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2017 IFAMA World ConferenceMiami June 21
Introduction to Investing in Agriculture – Framing Opportunities Across the Value Chain and Around the Globe
Philippe de LapérouseManaging DirectorHighQuest Partners LLC
HighQuest Group - advisory services, media and industry events
Strategic advisor in global food, agribusiness and biofuels
The world's leading resource for events, research, and insight into the global agricultural investment sector
2Proprietary information – not for distribution. Copyright © 2017 by HighQuest Partners LLC. All rights reserved.
3
Supporting informed decision-making for strategic and financial investors across the global agricultural value chain
Proprietary information – not for distribution. Copyright © 2017 by HighQuest Partners LLC. All rights reserved.
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HighQuest Consulting
Proprietary information – not for distribution. Copyright © 2017 by HighQuest Partners LLC. All rights reserved.
Why food and agriculture – investment thesis?
5
Supply & Demand Imbalances
Inflation Hedge & Wealth Preservation
Low Correlation to Other Asset Classes
Under-Owned by Institutional Investors
Demand for land & soft commodities is being driven
by several strong macro trends
Historically a tested store of value in inflationary
environments
Outperformed traditional asset classes long-term
Farmland is an underinvested asset class because access and execution are difficult
Proprietary information – not for distribution. Copyright © 2017 by HighQuest Partners LLC. All rights reserved.
Input
• Seed;• Fertilizer;• Pesticide; • Herbicide;• Farm
equipment;• Energy
Production
• Growers; • Cooperatives
Storage Handling/
Trading• Grain
elevators;• Brokers and
traders
Transportation& Logistics
• Ocean;• Barge;• Rail;• Truck
Processing
• Primary processing;
• Food and feed ingredients
End users
• Food;• Feed;• Biofuels;• Industrial
A complex market structure requires appreciation for how margins are shared amongst players at different points along the supply chain.
Socialinfluences
Technicalinfluences
Economicinfluences
Politicalinfluences
Bargaining power of buyers
Threat of substitutesThreat of new entrants
Rivalry of industry competitors
Bargaining power of suppliers
Products
Information and Money
Agriculture value chain - “conceptually simple and yet challenging for efficient execution”
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Where to invest in food/agriculture?
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• There are many ways to invest in most stages of the agricultural value chain via equities, corporate bonds, futures, options and ETF’s.
• However the farming/production sector is not as easily investable, as it traditionally has been a fragmented industry with tightly held family run enterprises. This is slowly changing due to increased consolidation, driven by the demographics of the farming community and pressures to achieve economies of scale in production.
Processing, Trading:
Cargill, ADM, Bunge
Food Distribution:Tesco, Walmart
Further Processing & Marketing:Kraft, Nestlé
Fertiliser, Seeds, Pesticides:
BASF, Syngenta, Yara
Farm Investments:TIAA-Cref, Hancock,
Macquarie, RaboFarms
RetailConsumer ProductsProcessingFarmingInputs
Direct Investments Closed-End Funds Tailor-Made Structures
Institutional Investment In Agribusiness
Proprietary information – not for distribution. Copyright © 2017 by HighQuest Partners LLC. All rights reserved.
Real Assets • Farmland• Infrastructure
Private Equity • Upstream
• inputs(seed, chemicals, fertilizer, technology services, capital goods)• Downstream
• storage and logistics• value added processing of ingredients• food/feed/industrial processing
Venture Capital • Biotech• Enabling technologies (precision ag, biologicals and big data) Water theme investments Liquid Assets
• Public equities• Commodity index funds
Range of investment opportunities in the ag sector
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Agriculture – an emerging asset class?
• Institutional investment in farmland represents less than 0.5*% of the total – most land around the world is privately owned.
• However institutional investment in farmland has been growing at 8-10*% p.a. ; currently +/- $45* billion.• While historically most investment has been concentrated in North and South America, there is new
institutional appetite for agricultural investment in Australia and the Eastern Europe. • While farmland is an immature asset class in comparison to timber, the investable universe for farmland is over
3*x size – many traditional institutional timber investors are either now investing or looking to invest in farmland.
