foreign investment in farmland - europa

Dr. Angus Selby

Altima Partners

Foreign Investment in Farmland: The Large v Small Farmer Debate

European Parliament

4 October 2011, Brussels

2

Food Security and Large Scale Farming - Key Questions

Q6 – CAN THE PRIVATE SECTOR PLAY A ROLE TO BENEFIT BOTH LARGE AND SMALL SECTORS? A: Yes.

Strictly Private & Confidential

Q5 – CAN WE AFFORD TO IGNORE/DEMONISE LARGE SCALE PROFESSIONAL FARMING? A: Surely Not?

Q4 – WILL SMALLHOLDER FARMING BE ABLE TO FEED THE WORLD OF TOMORROW? A: Very Unlikely.

Q3 – IS THERE IS MORE LAND GRABBING IN THE PRESS, THAN ON THE GROUND? A: Very Likely.

Q2 – BUT SHOULD WE PANIC? A: No, there are practical, pragmatic solutions.

Q1 – SHOULD WE BE WORRIED? A: Yes, the macro picture is concerning.

3

Altima - Agriculture Private Equity Platform

• Founded in 1966. • One of the largest agricultural

operators in Europe with approx. 70,000 ha under management.

• First large-scale Western operator in Eastern Europe in early-mid 1990s.

• Founded in 1987. • Largest agricultural production company

globally with nearly 1 million planted hectares producing nearly 3mn tonnes of grain annually.

• El Tejar operates across Brazil, Argentina, Uruguay, Bolivia, and Paraguay.

• Pioneers of Zero Till farming techniques.

• Founded in 2004 in Zambia. Altima invested 2009 • Based on a Zimbabwean model/company

established in 1974. • Approx. 5000 ha cropping under management.

• Established Demeter Farming with Altima in 2010

• Bought and converted approx 6000 hectares of distressed forestry assets back into productive farmland


Altima’s Ag-Private Equity Strategy is

premised on finding and supporting the

best farm management teams in each

region. Investments target people first,

assets second.

0

1

2

3

4

5

6

1950 1960 1970 1980 1990 2000 2010 2020F 2030F 2040F

Illustration of the Global Demand Forecasts for Food, Feed, Fuel and Fibre: 1950 - 2050

Bill

ion

Met

ric

Ton

nes

per

Yea

r Food Feed Fuel Fibre

Source: USDA; FAO; FAOSTAT; Altima Research

Strong Demand Forecast for Agricultural Products

Strictly Private & Confidential 4

0

50

100

150

200

250

300

350

1950 1970 1990 2010 2030F 2050F

Illustration of Global Meat Consumption and

Forecasts: 1950-2050.

Mill

ion

MT

0

10

20

30

40

50

60

1980 1984 1988 1992 1996 2000 2004 2008

China, which first imported soybeans in the mid-1990s, now

accounts for nearly 60% of the world’s total soybean imports.

(%)

0

2

4

6

8

10

12

1950 1960 1970 1980 1990 2000 2010 2020F 2030F 2040F 2050F

0,0

0,1

0,2

0,3

0,4

0,5

0,6

Glo

bal

Po

pu

lati

on

an

d

Hec

tare

s A

rab

le L

and

(B

illio

ns)

Arab

le Land

per C

apita

(Hectares)

Source: Altima Research – Based on USDA; FAO; and World Bank data

Increasing Uncertainty of Supply

Limited Supply of Productive Arable Land

Arable Land per Capita

Grain Consumption per Capita

Arable Land

Population

Other drivers of Supply Uncertainty:

• Increasing Water Insecurity will further limit the range of productive arable land

• Increased Weather patterns undermine the confidence of supply

• Changing Trade Flows restrict and increase the cost of the supply response

• Information Quality under increasing scrutiny undermines confidence further eg: USDA

• Increasing Protectionism could restrict the flow of capital and goods, undermining supply


Increasing Commodity Prices & Decreasing Stock-Consumption Ratios

Commodity Prices

Normalised crop price trends have increased

over the past ten years, driven by structural

factors including declining stock-use ratios,

seasonal weather volatility and shifting trade

flows.

