pedro marques dos santos principal at quifel natural resources

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Sub Saharan Africa – The Last Frontier

Why does an European Investor engages in Agribusiness in Sub Saharan Africa?

Pedro Marques dos Santos

Principal at Quifel Natural Resources

Geneva, November 2010

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What is Quifel?Lisbon based Holding for Multiple Businesses in Multiple Geographies

Editions/BooksEditions/Books

ITIT

Real EstateReal Estate

Financial ServicesFinancial Services

EnergyEnergy

AgribusinessAgribusiness

WinesWines

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Why is Quifel interested in Agribusiness?

“Is the current food crisis just another market vagary? Evidence suggests not; we are undergoing a transition to a new equilibrium, reflecting a new economic, climatic, demographic and ecological reality.”Japanese Prime Minister, Taro Aso, 2009

“The best sector in the world that I know right now is probably agriculture. Everybody should become a farmer. Farming is going to be one of the greatest industries of our time for the next 20 to 30 years. I’m convinced that farmland is going to be one of the best investments of our time”Jim Rogers, 2009 (Jim Rogers cofounded the Quantum Fund with George Soros which gained more than4,000% in 10 years, while the S&P rose less than 50%.)

“Land is scarce and will become scarcer as the world has to double food output to satisfy increased demand by 2050. With limited land and water resources, this will automatically lead to increased valuations of productive land.”Joachim von Braun, Director General at the International Food Policy Research Institute, 2009

What do experts say? What can Investors

do about it?

Why Include Agribusiness in a portfolio?

Agribusiness represents a dynamic investment opportunity and is fast becoming an established asset class.

Agribusiness investments have the potential to produce an income or growth on your original amount invested and has historically had little, or no correlation to traditional investments such as the stockmarket. i.e. investment returns don’t follow the stockmarket up and down

What are the benefits? Diversification – Negative correlation with the

stockmarket is a good way of ensuring the value of your portfolio doesn’t go through the floor

Alternative asset classes – Agribusiness schemes can be a good alternative to investing in traditional assets such as direct shares or stock market based managed funds.

Tax benefits – Some countries encourage investment into Agribusiness, by introducing a series of tax incentives

Strategically Interesting

Financially

Reasonable

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So how does Quifel look at the Fundamentals?

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Need for more land

Need for higher productivity

2 major long term trends have determined Quifel’s overall business development and investment strategy in Agribusiness

• Asian land scarcity

• Brazilian current availability will decrease through time (and with increasing prices)

• Sub Saharan Africa’s available and less expensive land

• Increasing population (increasing demand)

• Globalization of consumption patterns (convergence)

• Increasingly globalization of the supply chain

Demand Side

FoodTrends

Supply Side

Land Trends

Source: The Economist, August 28th 2010

Land development as a no regret

approach

Context

… Will lead to a greater emphasis on

land expansion

Marginal improvements expected (after

decades of fast growth due to biotech

enhancements and farming techniques)…

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495488

Europe

1.288

19% 1,9% 18% 2,3%

AsiaNorthern America

48% 2,7%

85% of total agricultural production

189

Latin America

172

Africa38

Oceania

7% 2,2%

7% 4,1%

1% 0,1%

Share of world production

CAGR (2000-2009)

Although Agricultural production is concentrated in the North, it is in the South that growth prevails

Oil seed and cereal crop production in the World (Million tonnes) in 2009

Source: FAO Statistics

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Latin America

Expected

Agricultu

ral Flow

Cropped area Vs available land for agriculture (Million Hectares) in 2008

AsiaNorthern America Europe

Source: FAO and USDA statistics

Cropped area

Available land

In the Future, Africa should become increasingly relevant since it represents nearly 42% of available land in the world

Africa

• Latin America and Africa represent 75% of available land in the world

• Africa alone stand for 42%

Oceania

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Different regions, different challenges

Northern America Europe Asia

Latin America Eastern Europe

Sub Saharan Africa

Optimization

Conversion of land use (to agriculture; frontier lands)

Land expansion (revamp of past large plantations)

Land Availability

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So what to expect from Agribusiness in SSA ?