Farmland
USD $ billion
Timber
USD $ billion
Total land value 8,300* 425*
Investable universe 1,000* 300*
Institutional ownership 45* 60*
*EstimatesProprietary information – not for distribution. Copyright © 2017 by HighQuest Partners LLC. All rights reserved.
9
Key issues driving farmland values
Population growth and increase in GDP• World population 9 billion in 2050 • Increased demand in developing markets, particularly Asia, SE Asia and North
Africa• Shift in diets from grain to animal protein (Bennett’s law)
Increasing urbanization • Pressure on available arable land for crop production• Increasing reliance on processed foods
Constraints on supply• Water access • Climate change • Linkage to energy markets(biofuel mandates) • Deceleration of yield increases • Environmental regulations on production
Human capital• Generational transfer in both developed and developing markets• Lack of capacity building in developing markets
10Proprietary information – not for distribution. Copyright © 2017 by HighQuest Partners LLC. All rights reserved.
Source: World Bank
Proprietary information – not for distribution. Copyright © 2017 by HighQuest Partners LLC. All rights reserved. 11
End of the commodity super cycle?
$0$1,000$2,000$3,000$4,000$5,000$6,000$7,000$8,000$9,000
$0
$20
$40
$60
$80
$100
$120
$140
1960
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2004
2008
2012
2016
Copp
er (U
SD/m
t)
Oil
(USD
/bbl
) and
coal
(USD
/mt)
Hard commodity prices 1960-2016Real 2010 USD
Crude Oil Coal Copper
$0
$500
$1,000
$1,500
$2,000
1960
1964
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1972
1976
1980
1984
1988
1992
1996
2000
2004
2008
2012
2016
USD
/mt
Soft commodity prices 1960-2016Real 2010 USD
Soybeans Corn Wheat Sugar
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
2022
2024
2026
2028
2030
2032
2034
2036
2038
2040
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2044
2046
2048
2050
Global Middle Class Consumption2000-2025
Others
India
China
Japan
US
EU
Source: OECD
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Middle class consumption in China and India continues to fuel growing demand for commodities
Proprietary information – not for distribution. Copyright © 2017 by HighQuest Partners LLC. All rights reserved.
Protein demand increases a global phenomenon
Substantial increases in protein consumption between 2000 and 2010
7.5%
29.0%
32.2%
70.2%
41.4%47.7%
23.7%
48.7%
23.3%
Source: Baumé, FAPRI 13Proprietary information – not for distribution. Copyright © 2017 by HighQuest Partners LLC. All rights reserved.
U.S. agricultural exports to China have grown more than 200% in the past decade, reaching over $20.2 billion in 2015
Source: USDA FAS
Proprietary information – not for distribution. Copyright © 2017 by HighQuest Partners LLC. All rights reserved.
China has driven demand for U.S. exports over past decade
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0
5
10
15
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35
40
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Expo
rts (
MM
T)
U.S. Soybean Exports to China
U.S. soy exports to China Percent of total U.S. soy exports
Impact of climate change in Iowa
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Potential agricultural yield decreases by 2050 due to climate change
Source: C. Muller (2010) “Climate Change Impacts on Agricultural Yields,” background note to the “World Development Report 2010.”
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Have yield improvements hit an inflection point?
Trailing 10-Year Yield Improvement
Source: USDA, HighQuest analysis
Proprietary information – not for distribution. Copyright © 2017 by HighQuest Partners LLC. All rights reserved. 17
0
1
2
3
4
5
6
7
1980
1983
1986
1989
1992
1995
1998
2001
2004
2007
2010
2013
2016
2019
2022
2025
MT/
ha
Global Yields for 4 Major CropsHistorical and Projected
Corn
Rice
Wheat
Soybeans
0%
5%
Corn
0%
5%
Rice
0%
5%
Wheat
0%
5%19
7119
7419
7719
8019
8319
8619
8919
9219
9519
9820
0120
0420
0720
1020
1320
16
Soybeans
2.24%
1.53%
2.60%
2.42%
1.78%
3.37%
1.96%
1.43%
0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0%
Russian Federation
Southeast Asia
China
Brazil
Latin America
Sub-Saharan Africa
Developing Countries
Developed Countries
Total Factor Productivity Growth of AgricultureAverage Change in Growth Rates (1961-2009)
Source: OECD, FAO
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Opportunities for increasing productivity in emerging markets
Proprietary information – not for distribution. Copyright © 2017 by HighQuest Partners LLC. All rights reserved.
