage. In addition, the nation’s central location
makes it a major crossroads connecting Europe with Asia.
Bulgaria’s currency is stable, Beremski says. The Bulgarian Lev has been connected to the Deutschemark
and subsequently to the Euro since 1997, he notes, and there are no signs of the current government
changing the currency board arrangement.
Although risks related to global warming are of concern worldwide, Beremski believes Bulgaria is
particularly well-positioned. Its advantageous geographical position, coupled with Bulgaria’s elaborate
system of artificial lakes and rich underground water, offers unique advantages to the nation, he says.
Regional analysis:
As traditional European producers such as Spain, Italy and Greece face adverse developments, including
higher labor, land and irrigation costs, agri-production is shifting east and southeast, Beremski says. “We
8
believe Bulgaria offers the best combination of land, soil, climatic conditions and water availability to
become one of the leading producers of fruit and vegetables in the region,” he says. “The Italians,
Israelis, Greeks and Turks have become major investors in Bulgaria, particularly in cherries and apricots.
And Bulgarian wine and grapes have attracted Russian and French investors. There is growing interest in
the country because of the low cost of production and high quality of our agri-products.”
Latin America (Argentina, Uruguay, Paraguay and Brazil)
Market dynamics, demand transparency, returns and competitiveness:
Gonzalo Fernandez Castro, Managing Partner at Lumix Capital and co-fund manager of Lumix
AgroDirect, believes the “quick win” for investors is South America, where an estimated 10-30% of the
land is in production and there is a century of tradition in producing crops, an efficient marketplace and
the necessary human resources. Fernandez Castro says the grain market in Argentina, for instance, is
very professional, extremely transparent, very liquid and efficient and includes top world players like
Bunge, Cargill and Dreyfus.
The region does, however, have a more unstable political and economic environment than larger
markets like the US, Fernandez Castro says.
“Argentina is a low cost producer,” says Axel Hinsch, CEO of Calyx Agro, “so when Brazil is profitable,
Argentina is more profitable.” Production costs are cheapest in Argentina, followed in order by Uruguay,
Paraguay and then Brazil due to the amount of mechanization needed, he notes.
Local policies, legal frameworks and ownership restrictions:
Although there is talk about restrictions on foreign ownership (which would require constitutional
amendments, an unlikely scenario), Hinsch says land titles are currently available in the region and that
there is plenty of land to be developed for agricultural purposes. “There are clear rules on where you
can develop and where you cannot,” he says. “In most instances, you must leave 30-40% as a reserve or
if the farm is already open for livestock you can switch it to agriculture. In Brazil, the growth is
particularly welcome, with 20 million new actors every year coming to Brazil.”
Fernandez Castro predicts the huge influx of money from abroad might prompt some pushback with
regard to letting foreigners by huge amounts of land.
9
In Argentina, Hinsch says investors should be aware that there are local tariffs. But he believes they will
eventually decrease and give a boost to gross margins, increasing the value of the land held in portfolios.
Fernandez Castro advises investors to focus on commodities not likely to be subject to export
restrictions. And he warns for commodities used in-country, such as wheat, investors should always
consider the chance that some sort of export restrictions will be enacted when crisis hits. "The export of
soybeans from Argentina is like the export of oil for the Arabs," he says. "It's a key source of income for
the government, so it's very unlikely that they would ban the export of soybeans, even in drought."
Investments in agricultural production are usually well isolated from local currency fluctuations given
that revenues and most costs, with the exception of labor and fuel are dollar denominated, Fernandez
Castro says his fund did see some local currency effects on one hand, due to domestic currency
appreciation in Uruguay and on the other, due to local inflation in Argentina with no substantial
currency depreciation.
Relative returns for existing operations:
In general, Fernandez Castro likes to separate the real estate returns of "owning" the land from the
returns achieved from "operating" the land. He says real estate returns are 3-4% plus a land
transformation premium when a farm is brought to higher standards of production, while operations
yield 10-20%, but experience high volatility and require a well-thought volatility and risk mitigation
framework.
As an example, Hinsch says soybeans require an approximately $200 investment in capital direct costs
per acre in Argentina if you own the land, $350 per acre in Uruguay, $500 per acre in Paraguay and $650
per acre in Brazil. Returns, he says, are approximately 20% in Argentina, 24% in Uruguay, 15% in
Paraguay and 10% in Brazil.
Local infrastructure, trade channels and risks:
In general, Hinsch says infrastructure in the region is good. The exception, he says, is Brazil, where roads,
railways and ports could stand improvement to reduce logistics costs. Fernandez Castro agrees.
Production technology is advanced in terms of fertilization, biotech and machinery for efficient planting
and harvesting throughout the region. Fernandez Castro says Argentina is the most developed market in
terms of technology. “In many areas, it’s on par with the US,” he says. Product processing chains also are
10
in place, for instance for turning wheat into flour and pasta before exporting to complete the value
chain.
Regional analysis:
S. America is expecting La Niňa weather patterns that could bring more drought. But in general the
region is well-positioned in terms of rainfall, photosynthesis, radiation, water available for irrigation and
the quality of land, Hinsch says. “When you invest in agriculture, you’re investing in water too,” he
reminds us. “When you export agricultural products, you’re essentially exporting water too. The Latin
American region has some of the biggest water reserves worldwide and that’s not forecasted to
change.”
Fernandez Castro agrees and says he expects much of the world’s growing demand to be met by South
American agricultural exports at least in the short and medium term. “The other area in the world where
there is mid-term potential is the former Soviet territories, but the markets there are more disorganized,
the infrastructure is not there and there are many issues left over from Soviet times that will take more
time to resolve,” he predicts.