Wheat

Sugar

Corn

Soybean

Cotton

Key

Palm Oil

Rice

Wheat

Sugar

Corn

Soybean

Cotton

Key

Palm Oil

Rice

0%

10%

20%

30%

40%

50%

60%

70%

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

Year

Sto

ck:C

on

sum

pti

on

Rat

ios

and

Tre

nd

s

Cotton

Wheat

Sugar

Corn

Soya *

Linear (Soya *)

Linear (Corn)

Linear (Wheat )

Linear (Cotton)

Linear (Sugar)

Stock-Consumption Ratios

Declining stock-consumption ratios underlie

the price increases visible across the crop

complex and imply multi-season structural

support to current price appreciation.

Source: USDA

Cotton

Wheat

Sugar

Corn

Soya *

Linear (Soya *)

Linear (Corn)

Linear (Wheat )

Linear (Cotton)

Linear (Sugar)


Focus on Yield Improvements

Options to meet the Pending Production Gap


... Developing economies are likely to be key areas of additional production …

61%

31%

8%

Sub-Saharan Africa

Latin America

Others

Additional un-used or underutilised available cropland globally.

Source: McKinsey Global Institute, 2010.

Bring Additional Land into Production Invest in New Technologies

1 2 3

Source: World Bank, 2008.

The yield gap between Sub-Saharan Africa and the rest of the world for cereals has widened over time.

• Genetic improvement of seeds • Development of more advanced fertilisers

• Increase effectiveness of herbicides & pesticides

• Land management practices

Smallholder Production

... Unless the full finance/capital cycle is viable and complete, smallholder initiatives are inherently vulnerable,

… on multiple fronts .

The Numerous Challenges Facing the Smallholder Farmer

Land

PRODUCTION

FACTORS

Water

Infrastructure

& Equip

Labour

Inputs

MANAGEMENT

Production and

Management

SUPPORT &

EXTENSION

STORAGE

PROCESSING

AND

LOGISTICS

LOGISTICS

MARKETMARKET

MARKETING

FINANCEFINANCE

COMMON AREAS OF BLOCKAGEOR FAILURE

1

Land rights are often ill-defined and insecure.

11

Equipment is often unavailable or expensive.

22

22

33

33Inputs are often late and expensive.

44

44Farmer support is often obsolete unreliable and misleading.

55

55Production techniques are often sub-optimal and inefficient.

77

77Markets are often distant and unpredictable.

8888

Pre-season finance is often unavailable to smallholders, or late, and expensive.

6

Storage often lacking. Processing opportunities limited. Transport often expensive.

66


Source: Selby (2006; 2009)

Farm Size (Different Scale for Different Farm Types)

Effi

cien

cy

2

3

1

4

8

5

6

7

Small scale producers can be relatively efficient

given optimal use of low cost family labour.

Medium scale producers less efficient as forced to enter

labour market but too small to enjoy economies of scale.

Best commercial farms enjoy economies of scale, mechanisation and

optimality, plus competitive advantages in innovation, marketing and other core factors through the

operating matrix.

Best Corporate farms enjoy economies of scale and optimality, plus

competitive advantages in innovation, procurement, technology, storage,

logistics marketing and capital access.

Inefficient or badly run large scale operations are usually less productive

per unit area than poorly operated small or medium scale outfits such as

those at position 6.

Occasionally an exceptional business model will scale high

efficiencies over huge areas but this is unusual in the agric sector

which is part art part science.

More often than not huge farms are based on extensive or speculative bases which are usually the least

productive and inefficient per unit area due to stretched management.

Unproductive small farms typically characterised by

deteriorating soil and water resources, poor practices and/or

families with health (eg: HIV) difficulties.

Range of

efficiencies

significant: Old

adage that Top

10 percent of

most farming

sectors make

90 % of profit.