Source: NCREIF, Federal Reserve Board 19Proprietary information – not for distribution. Copyright © 2017 by HighQuest Partners LLC. All rights reserved.
U.S. farmland returns have exceeded DOW and S&P over the last 10 years
0%
2%
4%
6%
8%
10%
12%
14%
3-year 10-year
U.S. Farmland Returns vs. Dow and S&P
Dow S&P Farmland
Source: NCREIF, Federal Reserve Board 20Proprietary information – not for distribution. Copyright © 2017 by HighQuest Partners LLC. All rights reserved.
Annual and permanent cropland returns compared to other assets
-20%
-10%
0%
10%
20%
30%
40%
50%19
9219
9319
9419
9519
9619
9719
9819
9920
0020
0120
0220
0320
0420
0520
0620
0720
0820
0920
1020
1120
1220
1320
1420
1520
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Asset Returns in the U.S.1992-2016
Annual Cropland Return Permanent Cropland Return
Timberland Return Commercial Real Estate Return
10-year Treasury Yield Moody's Aaa Yield
Farmland values low relative to capitalized value
Source: USDA NASS, University of Illinois 21Proprietary information – not for distribution. Copyright © 2017 by HighQuest Partners LLC. All rights reserved.
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,00019
7019
7219
7419
7619
7819
8019
8219
8419
8619
8819
9019
9219
9419
9619
9820
0020
0220
0420
0620
0820
1020
1220
1420
16
USD
/acr
e
Illinois Cropland - Nominal and Capitalized Values1970-2016
Nominal value Capitalized value
Source: NCREIF, Federal Reserve Board 22Proprietary information – not for distribution. Copyright © 2017 by HighQuest Partners LLC. All rights reserved.
Farmland returns have been higher than CPI (inflation rate) – can mitigate impact of market volatility on returns
-5%
0%
5%
10%
15%
20%
25%
30%
35%
40%
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Farmland Correlation to CPI
Farmland
CPI
Farmland to CPI = 0.37
Returns on US farmland compared to other assets
23Proprietary information – not for distribution. Copyright © 2017 by HighQuest Partners LLC. All rights reserved.
0%
2%
4%
6%
8%
10%
12%
14%
0% 5% 10% 15% 20%
Mea
n Re
al R
etur
ns
Standard Deviation of Returns
Mean Return vs. Standard Deviation1991-2016
NCREIF Farmland
S&P 500
10-yr TreasuriesGold
Moody's Aaa
NCREIF Property
NCREIF Timber
Russell 2000
Source: Company Websites Proprietary information – not for distribution. Copyright © 2017 by HighQuest Partners LLC. All rights reserved.
August 2015 - TIAA closes its largest agriculture investment fund to datewith $3 billion in commitments. TIAA Global Asset Management - $639 billion AUM($130 billion in alternatives.)*
Farmland Investment History• Investing in agriculture since 2007 • Manages $8 billion in farmland assets • TCGA I- $2 billion in commitments (2012)• TCGA II- $3 billion in commitments (2015)
Farmland Investment Strategy • Invest in high-quality farmland, both permanent and row crops • Geographic focus - North America, South America and Australia • Investment strategy developed with majority-owned subsidiary Westchester Group, a farmland
asset manager
Notable Investors• AP2 • British Columbia Investment Management Corporation • Caisse de dépôt et placement du Québec• Greater Manchester Pension Fund • New Mexico State Investment Council • New York State Common Retirement Fund • Saudi Aramco
*2015 values24
TIAA farmland funds attract institutional investors across the globe
Source: Company websites Proprietary information – not for distribution. Copyright © 2017 by HighQuest Partners LLC. All rights reserved.