Brazil has a significant share of the soybean production market, Fernandez Castro says, and he believes
the country has almost endless potential to grow. “It’s very underutilized today,” he says. “Given that
Brazil is a high cost producer, and given its potential to increase production, it is unlikely to set a ceiling
to soybean prices when analyzed from a fundamentals perspective. We see in the mid-term that if there
are forces for higher demand (and there are), you will see new land in Brazil coming into production and
prices will be held in check.”
Hinsch agrees that the area is critical, especially for producers for the export market. “The US and China
are clearly bigger producers, but they also have huge local consumption,” he says. “Brazil, Uruguay,
Paraguay and Argentina are going to be the exporters to the world, given the size of their local
populations and their domestic markets. The region only has to feed 200 million people and it has food
for 2 billion.”
Canada
Market dynamics, demand transparency, returns and competitiveness:
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For reasons Tom Eisenhauer, President of Bonnefield Financial, says are more historical accident than
economics, international investment in Canadian agriculture has lagged behind that in other regions.
“Canadian agriculture has traditionally been a bit off the radar screen of international investors,” he
says. “We’re one of the world’s largest agricultural producers and have been for generations, but for
some reason, Canada isn’t on the radar screen of international investors in the same way much more
marginal areas seem to be.”
Markets are well established, transparent and competitive, he says, and mirror and even overlap with
the country’s US neighbors to the south. “Our returns are similar to other parts of the world – and
there’s no question that on a risk-adjusted basis our returns are actually superior.”
Local policies, legal frameworks and ownership restrictions:
Although farmland ownership policies vary by province in Canada and some are more restrictive than
others, Eisenhauer says owning farmland in many parts of the central and eastern regions of Canada is
generally not a problem for foreign investors, however, owning farmland in Saskatchewan and
Manitoba is off limits to non-Canadians. Other public policies and legal frameworks are quite positive for
investors. “It’s a very agri-focused economy in Canada with a reputation for longstanding agricultural
support policies,” Eisenhauer says. “So it’s a very supportive atmosphere for ag producers and farm
owners that’s not subject to the political winds of change found in many other parts of the world where
they could be investing.”
Relative returns for existing operations:
Eisenhauer says returns in Canada are on par with many of the world's prime agricultural regions,
without the political, environmental and infrastructure disadvantages of many emerging regions. “Let’s
face it, we’ve won the geographical lottery here in Canada,” he says, “productive soils, the most waterrich country on earth and a climate that is ideally suited to crops such as corn, wheat, soy, lentils, canola
and a broad array of cereal grains.”
Clearly smaller producers and farm owners are not as profitable as their larger competitors in Canada,
he says, but scale matters everywhere. He admits, however, there may be some suspicion among
Canadians about outside investment.
Local infrastructure, trade channels and risks:
12
Eisenhauer says when the rule of law, developed agricultural expertise, logistics and access to
transportation corridors and international markets are taken into consideration Canada’s appeal is
virtually identical to the US. And Canada bests the US when it comes to factors such as water resources
and climate change impacts. Canadian farmland prices don't yet reflect all of these natural advantages,
he adds. “Farmland prices have not been bid up to the extreme that they have in some parts of the US
and other areas of the world,” Eisenhauer notes. “And Canada’s wealth of oil and gas is a huge
advantage in the energy intense realm of agri-production.”
Eisenhauer says Canadian infrastructure is well established and trade channels are well developed,
particularly with the US, Pacific Rim and EU countries. The Great Lakes offer a direct link from Canada’s
premier farming regions to the Atlantic Ocean and the country's Pacific ports provide easy access to Asia
and other Pacific Rim markets.
Regional analysis:
“When you examine each of the attributes considered important for agricultural investment and the
mega global trends at play, it’s difficult not to rank Canada at or near the top for consideration by
investors,” says Eisenhauer. “Plentiful water resources, productive soils, technically advanced farmers
and a relatively benign outlook for climate change impacts all contribute to Canada's advantage in
coming decades. Agriculture is going through a bit of an industrial revolution in much the same way
other industries have over the past 30-40 years. When you look at the growth in the capital
intensiveness of farming in Canada compared to other industries, you see this huge substitution of
capital for labor. That makes for a very productive, high-return environment. Agriculture in Canada over
the past 20 years has had the greatest growth in productivity of virtually any sector.”
New Zealand
Market dynamics, demand transparency, returns and competitiveness:
New Zealand boasts an extremely well developed agricultural sector. In fact, agriculture is the number
one industry in this small nation that has become a material exporter of produce in a global context.
Although New Zealand is much smaller than many of its global competitors, it supplies 75% of globally
traded lamb and 35% of globally traded dairy products.
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As Geoff Burke, managing director of Agro-ecological Investment Management, says, New Zealand
“punches well above its weight when it comes to agricultural production.”
The country’s production model, which relies heavily on pastoral-based operations, serves it well.
Organic pastoral operations are less impacted by the cost of nitrogen fertilizer and chemicals and less
exposed to the increasing costs of cereal feeds. “With pastoral production, you’re harvesting something
that can’t be utilized by humans for food and producing something that can,” Burke says. “That’s a key
point.”
New Zealand, therefore, is very internationally competitive. “New Zealand has to make money from
agriculture as it is the country's biggest income earner,” Burke says. “The largest dairy processor in New
Zealand (Fonterra) alone represents 7% of New Zealand’s gross domestic product. If New Zealand wasn’t
internationally competitive in agriculture, it wouldn’t exist.”
Local policies, legal frameworks and ownership restrictions:
Burke says his firm focuses on organic and ecological production which increases New Zealand’s export
values and “ticks a box” from the government’s point of view. Burke’s firm co-invests with local farmers,
keeping them a shareholder in the operations. “We see our model as really quite constructive and
supportive of the local people and economy and the government’s strategic vision for New Zealand,” he
says. “And that’s important. Look at the extreme situation in Madagascar where an overseas deal done
around farming resulted in a coup. That’s certainly something investors need to be aware of when
they’re going into places. They need to understand what they’re legally entitled to and what the
implications of the politics inside a country are. It’s important to work with local investment advisors
that know the lay of the land.”