The Farm Size v Efficiency Debate

Source: Selby (2006; 2009)

Near Term Operational

Geographically concentrated

Informal “Mom & Pop” Business

Very Small

Obsolete, uniform, static

Grower of Crops

Limited and Isolated

Conventional

Commodities

Ageing Artisans

Local and Limited

Long Term Holistic – Operational, Financial, Political, Weather, Disease

Regionally Diversified

Formal Professionalized Corporate

Large with Economies of scale

High tech, cutting edge, constant adaptation

Value Chain Businessmen

Extensive and Global

Flexible, dynamic

No-till, precision technology

Differentiated products

Young Qualified Professionals

Global, Regional, National

Sust

ain

abili

ty

Ris

k M

anag

emen

t B

usi

nes

s M

anag

emen

t Te

ch

Traditional Professional/Corporate

Risk Focus

Location

Structure

Scale

Technology

Mindset

Relationships

Strategy

Production Systems

Production Output

People

Policy Influence

Competitive advantages Hard Assets: Land, machinery, infrastructure Soft Assets: Know-how, networks, information

Rigid

Traditional Farming Versus Professional/Corporate Farming

The average age of an American farmer is over 60

The average age of a European farmer is nearly 60

Points to consider


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Food Security and Large Scale Farming - SUGGESTIONS/CONCLUSIONS

• IMPLEMENT A MULTI-MEDICINE APPROACH - (I.E SUPPORT ALL FARM TYPES AND SECTORS)


• IMPORTANT TO DEFINE BETWEEN RESPONSIBLE INVESTORS AND LAND SPECULATORS

• SMALL FARMS NEED TO LEVERAGE SYMBIOTIC OPPORTUNITIES WITH LARGE FARMS

• LARGE SCALE FARMING HAS IMPORTANT SUPPLY CHAIN AND RISK MANAGEMENT ADVANTAGES

• SMALLHOLDER FARMING (ALONE) IS UNLIKELY TO FEED THE WORLD OF TOMORROW

• CONCENTRATE AID ON TANGIBLE SUPPORT SUCH AS INFRASTRUCTURE

• CHANNEL AID/SUPPORT THROUGH THE PRIVATE SECTOR TOO

CASE STUDY - CENAFARMS Zambia Ltd.

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CENAFARMS is Altima’s agro-champion in Southern Africa.

This platform investment is scaling up a unique business model based on satellite commercial farms, smallholder out-grower schemes, and vertical integration.

AIM: To become Central Africa’s most efficient, integrated and sustainable producer of basic foodstuffs.

Existing Hub

Planned Hub

Lusaka

N Existing position:

•Production:

• 3 existing ‘hubs’ comprising 5000 acres of commercial cropping • Mainly irrigated cropping (80%) • Focus on: Wheat, Soya Beans, Maize • Nascent smallholder out-grower scheme in place

•Processing:

• Capability established at 2 sites, and being developed at the third farm hub • Milling of Maize and Wheat to produce Maize Meal, and Flour • Baking of flour into bread for local market

•Marketing:

• Focus on the local domestic market where demand continues to increase • Twin strategy on protein and carbohydrates


13 Strictly Private & Confidential

CENAFARMS CASE STUDY: Responsible Investing Principles

A socially and environmentally responsible approach to investing is a core element of our strategy.

Principles:

• Macro Ethical, Environmental and Social Responsibility

• Promote Community Development

• Proactive Soil Management

• Sustainable Water Use

Engaging proactively in broader debates and initiatives:

- Altima have been at the forefront of discussions with the World Bank and FAO in an attempt to develop a set of pragmatic guidelines for responsible investing in farmland by the private sector.

- Altima reps also play a lead role in a select industry working group focused on promoting

transparency, and establishing a broader set of ESG guidelines for Private Equity groups targeting

agricultural investments in emerging markets (particularly Africa).

CENAFARMS CASE STUDY: Integrating the Smallholder Opportunity

Goal: To lead the integration of smallholder agriculture into the formal market place.

Agri-Enable is a 100% subsidiary of CENAFARMS created to establish our outgrower and service provision scheme for smallholder farmers.