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Investment Flow in Agriculture Projects

Investment flows in Sub Saharan Africa will strengthen contributing to another Agribusiness Revolution (and with increasing liquidity)

Emerging Investment Flow

Current Investment Flow

Hundreds of Million USD

per year

Tens of Million USD

per year

Steady investment

flows mainly by

institutional investors

Rapidly increasing investment mainly from operators

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The gap between SSA’s increase in harvested area and production is a clear indicator of the potential underlying the growth of commercial farming

Source: FAO

Sub-Saharan Africa percentage in Total World harvested area (1961)

364,4 USD

CAGR1,6%

1961 2008

92.734.318 199.323.693

SSA Harvested Hectares

(Cereals + Oilseeds)

SSA Production in Tons

(Cereals + Oilseeds) 364,4 USD

CAGR 2,5%

1961 2008

61.943.983 206.996.596

Sub-Saharan Africa percentage in Total World harvested area (2009)

Sub-Saharan Africa percentage in Total World production (1961)

Sub-Saharan Africa percentage in Total World production (2009)

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Examples of Agribusiness Companies already operating in large scale projects in SSA

ç

• Sugar Cane 10.000 ha

• Palm Oil 40.000 ha

• Pineapple Exports 2.000 tons/year

• Sugar Cane Africa’s biggest producer

• Maize Mills ~70.000 tons per year• Sugar Cane

100.000 Ha

• Sunflower seed30.000 ha

• Sesame SeedOne of the biggest agribusiness

producer in the world

Source: Press Clippings and Publicly available information

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Strategy for obtaining land concessions (2007-2012)

Based in:

-Geographical diversification

-Diversification of crop systems

Context

The growing demand for vegetable oils

Excluding Brazil, Sub-Saharan Africa represents the “last frontier" for large scale agricultural projects

oLarge available areasoAccess to land at a low costoAggressive policies to attract FDI

Need to have a strong realism about the operational difficulties Africa (and the global management capacity to address them)

2

Establishment of a portfolio of land previously explored

1

Proven

Scale and Utility

Risk

Mitigation

Operational

Confidence

Infrastructural development and crop testing

3

Nevertheless, long term land concessions in SSA must address very relevant issues

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So how does Quifel approach Agribusiness in SSA?

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In 2007, QNR started its Agribusiness initiatives towards the creation of a multi geography operation

Angola

Con

go

Moç

TanzaniaM

alaw

i

The deployment of Agribusiness in 3 regional centers in Africa will:

•Diversification of crop systems

•Maximize yields at farm level, through economies of experience and R&D regional centers

•Create conditions for the know-how transfer and the possibly of innovative biotechnology projects

Liberia

Ivory Coast

SierraLeone

Gab

on

Equatorial

Guinea

Ghana

Current Concessions: 10.000 ha for Soy, Sesame and Sunflower

Concessions under legal process:

30.000 ha

Current Concessions:

20.000 ha for Staple Foods, Fruits and Sugar Cane


15.000 ha for Palm

Current Concessions: 28.000 ha for Soy, Sesame and Sunflower


20.000 ha

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These initiatives were conducted following on a two step approach Business Model for Agribusiness

• Strategic definition (Which Grains? Where? How?)

• Land scouting and selection

• Soil testing and climate evaluation

• Technical feasibility studies

• Operational deployment study

• Management Team selection

• Seeds, fertilizers, agrochemicals and machinery selection and testing

• Machinery acquisition

• Agricultural infrastructure development (example: grain containers)

• Soil preparation and plantation

• Harvests

• Seed enhancement

• Increasing acreage development

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SSA Project Deployment in Mozambique

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SSA Pre-Deployment in Sierra Leone

pedro marques dos santos principal at quifel natural resources

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