Security of title to farm land is very clear-cut and enforceable in New Zealand, Burke says. And although
foreign ownership is under some debate at the moment, he says owning land simply requires going
through a process that looks at the strategic importance of assets and the nature of investments to get
ownership approved. “Investors are buying into a high-quality, secure region,” Burke notes.
Relative returns for existing operations:
Returns from operations in New Zealand, Burke says, are pretty similar to other competitive agricultural
markets around the world. Annual returns on row crops bring are in the low- to mid-double figures, he
says, with a cash yield of 3-6% or higher. The advantage in New Zealand, he says, with the organic
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operations his firm focuses on, there’s such a demand that they bring a premium return. “In our case,
we’re able to produce about the same volume for a higher price and at a lower cost,” Burke says.
Local infrastructure, trade channels and risks:
Local infrastructure across the board, Burke says, is extremely well developed in New Zealand. “It’s not
just roads and ports, but research institutes, processing, storage – the whole package is there,” he says.
“We also have organized supply channels, so you’re not having to create a market on top of doing the
farming.”
Regional analysis:
Burke says New Zealand has seen a dramatic shift in land used for beef and sheep into dairy. “It’s been a
huge factor the past few years,” he says. “ You have the ability in a number of enterprise classes to
change what’s being produced to something that on a per hectare basis is much more valuable and can
drive a lot more diversity in the asset class.”
And from a climate change point of view, Burke says New Zealand is at the lower end of negative impact
as a country. “Other countries in our region have quite negative forecast, but New Zealand is at the
lower end of the spectrum,” Burke says. “In a global context, we have a phenomenal water resource.”
Why is agriculture a unique and exciting opportunity for today’s investors?
Oliver sums up the importance of agriculture as an investment class by saying it: (1) is counter cyclical to
many other investment classes, (2) performs well in periods of high inflation, (3) is a tangible store of
wealth that generally speaking increases in value rather than depreciates and (4) major demand factors
in the next 50 years will put significant pressure on the sector to produce more agricultural
commodities.
As Hinsch notes, agriculture is an asset class that will be built over the next 20 years, so it’s a good time
to secure a bit of a first movers advantage in creating the asset class in terms of potential appreciation,
he says. “In the future, you will have more restrictions on opening up and developing areas and you
might see more restrictions to ownership,” he advises. “But whatever you already have in your portfolio
is set. And with more restrictions, whatever you already have has more value.”
As Burke points out, it’s an investment area that hasn’t really been explored to any great extent and
isn’t particularly well understood. “It’s a market that really rewards knowledge,” he says. “And it has a
15
lot of characteristics that are appealing to large-scale investors: security, regularity and stability of
income. The asset class is only going to become more important as agriculture and food production
becomes more strategically significant in the world in the future. We’re seeing the end of the oil age,
which will dramatically change the way we produce and the availability of food. Productive land will
potentially become the strategic equivalent of oil land now and prices for productive land will increase
correspondingly.”
Land ownership, Schön says, captures the macro-trend, provides a powerful inflation hedge, reduces the
volatility of combined returns (cash + capital gains) and enables capital gains that are both generic (as a
result of exponentially increasing scarcity) and “hand-made” (through the development of productivity
gains).
According to Castro, there are four ways to make money in agriculture: (1) buying underpriced and
underdeveloped land and investing in the transformation, (2) production, (3) active commodities
speculation with the help of top professionals with an outstanding risk model and (4) financing through
the commodity-trade finance space.
“There are people buying farms today who five years ago had no idea they would buy it,” says Murray
Wise, CEO of the Westchester Group, a global agricultural asset manager.
Mayer says, “In some ways, farmland is even better than gold or silver. At least farmland is an
intrinsically useful thing. It provides a tangible yield in the form of good things from the earth. We all
have to eat.”
Conclusion
Although a broad range of regions offer differing investment opportunities, what is universally clear is
that investment in agriculture is and will continue, within the foreseeable future, to grow with the rising
demand for food worldwide. Corporate and investment funds are paying more attention to crop land
and trade in commodities.
Investors are quickly recognizing agricultural land, operations and commodities as the “oil” of the
future. Agriculture and its supporting industries are almost guaranteed to grow due to growing world
populations, changing economic conditions in developing nations, increased demand for biofuels and
constrained supplies worldwide.
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And the effects are already being seen in returns. For example, according to reports by the Daily Mail,
the six key agricultural commodities used in packaged foods have risen 15% in the past 12 months and
are trading 31% higher than the average for the past 10 years.
“Some of the best returns this decade will come from agriculture investing and the kinds of companies
that keep us supplied with water, food and energy,” says Mayer. And large and influential investors
don’t have to be convinced. With its recent acquisition of 85% of specialist agriculture investment firm
Westchester, pension fund TIAA-CREF, for instance, now has in excess of $2 billion in assets invested in
the agricultural sector and says it is seeking to double the amount over the next three years.
As Hinsch suggests, it is an asset class that will be built over the next 20 years. For investors, the next
“oil” boom has already begun with the agricultural sector. The question, as Oliver so aptly points out, is
clearly not whether to invest, but where and how.
17
“Agrinaissance” – Why now is the time to invest in agriculture
Doug Hawkins, Head of Global Agri-Business Research, Hardman & Co.
An Upsurge in Agri-business Investment Allocations
Direct agricultural investment is going to become the next major ‘must have’ asset class in world
investment. Increasingly, the fund management groups with which we are in contact are discussing ways
of dramatically increasing their exposure to this area. A number of Investment management
organizations that do not yet have any direct agricultural investment are, we understand, considering
developing an interest in this area. We expect to see a number of new funds launched within the next
twelve months, aimed at both the institutional and retail investor levels. We expect these funds to be
international in their scope.