1) Retail of Farm Inputs

2) Service Provision

Overview:

Overview: • Sale of Seed, Fertiliser, and Chemicals • Farmers will be able to exchange their produce

for inputs each season

Overview: • Access to a set of key services including, mechanised tillage; spraying; and milling.

3) Purchase, Processing, and Sales (Trading)

• Purchase of smallholder output for cash, or as an exchange for the equivalent value in inputs.

A proposition centred on (a) Value; (b) Reliability; and (c) Location.


4) Provision of Technical Assistance

Overview: • Working with select teams of farmers to improve production techniques and yields

• Partnering with established experts – see next slide

CENAFARMS CASE STUDY: The Agri Enable Partnership with CFU


Established in 1995 to develop and promote the adoption of Conservation Farming (CF) and Conservation Agriculture (CA) practices by small-scale farming communities in Zambia.

[email protected]

The benefits are considerable:

In 1999 the Zambian

Government endorsed the

promotion of CF as national extension

policy.

Established in 1995. 4 staff working with

2,000 farmers.

1995 2015 2000 2005 2010

By 2008 the CFU had 54 field officers

working with 120,000

smallholders.

Currently the CFU team incorporates

90 field officers working with over

180,000 smallholders.

By 2015 the CFU will be working in 5 SSA countries, and

influencing the lives of approx. 350,000

small-scale farm households.

A history of success in Zambia, with approx. 200,000 smallholders now using CF technology in concert with the CFU.

SmallholderConservation

FarmingCommercial

Tonnes / ha 1.6 3.5 6.5

$ / tonne (net of transport) 211 214 200

Revenue 338 749 1,300

Seed 51 54 75

Fertilizer 157 240 415

Chemicals 26 40 87

Labour & Machinery 60 121 272

Input Costs 295 455 849

GROSS MARGIN 43 294 451

Maize

Source: Altima Research.

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http://www.conservationagriculture.org/CFU/index.html

mailto:[email protected]

http://www.conservationagriculture.org/CFU/index.html

Reading List

• FAO. 2009. The state of food insecurity in the world. Rome.

• World Bank. 2010. Rising global interest in farmland: Can it yield sustainable and equitable benefits? Washington DC.

• UK Govt Office for Science. 2011. Foresight: The future of food and farming. London.

• Godfray, H.C.J. et al. 2010. Food security: The challenge of feeding the 9 billion. Science Express, Jan ‘10, 1-14.

• Collier, P. 2008. The politics of hunger: How Illusion and Greed Fan the Food Crisis. Foreign Affairs, 87, 67-79.

• Byerlee, D. et al. 2009. Smallholders unite: Response to Collier, 2008. Foreign Affairs. http://www.foreignaffairs.com/articles/64661/derek-byerlee-and-alain-de-janvry-joan-vanwassenhove-and-donna-b/smallholders-unite

• FAO. 2009. Land grab or development opportunity? Agricultural investment and international land deals in Africa. Rome.

• USAID. 2009. Global Food Insecurity and Price Increase. Situation Report #1, 2009. Washington DC.

• World Bank. 2008. World Development Report 2008: Agriculture for Development. World Bank, Washington D.C.

• Livingston, G. et al. 2011. Sub-Saharan Africa: The state of smallholders in agriculture. IFAD, Rome.

• Hazell, P. 2011. Five big questions about 500 million small farms. IFAD, Rome.

• von Braun, J. 2008. The food crisis isn’t over. Nature, 456, 701.

• USDA. 2008. Global agricultural supply and demand: Factors contributing to the recent increase in food commodity prices. Washington DC.

• Bruinsma, J. 2009. The resource outlook to 2050: By how much do land, water use and crop yields need to increase by 2050? Rome: Paper for the expert meeting on How to feed the world in 2050. FAO.

• Royal Society. 2009. Reaping the benefits: Science and the sustainable intensification of global agriculture. London.

• Sachs, J. 2010. Monitoring the world’s agriculture. Nature, 468, 558-560.

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Disclaimer

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foreign investment in farmland - europa

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