Early 2015 - Paine & Partners closes fourth fund - $893 million in commitments. Fund is focused on the investment in global food and agribusiness companies –has acquired three portfolio companies.
Company Profile • P&P and predecessor firm has managed over $3.6 billion in assets• Deployed over $1 billion in capital in agribusiness sector over the last decade
Agriculture investment strategy • Focus on upstream investment, particularly ag input companies to reduce cyclical and seasonal risks experienced by
investing in underlying commodities • Invest in agricultural technology and sustainability-focused companies to drive efficiency in food production
Representative Portfolio Companies • Suba Seeds- Producer, packer, and distributor of specialty vegetable seeds• AgBiTech- Australian producer of biological pest controls • Spearhead Int.- Farming group with diversified crop and geographic exposure throughout Europe • Verdesian Life Sciences - Investment platform focused on plant health and nutrition• ScanBio- Norwegian producer of fish protein concentrate, meal, and oil from fish by-products
Notable Investors (Fund IV) • Maine Public Employees’ Retirement System • Minnesota State Board of Investment • New Mexico Public Employees’ Retirement Association • University of Texas Investment Management Company
25
Paine Schwartz Partners closes fourth PE agribusiness investment fund
Source: Company websites, Preqin Proprietary information – not for distribution. Copyright © 2017 by HighQuest Partners LLC. All rights reserved.
Second Swedish National Pension Fund (AP2)
Fund type: Pension fund Country: Sweden AUM (Dec. 2015): SEK 300 bn(US$35.7 bn)Investment breakdown: • 44% Equities • 31% Fixed-income securities• 25% Alternative investments
Agriculture Investment Strategy: • Agriculture represents 3.4% of AUM,
approximately $1.3 billion USD • Crop breakdown - 60% row crop, 30%
permanent crops and 10% dairy • Geographic breakdown - 66% U.S., 23% Brazil
and 11% Australia• Investment strategies carried out largely in
collaboration with TIAA
Canada Pension Plan Investment Board
Fund type: Pension fund Country: Canada AUM: CAD 278 bn (US$217 bn)Investment breakdown: • 52% Equities • 27% Fixed-income securities• 21% Alternative investments
Agriculture Investment Strategy: • Directly invests/acquires farmland portfolios• Launched agricultural investment program in
2012 with geographic focus on U.S., Canada, Australia, New Zealand and Brazil
• Purchase of 40% of commodity trader Glencore for $2.5 billion USD (2016)
• Acquired Assiniboia Farmland LP’s Saskatchewan farmland fund
26
Long-term fundamentals in food and agriculture are attracting investments from pension funds in Europe and Canada
Source: Company websites, Preqin Proprietary information – not for distribution. Copyright © 2017 by HighQuest Partners LLC. All rights reserved.
Washington State Investment Board
Fund type: Pension fund Country: United States AUM (Dec. 2015): $106.9 bn. Investment breakdown: • 36% Equities• 34% Fixed income• 30% Alternative investments
Agriculture Investment Strategy: • $50 million investment in ACM Permanent Crops LLC,
a permanent crop fund• Investment Laguna Bay Agricultural Fund I (A$250
million), focused on agriculture in Australia and NZ• $300 million investment in Teays River, a US
agricultural holding company operating in organic dairy, seed production, table grapes and row crops
• $100 million investment in UBS AgriVest, a US permanent and vegetable crop fund
• $250 million investment in Wood Creek Capital for the investment in US midstream ag assets
University of Texas Investment Management Co.