Opportunities of the scale necessary to satisfy this appetite are most easily found in Eastern Europe, the
ex-Soviet countries, South America and Africa. Land, agri-inputs, agri-science, farm equipment,
infrastructure and logistics – these are all areas for investment opportunity in what is now being called
the “Agrinaissance”. One global fund we spoke to, with $180bn under management, is anticipating a 10to 15-fold increase in funds allocated to agri-business.
Our opinions on this matter have been reinforced by meetings with a number of the delegates to the
World Agriculture Investment Conference in London at the end of last week. In future years, this may
become recognised as the “Dawn Chorus” of Agri-investing. Discussion within the conference hall was
dominated by the first [investor] movers in the agri-space, who had put their money, circa $5bn, directly
or indirectly into agricultural land and operating farms, starting in the first half of this decade. Outside
the conference, though, the excitement and focus of debate was being led by the prospect of
consolidation amongst the heavy weights in the fertiliser and agri-commodities segments, deals worth in
the region of $45bn.
Power to Shift Back to the Farmers
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The world agriculture industry may now be at the dawn of a recovery of power to the industrial farming
community to set prices. Price control for almost all foodstuffs has been firmly in the hands of the major
retail chains, and to a lesser extent the industrial producers, for decades now. This would represent a
tectonic shift in the balance of power between farmers, processors and retailers. Its importance, both
for the investment community and in the broader political sense, cannot be underestimated.
There is early evidence to support this view: Louis Dreyfus has stated that it wants to invest in
production assets to “support the growth in demand for agricultural products”, and partner in merger
discussions, Olam has already made moves in that direction, announcing that it is considering
investments in some 10,000 hectares of sugar plantations in Indonesia, Brazil or Africa to set up a
crushing plant with a yearly capacity of at least 2 million tonnes. It has also revealed that it seeks to
develop between 50,000 and 100,000 hectares of palm oil plantations in Africa. That the large
commodities trading houses wish to swim upstream into production assets, indicates the criticality
which they attach to controlling production in this era of rising demand.
Further evidence for a shift in the pricing power balance was provided by the early mover investors in
operating farms. What is different about the approach of the financial investor operator and the family
farmer, is the ability to operate with scale and heavy front-end investment. “We just do all the
investment up front,” said one multi-billion dollar investor, “that is how we can generate a rapid 25%
uplift in farm performance.”
Amongst the investment schedules of the professional agri-investor operator, storage comes high on the
list. Storage is a critical component in protecting crop quality and it is the decisive factor in managing
time to market; storage facilities give the farmer producer the power to dictate when the harvest is sold.
Family farms with knife-edge cash flow, are not always able to invest in sophisticated storage
infrastructure or manage the cash flow gaps, and they have not always made the best use of the futures
markets to hedge their positions. Global retailers would have been given pause for thought by the subtext of many of the presentations made. These trends need to be understood by all managers of
investment funds.
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The Agrinaissance
The $39bn bid for Potash Corp, which dominated the headlines of the financial press over the two days
of the conference, was referred to only at the end of the second day. Meanwhile discussions between
Louis Dreyfus and Olam also commenced during the period of the conference. Together, the companies
would be the world's third-largest agricultural trader, behind Cargill and ADM. These two landmark
deals are emphatic confirmation of the resurgence of interest in the Agri-business sector – the so called
“Agrinaissance,” which has been kick-started by the megatrend of growth in the human population and
a rising plane of wealth.
A New Opportunity for REITS
Nearly half the conference speakers represented organisations that either directly owned and operated
large scale farms, or who were investors in large scale farming enterprises. Within this grouping, the
dominant theme was the development of agricultural land for capital growth:; land which has either
been starved of investment, as in Eastern Europe & CIS, or which has not before been brought into
effective commercial production [sub-Saharan Africa], or which has been virgin
land[Brazil/Indonesia/Malaysia]. It was notable that the owner operators represented at the conference
were almost exclusively former Wall Street or London banker / traders. Sometime in the early to middle
part of the decade, this clan elected to put their assets into land. Agricultural land with base yields of
circa 6% per acre from cropping or rental and another 6% from capital appreciation, offers long term
total returns of around 12% - a trend with deep historical support. But on the fringes of the conference,
some owners revealed that leasing yields were rising, and that a 9% coupon on good quality farms was
achievable already. Expect renewed interest in farm based REITS.
Agricultural Land Unrepresented In Diversified Portfolios
As an alternative to equities and a hedge against inflation, the “land bet” on rising demand for food is
easily understood. Agricultural land is barely owned at all by investment institutions (0.8% of US
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farmland and 0.3% of global farmland).,Notwithstanding its relatively strong long term performance
credentials, it simply fell out of fashion during the long bull market as the culture of equities prevailed.
But the sector also has been notorious for a shortage of high quality management talent. The
resurgence of investment into the farming sector that is being prompted by rising concern about food
security and the opportunity for investment gain, will not only have a knock-on effect for equipment and
infrastructure suppliers to the farming sector, it is palpably driving up the quality of management.
Agriculture is no longer the career for the “thick kid,” as one speaker noted. Instead, it is now attracting
high quality recruits. Back in June 2010, U.S. pension fund TIAA-CREF, which has some $2bn invested in
farmland, slightly under 0.5% of funds under management, stated that it was looking to expand its
farmland holdings. "If we found the right opportunities we'd be willing to double our existing exposure
over the new few years," said Jose Minaya, the managing director of global private markets at the fund.
"This is just another asset class that has the potential of going the route that real estate, private equity,
and hedge funds did in the past."
The development of a corporate management culture within the agriculture production sector will make
investment in land a far easier choice for institutional investors.
Regional Diversity
Not surprisingly, the conference had a strong land theme. The investor operators present were active
from NZ to Ethiopia to Bulgaria and Canada. What was striking to us was the relative cheapness of US &
Canadian agricultural land relative to European values. The values for European land, which have been
as high as $35,000 per hectare, and average over $10,000 per ha, look enormous compared with values
of $4,000 - $7,000 per ha for US farmland. Not unreasonably, investors in Eastern Europe are looking to
the convergence of their assets towards the European average.
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African owner operators at the conference repeated a simple mantra – cheap, cheap, cheap! With
growing populations and rising wealth in Africa, these operators see land bought for anywhere from
$200 - $1,000 per hectare as cheap enough to provide sufficiently impressive capital growth to offset
the risks inherent to ownership in a region where political and social instability are endemic. They point
to a rapidly growing population with rising GDP per capita as an attractive domestic market backdrop,
and with the scope to diversify investment across different crops and countries to spread risk.
The “Mugabe Factor” as one seasoned operator termed it – the threat of expropriation of assets by the
“state” - can be offset with an insurance product from the World Bank, but the strongest “insurance” for
the African land strategies would appear to be “the greater fool” factor – there will be, at this point in
the cycle, someone else to buy the asset. Land assets that have been turned from underperforming or
fallow into modern efficient farming businesses will be attractive to a range of investors – not least
amongst them Chinese buyers who are active already in the region, and perhaps too, Sovereign Wealth
Funds which may have political leverage in the region. Operators in Africa spoke of mouth-watering
returns – up to 40% pa, but the consensus in the conference room was to make sure that “frontier”
assets were but one portion [3%-10%] of a portfolio.
Eastern European developer operators point to the opportunities to supply their own region, [including
Russia], and also Western Europe, Northern Africa and the Middle East. Access to three strong
geographic markets and the abundance of fertile land are significant attractions for agri-investing in the
region. Investment into operating farms in Eastern Europe has been developing since the 1990s and the
decline of Communism, and for this reason, the investor operators often have lengthy experience and
highly developed operating models.
While land ownership rules are complicated, infrastructure is at least adequate and there is an abundant
pool of well-educated and disciplined workers and managers. The drift west into the EU by many states
has been a huge opportunity for farming, supported in development by EU subsidies, and with the vast
EU consumer market to supply. For investors in Eastern European land based assets, the convergence of
East European values towards the EU average provides a significant opportunity.
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Not all the owner operators were “frontier developers.” There also were investors in US and
Australasian land, who view agricultural land in these two developed agricultural economies as
attractive business investments for an era that seems certain to be characterised by rising demand for
food, and for the quality of opportunity available in commercial agriculture in both regions.
Obvious Investment Opportunity
Surprisingly, there were no speakers from the agri-inputs sector at the conference, and this sector
represented only a small contingent amongst the delegates. This was an omission; with available per
capita arable land shrinking from 0.2 hectares per capita2010 to around 0.15 hectares circa 2050, and
with the FAO looking for a 70% uplift in food production to feed the anticipated global population of 9bn
by that year, we need a dramatic increase in production yields. Worryingly, yield growth has been
declining, falling from annual gains of circa 2% prior to 1990 to an expected rate of less than 1% annually
for the decade to 2020.
Not only does the inputs sector represent a critical component of guaranteeing food security, it
represents also an obvious investment opportunity- a fact richly illustrated by the Potash Corp bid.
Listed in 1989 at a value of$630m, the group has a price tag of $39bn confirmed by the BHP bid and the
strategic significance of this potential change in ownership has driven the Chinese state-owned
Sinochem to seek to derail the bid, given China's position as the world’s largest importer of potash.
The Asian Catalyst
The strategic importance of Asia as the driver of demand was not in dispute at the conference, a fact
also confirmed by the Louis Dreyfus-Olam talks. The “frontier land” investors, in particular, were acutely
sensitive to the criticality of high levels of economic growth in Asia, and particularly in China. As with
hard commodities, the boom in soft commodity prices is being driven significantly by demand from the
new wealthy in China and India. Coupled with recent extreme weather events in Russia and Pakistan,
23
Asian demand is driving prices higher. It was not insignificant that while the conference was concluding
in London, the FAO went into emergency session to discuss rising prices of agri-commodities.
Elephant In The Room
The metaphorical “elephant in the room” during the two days of the conference was not China, but
water. Globally some 70% of all water extractions are for agriculture and in China it is more than 90%.
Land without water is useless for agriculture in the absence of abundant rainfall, and with climate
change producing greater irregularity in the timing and distribution of rainfall, access to irrigation is vital
for many agricultural regions.
Resource wars are more likely to be fought over water than fuel in the coming decades, and for
investors in agri-businesses, the availability of water is a vital supporting asset.
Logistics Assets
The importance of logistics also was an important sub-text within many of the presentations at the
conference. Efficient logistics facilities to move produce from farmgate to supermarket shelves, perhaps
continents away, is critical for any successful agri-economy and a defining component of farm
profitability and value. Significantly, Louis Dreyfus has stated that it is seeking to “acquire logistics assets
as a strategic tool for sales.” Increasingly, we see logistics as a defining factor in commanding market
share and building profitability for producers and processors.
An Epoch-Defining Trend
Land, agri-inputs, agri-science, farm equipment, infrastructure and logistics are all areas for investment
opportunity in what is now being called the “Agrinaissance,” and they are all areas for gaining
competitive advantage for players along the agri-value chain. The suggestion that pricing power may be
in the process of rebalancing away from retailers to producers, is an epoch-defining trend. The shifts and
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trends in there shaping of this oldest of industries, need to be understood by all managers of investment
funds and CEOs of agri-businesses.
25
Exclusive Industry insight – the latest market news from the experts
FC Business Intelligence interviewed a number of leading agriculture investment experts and industry
insiders to bring you the latest investment insight and market news. Below you can read interviews with
David Cornish, General Manager, Meredith Dairy Company; Adam Oliver, Director, Brown & Co.; and
Atiq ur Rehman, General Manager, Auriga Chemicals and Hybrid Seeds.