Fund type: Endowment/OperatingCountry: United States AUM: $35.9 bn. Investment breakdown: • 56% Equities • 24% Fixed income • 20% Alternative Investments
Agriculture Investment Strategy: • Most active endowment fund in agriculture
investment • Investment in Mandala Agribusiness Fund, a PE fund
with a focus on the Indian market • Investment in Aqua Capital, a PE firm focused on
midstream ag. investment in South America • $100 million Investment in Paine & Partners Fund IV, a
US PE firm focused on upstream and midstream ag• Investment in Black River, previously a Cargill
subsidiary focused on the food sector, now independently-operated and known as Proterra
27
U.S.- based pensions and endowments actively allocating capital to agricultural investments
Fund Sectoral Focus Geography Arlon Private Equity North and South America
AMERRA Capital PE + Financing Global
Agriculture Capital Management Farmland + Midstream U.S.
Aqua Capital PE - food and ag South America
Blue Road PE - supply chain North and South America
Homestead Farmland U.S. Hancock Agricultural Investment Group Farmland Global
International Farming Corporation Farmland + AgTech U.S.
Macquarie Infrastructure and Real Assets Farmland Australia, Brazil and the U.S.
Proterra Investment Partners Farmland + PE Global
Rabo Equity PE India
Tillridge Global Agribusiness PE - midstream North and South America
Examples of funds which have recently completely capital raises
Proprietary information – not for distribution. Copyright © 2017 by HighQuest Partners LLC. All rights reserved. 29
Improved productivity will be achieved by combining new “hardware” (seeds) and “software” (management practices)
Proprietary information – not for distribution. Copyright © 2017 by HighQuest Partners LLC. All rights reserved. 30
Digitization and miniaturization is accelerating change in agriculture
Camelina
Pongamia
Soybeans
31
Alternative oilseeds and insects are becoming increasingly competitive protein sources in traditional plant protein markets
Crickets
2014 • $2.36 billion raised• 264 deals• 271 unique investors
2015• $4.6 billion raised• 572 deals • 672 unique investors
2016• $3.23 billion • 508 deals
Sectors attracting investments• Inputs/biologicals• Precision ag• Big data applications(“smart farms”)• Novel feed/food ingredients• Genetic prospecting(nexus of pharma/ag/food)
Source: Ag Funder’s AgTech Investing Report – 1st Half 2016.
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Historic acceleration in early stage food and ag tech investments
• Farm-2-Consumer
• Alternative Proteins
• Animal Nutrition and Health
• Food Safety & Traceability
• Smart Equipment & Hardware
• Decision Support Technology
• Food Commerce
• Food Tech
• Ubiquitous connectivity and sensors
• Autonomous robotics
• Gene sequencing and rapid phenotyping
• Data capture, aggregation, analytics andprescriptions
• Novel materials
• Innovative business models
Proprietary information – not for distribution. Copyright © 2017 by HighQuest Partners LLC. All rights reserved. 33
Key areas to track: impact of generic industry disruptors on subsectors of ag tech
• Increasing tendency for large institutions such as pension funds to bring sectoral expertise in-houseto pursue direct investments as opposed to investing in funds.
• Permanent crops and situations involving mix of real assets with exposure to operating risks attractinginvestments as investors seek higher returns.
• Sustainability and consumer concerns regarding quality become drivers for the adoption of new technologies and business models (ex. – indoor farming of leafy vegetables adjacent to large consumption markets).
• Frontier markets in Africa attracting capital.
• Argentina back in the game.
• Distressed assets in Brazil.
• Ag tech continues to attract capital.
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Trends in agricultural investing as it emerges as an asset class
Example of sub-allocation framework for an ag portfolio
Geography
Operational / Development
Type of Asset
• Australia• South America• Eastern Europe• Russia• Asia• Africa
• Land ownership (free title) • Risk- sharing lease structures• Farm management• Land development /conversion• Upstream or downstream value chain
investment • Permanent crops• Dairy• Land-based animal protein production• Aquaculture
Core6-10%
• North America• Row crop Land• Cash lease
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Informed decision making for global agricultural investing
Philippe de Lapérouse
Managing DirectorHighQuest Partners, LLC
314-994-3282pdelaperouse@highquestpartners.com
36
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