David Cornish, General Manager, Meredith Dairy Company
Do you favour Agriculture investments in emerging markets or established markets?
The answer will vary based on many factors, but in particular how much risk and what type of risk are
you prepared to accept for the level of return that it can deliver. One of the greatest criticisms I have of
Agricultural investors is the almost token approach taken to risk profiling. The typical desktop
methodology used in other investments such as a share investment is simply not intense enough when
you are dealing in a direct investment in another country in a business you know little about. A good risk
analysis needs to be based on clearly describing the risk faced at three levels and weighting them
accordingly. Firstly, at the macro level (ie, sovereign risk, interest rates and currency etc.), secondly at a
regional level (climate & logistics etc), and finally at an operational level, the ownership structure (run or
lease), production, and price risk, etc.
Even the experts get this wrong. A major US agribusiness investment house when investing in Ag in
Australia assumed the production environment was similar to that back home. NZ dairy farmers saw
that Australian land was significantly cheaper. The logic was to sell NZ land and set up in Australia, using
similar equity levels but much larger operations. What they didn’t realise was that rainfall volatility was
significantly greater in Australia, meaning many of them failed due to debt levels which were not
sustainable in a much more volatile farming environment.
In summary, based on the risk profile that you develop, you can factor your investment decision into a
portfolio allocation model that will allow you to pick the investment that best suits your needs. A word
of caution: If the investment looks too good to be true, dig deeper!
Is now the right time to invest in agricultural markets?
26
The short answer is yes, but I would argue that it is the right time to invest all the time, you just need to
find the investment with the attributes that your fund is chasing. Agriculture should be considered a
legitimate asset class which adds value to those funds returns, especially volatility management.
However, in practice, finding the right options has proven to be very difficult for corporates. Add to this
the fact that for some reason this asset class seems to attract plenty of snake oil salesmen selling
products based on future promises of performance rather than proven returns.
What about the future? Are forecast returns on Agri land investments over-estimated?
Yes and No (I’m an economist we can’t help ourselves but to hedge our bets!) There is no doubt that the
demand for agricultural land will continue to increase. Also, there will always be an emotive edge to this
that will give it a premium on other asset investments which should simply be based on an earnings
multiplier. However, what astounds me is the ability of so-called City analysts to continually get the
income generating ability of an agricultural investment so wrong and end up putting client’s money into
"shonky" deals. When looking at an opportunity, ensure you get right behind the cash flow assumptions,
especially the biological assumptions that make up the investment proposal. I have found, in most cases,
straight line or average-year-for-the-life-of-the project assumptions are used. One thing you can be
assured of is that, in ag, you never have an average year.
Fundamentals suggest significant future growth potential, but does agriculture really present a unique
opportunity for investors?
Agriculture is a unique asset class for many reasons. However, the important question is whether its
uniqueness is worth the effort. It would seem that many of the fund managers who invest in agriculture
seem to struggle to achieve a return that is commensurate with the level of risk. I believe that it is
achievable, but requires a different approach than investing in shares or CBD property does. I also
question your assertion that the fundamentals suggest future growth. Data from FAO (2009) would
suggest that there is enough available land to meet peak population in 2050, based on current forecast
growth rates (Nature 2010). If you add to this the likely productivity improvement expected and the
improvement in food storage and handling in developing countries, then I am not a big fan of the sky is
falling and we are running out of food theory that seems to abound every 10 to 15 years. Let’s not forget
the Club of Rome in the late 60s and ‘who will feed China?’ -Lester Brown(1995). To base your
investment decision on this kind of stuff shows a lack of understanding of agriculture and the excess
27
capacity that is in the system given the right price. This was brought home to me at a meeting of
Australian Grain farmers recently when a hypothetical question was posed, ‘Could Australia produce
50mt (a roughly 30-40% increase) without increasing the area farmed? The answer was "yes" - there
was plenty of capacity within current farming systems to do this, as long as the price was right!
How do you see wheat prices in the short and long term?
Current prices are been driven by the Russian situation which is both short term and government
induced. World agriculture will respond to this by increasing production to a point that we will see prices
again fall to long term levels. It is a basic demand supply response that we have seen happening in ag
since there was a market to sell food in. So if you are sitting there basing a 10- to 15-year investment on
a short term price spike, I suggest you go and take a long cold shower as the pain will be less than the
investment mess you could end up with. Furthermore, there is a perfectly good futures market that you
can invest in which is much more transparent and liquid than an investment in farming assets. In
general, I have found corporate players make poor farmers. What they do really well is develop farming
country. So I would focus more on the capital development opportunity than the commodity price if you
are looking for an investment in hard assets.
Adam Oliver, Director, Brown & Co.
Is it the right time to invest in agricultural markets?
Current market conditions reflect the complex factors at play in the commodities markets and,
therefore, land markets, he says.
“The long term fundamentals however are as inescapable now as they were two years ago when
markets spiked," Oliver says. Having said that, “volatility has increased substantially over recent years
and any long term agriculture strategy has to include ways to effectively manage this risk,” he adds.
At the end of the day, two key things will be of overriding importance to the performance of any
agriculture investment, he says. “Firstly, the point on the curve the base asset was acquired (and
subsequently sold) and secondly, do the costs of production per tonne ensure that cash is being
28
generated even in the toughest marketing years.”
The outlook for the medium and longer term is very positive, he adds.
“All the fundamentals are in place and the arguments are compelling. We see a significant inflow of
institutional funds coming into the sector over the next five to 15 years. There are many issues
surrounding the "professionalisation" of the sector and access to it for the institutional sector. But after
50 years of capital markets ignoring the agriculture sector, we believe that is now in the process of
changing.”
The sector is unique and interesting for several reasons, he says.
“We are all aware of the usual reasons repeated endlessly: hedge against inflation etc. We believe it is
interesting though because it is (a) counter cyclical and (b) when the correct management is given space
to deliver, then the risk/return profile is very compelling, Oliver says. “Backing those geographical
regions where the lowest cost of production can be achieved – with very high quality management team
– is where we see the successful strategies delivering,” he concludes.
Atiq ur Rehman, General Manager, Auriga Chemicals and Hybrid Seeds
Why invest in Asian agricultural markets?
FC Business Intelligence caught up with Atiq to find out why he thinks agricultural markets in Asia
present the best investment opportunity right now.
Agriculture investments in India, Pakistan, Sri Lanka and Bangladesh have the edge, because the
administrative framework is comparable to that in Britain, he says.
“Major commonalities include a similar nature of institutions, traditions, legal and economic heritage
and facilitating infrastructure,” Rehman says. "Secondly, Pakistan in particular, is a key producer of one
of the world’s most important crops," he adds
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“Half of the world’s populations eat rice as staple food stuff – 94 per cent of the world’s rice is produced
in Asia. Pakistan currently produces a surplus of rice grain – producing 6.2mln tons (basmati and coarse)
and consuming only 2.5mln, making around 3.8 – 4mln available for the international market.
Rehman says with the recent introduction of hybrid coarse rice seeds, mainly from China, it is expected
that within three years, 100 per cent of coarse rice will be cultivated through hybrid seed, generating an
additional supply of around 7.5mln tons available for the international market. – This will make Pakistan
a very attractive destination for investment in rice production and export,” he says.
Rehman believes Pakistan also is primed for investment in dairy and meat industry.
“Pakistan has a climate which makes it possible to have four to five silage corn crops in a year, making it
highly efficient and predictable as far as the input cost of dairy and meat farming is concerned; and the
growing population in Pakistan, and neighbouring Gulf countries, provides a good export market for
dairy and “Halal” meat products.”
30
Contributor Biographies
Rumen Beremski, CEO, InterAsset Development
Rumen Beremski brings extensive experience in banking and private equity in the real estate sector both
in Bulgaria and abroad. He has successfully put together and executed a number of investment projects
with international participation. In 1993, he joined the EBRD in London where he worked for 8 years as
a Principal banker in project finance for the South Eastern Europe region. In 2001, Beremski returned to
Bulgaria and became Chairman and CEO of Biochim bank, a large state owned bank. Under his
management the bank was privatized and acquired by Bank Austria Credit Anstalt, member of the HVB
group. Beremski stayed on as Chairman and CEO for two more years. In 2003, Biochim Bank was
awarded Bank of the Year 2003 by The FT Banker magazine.
During the past five years, Beremski has focused strongly on private equity investment and management
in the real estate sector and renewable energy. He helped raise the funding for and was a member of
the Supervisory Board of Bulgaria Property Developments, a fund raised on AIM and CEO of Landmark
Property Investment and Management, a private equity fund investing in Bulgaria. He has also initiated
as a principal investor and promoter the first Golf Resort project on the Black Sea coast designed by
Gary Player and WATG. Currently, Beremski is working on the development of several large renewable
energy projects and is seeking funding for the establishment of an agribusiness fund for Bulgaria.
Beremski holds an MBA degree from the Harvard Business School.
Geoff Burke, Managing Director, Agro-Ecological Investment Management
Geoff Burke was brought up on a sheep and beef farm in New Zealand, in a family that was involved
with agricultural investment from ‘paddock to plate’. He made his first investment in the agriculture
sector at the age of 10. He graduated from Massey University in 1988 with a Bachelor of Business
Studies (Agricultural Business) and from Lincoln University in 1997 with a Post Graduate Diploma in
Applied Science (Biological Husbandry).
Burke has several years’ experience in SRI (Sustainable and Responsible Investment) and spent eight
years in investment banking/asset management, including JP Morgan, Lehman Brothers and Credit
Suisse Asset Management in the City of London. He worked for the Organic Research Centre at Elm Farm
in Berkshire for a number of years as Organic Farm Adviser, Business Development Manager and as
31
Managing Director of the Organic Arable Marketing Group. Burke also was involved in the establishment
of the Organic Seed Producers Company as its founding Managing Director.
In New Zealand, he was a member of the certification committee for AgriQuality an organic certification
organisation, and has been involved with farmland investment management and advisory work, organic
research, a diverse ‘care farm’ operation, apple orchard investments, dairy sheep investment projects,
organic viticulture investment and a multi-enterprise ‘gastro farm’ initiative.
David Cornish, General Manager, Meredith Dairy Company
David Cornish has more than 20 years experience in agriculture. This experience has included roles such
as Rural Economist, Agribusiness credit advisor, Marketing Manager, as well as senior banking roles in
regional NSW and Victoria for National Australia Bank, the largest lender to farmers in Australia. Cornish
was the first CEO of Rabo Financial Advisors and spent five years as a farm consultant with Mike
Stephens & Associates focusing on agricultural investment opportunities for wholesale investment
funds. In October 2008, Cornish joined Landmark, the largest provider of inputs to the famer in
Australia, as the regional manager for Western Victoria and then as a strategy manager for the
organisation. Cornish has recently taken up the role as General Manager of the Meredith Dairy
Company. These roles have given him a broad insight into the financial viability drivers of many
agribusiness industries across Australia.
Cornish holds a Bachelor of Agricultural Economics majoring in econometrics and farm management,
Bachelor of Business majoring in accounting and a Diploma in Financial Planning. He is a past participant
in the Australian Rural Leadership Program. When he gets the chance, he also assists his mother on the
family property based at Casterton in Western Victoria.
Tom Eisenhauer, President, Bonnefield Financial Inc.
Tom Eisenhauer is President, Bonnefield Financial, Inc. Eisenhauer has more than twenty years of
finance experience in a broad range of private equity investing, investment banking and merchant
banking activities. Prior to joining Bonnefield, Eisenhauer was the Managing Partner of Latitude
Partners, which he co-founded in 1999. Latitude managed the Longitude Fund LP, a private equity fund
that specializes in buyouts of private and public Canadian technology companies. Previously, Eisenhauer
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was Managing Director of TD Securities and the founder and head of TD’s technology investment
banking operations. He also was a managing director of Lancaster Financial, Canada’s leading
independent merger and acquisition advisory firm, which was acquired by TD Securities in 1995.
Eisenhauer holds a B.A. (Gold Medal) in Economics and Russian Literature, Dalhousie University, an M.A.
Economics from Queen’s University and is a graduate of the SME Board Effectiveness Program, Institute
of Corporate Directors and the Rotman School of Management.
Gonzalo Fernandez Castro, CEO, Lumix Capital
Gonzalo Fernandez Castro is the CEO of Lumix Capital and co-Fund manager of LumixAgroDirect Fund,
focused on direct investments in agricultural production. He has an extensive career in active
investments as a manager and entrepreneur. Fernandez Castro was a Senior Investment Manager at
Jacobs Holdings AG in Switzerland overseeing EUR 3 billion in AuM. From that position, he moved on to
a portfolio company of the group (Adecco SA, a Global Fortune 500) where he led the transformation of
the group as Global Chief Marketing & Business Development Officer and member of the Executive
Committee. Previously, Fernandez Castro founded a venture capital company in South America with
interests in the agricultural sector. He also was a consultant at McKinsey & Company. Fernandez Castro
holds an MBA from Harvard Business School and an Industrial Engineering degree from the Buenos Aires
Institute of Technology.
Doug Hawkins, Head of Agri-business research, Hardman & Co.
Doug Hawkins leads the Global Agriculture & Agri-business Unit at Hardman & Co. Previously Head of
International Equity Research for Nomura International, Hawkins has lead equity market analyst teams
in Global Telecommunications, Global Logistics, and UK Electricals & Electronics in which he was an Extel
No 1 rated analyst. Combined with a 25 year career in equity capital markets, during which Hawkins
advised sovereign clients on strategic partner transactions in telecommunications and capital markets
listings for both telecommunications and postal operators, he has been a lifelong farmer with close links
to agriculturalists around the world.
Axel Hinsch, CEO, Calyx Agro
Axel Hinsch is the Latin American Director of Renessen LLC, and Ag-Biotech joint venturebetween Cargill
and Monsanto. Hinsch created a branded market for value added corn and soybeans linking leading
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farmers with end users.
Previously, Hinsch was Managing Director at Bear Stearns' Emerging Markets Trading desk and a
Financial Trader for Cargill Financial Services, trading Brazilian and Argentine debt and other fixed
income assets. Hinsch also previously directed New Business development for Cargill in Latin America
(Port facilities, train privatization, malt processing plant, concentrated juice plant).
Hinsch education includes degrees in Economics from UBA (Arg.) an MF from CEMA (Arg.), and PAD
from IAE (Arg.)
Adam Oliver, Director, Brown & Co
Adam Oliver is an Equity Partner with Brown & Co - a leading agri business consulting firm that
specializes in providing management consulting and strategic investment advice to large scale agribusiness entities and the wider investment community. Brown & Co operate out of the UK, Central and
Eastern Europe and South America providing in depth advice on production economics; extracting
economies of scale; land acquisition/ disposal services; land investment strategies; business modelling
and restructuring; senior management recruitment; MIS and a full range of due diligence and
agricultural land/ business valuation services.
Oliver has significant depth of experience in investing in and operating large scale ag operations in
Russia, Ukraine, Poland, Czech Republic, Hungary, Serbia, Romania and Bulgaria. Having lived in the
region for over 10 years, Oliver has a unique detailed understanding of individual country-by-country
land markets, current market drivers and value enhancing strategies. Oliver currently sits on the Board
of five companies providing business restructuring/ land investment/ grain handling and storage
strategic advice and took part as a senior executive in the largest farming company IPO to date.
Atiq ur Rehman, General Manager, Auriga Chemical and Hybrid Seeds
Atiq ur Rehman is the General Manager of Auriga Chemical and Hybrid Seeds. The company is ranked
third in the industry with 17 per cent market share.
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Before joining Auriga, ur Rehman served as Marketing Manager Pakistan for Pioneer Pakistan, a seed
arm of DuPont USA.
Detlef Schön, CEO, Aquila CapitalGreen Assets
Detlef Schön is the CEO of Aquila Capital Green Assets and KlimaINVEST, responsible for portfolio
management. Schön began his career with Cargill after completing a degree in agronomics. Having held
a range of positions at the firm, including at its European headquarters, Schön was made Managing
Director of the European Commodities Merchandizing Division. He also ran his own successful business
for a time before returning to global agribusiness as Manager of International Grains for NIDERA in
Rotterdam. Schön has held several non-executive positions and supervisory board appointments. In
addition, he has operated his own organic farm “Hof Peeneland” since 1991.
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Further suggested reading
One sector which has particularly caught Marc Faber’s eye is the farming and agribusiness sector which
Faber believes is poised for a major bull market.
(www.etfdb.com, August 03, 2010)
Farmland prices surge: Should you invest?
(www.thisismoney.co.uk, August 03, 2010)
Detlef Schoen, CEO, Aquila Capital Green Assets explains why investment vehicles that capture and
enhance the value of the truly "underlying" asset, i.e. farm land, are the way forward.
(www.opalesque.com, July 12, 2010)
Why investors are planting their assets in agriculture
(www.seekingalpha.com, July 20, 2010)
European and US pension funds are deepening their commitment to farmland, upping investments by
billions of dollars...
(www.reuters.co.uk, June 29, 2010)
The strong long-term outlook for agriculture is driving continued expansion of the world's leading food
and agribusiness bank
(www.sl.farmonline.com.au, June 8, 2010)
Is Food going to be the next Oil?
(www.trak.in, 2010)
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