2017 GLOBAL

AGINVESTING
CONFERENCE
Insights
 2017 GLOBAL AGINVESTING FORUM

“ Australian companies did an excellent job articulating the

investment thesis on why invest in Australian agriculture
at Global AgInvesting 2017. The very professional
discussion was backed up by an interesting case study
presentation by Troy Setter, Managing Director of
Consolidated Pastoral Company.”
Margaux Beauchamp, Executive Director, BDO Corporate Finance

INTRODUCTION
As part of its commitment to the Food and Agribusiness industry, BDO continues to attend the Global AgInvesting Conference (GAI)
in New York. In its ninth year, GAI is the world’s premier agricultural investment conference series, attracting over 8,000 participants
from more than 2,500 organisations worldwide to date.

The conference provides a comprehensive overview of agricultural investment opportunities across the globe, as well as the drivers
for where the money is moving in the world’s major production regions.

The 2017 conference had close to 700 participants and covered topics ranging from how the Food and Agribusiness industry is
performing globally, the investment thesis, portfolio considerations, where to invest in the Food and Agribusiness industry and the
effects of the Trump administration on the industry.

In addition to the main conference, BDO attended the short course looking at the Fundamentals of Agriculture Investment.
2017 GLOBAL AGINVESTING FORUM

INSIGHTS FOR AUSTRALIA

• Australia was cited as a key agricultural investment geography, • Australia was not considered to have a strong competitive
along with Brazil and North America advantage in wheat production
• Optimising investment strategies in agriculture requires • Investment attractiveness of aquaculture is limited by the
consideration, in particular, of: perception that it does not have input supply constraints
–– Changes in consumer behaviour which results in food • There were a number of American institutions looking for
trends Australian investments in excess of $150 million
–– Changes in government policy including trade deals, • There is a trend towards institutions wanting to invest directly
import restrictions, and regulatory requirements including into food and agriculture entities rather than investing via a
environmental considerations fund
–– Opportunities for changes in land and water use with more • There is an inclination towards investing along the supply
intensive land use and greater efficiencies, and land and chain in order to capture a higher margin and reduce
water flowing to the highest and best use variability
–– Opportunities to adopt technology • A business model used by some investors in the Australian
–– Industry consolidation and shifts in the value chain. Food and Agribusiness industry is to build an investment that
will be of a sufficient scale to on-sell to institutions and Asian
• The most enthusiasm globally is for protein and permanent investors.
crops
• The Australian agricultural sectors with the most investment
appeal are:
–– Protein: beef, lamb
–– Cotton
–– Permanent crops such as nuts, avocados, citrus, wine
grapes and hops.
 2017 GLOBAL AGINVESTING FORUM

AGRICULTURE INVESTMENT PERFORMANCE

The TIAA-CREF Center for Farmland Research conducts research, investment performance and stated, “No matter how you cut the
hosts academic symposiums, and works to inform policy on data to examine different time periods, agricultural investment
issues related to farmland prices and the financial aspects of has outperformed all other asset classes.”. For example, US Farm
farm management. The center is a specialised academic unit Land returned 10.27% per annum in the period from 1970 to
within the University of Illinois, USA. Bruce, J. Sherrick, Professor 2016 and 8.58% per annum in the period from 2000 to 2016.
of Farmland Economics and Director of TIAA-CREF Center for This compares with S&P500 index returns of 6.79% per annum
Farmland Research gave a detailed presentation on agriculture and 2.48% per annum respectively for the same periods.

Table 1: Total return for different asset classes

Asset Explanation 1970-2016 1980-2016 1990-2016 2000-2016
Class
US Ave United States farmland returns 10.27% 8.23% 8.84% 8.58%
Farm (all)
S&P500 American stock market index based on market 6.79% 8.19% 6.84% 2.48%
capitalisations of 500 large companies having
common stock listed on NYSE or NASDAQ
NASDAQ The Nasdaq Stock Market is an American stock exchange 9.63% 9.63% 9.15% 1.65%

EAFE MSCI EAFE is a stock market index designed 6.04% 6.11% 1.76% -0.26%
to measure equity market performance of
developed markets outside the U.S & Canada
TCMY10Y Ten year treasury constant maturity 6.57% 6.32% 4.74% 3.60%

AAA AAA rated US Corporate bond 7.70% 7.56% 6.15% 5.23%

All REITS Real estate investment trusts 9.09% 10.29% 9.74% 10.88%

Gold Return on the price of gold (USD/ounce) 7.41% 2.18% 3.91% 8.08%

CPI Consumer price index 3.95% 3.10% 2.41% 2.12%

Source: TIAA-CREF Center for Farmland Research

2017 GLOBAL AGINVESTING FORUM

INVESTMENT THESIS FOR FOOD &

AGRICULTURE
Phillippe de Lapérouse, the Managing Director of HighQuest Reduced production costs from adoption of technology and
Partners, put forward a very strong investment thesis for new analytics-based efforts
investment in the Food and Agribusiness industry. Key Evolving technologies are expected to play a significant role
supporting factors driving attractive investment returns were: in improving the performance of agriculture. Opportunities
to use technology to increase efficiency and productivity will
Population growth
transform agricultural processes, allowing farmers to have
Between now and 2050, the world’s population is expected to
better control over inputs and resultant quality of production.
increase from about 7 billion to almost 9.3 billion people, an
For example, innovations via robotics, precision agriculture and
increase of around 35%.
other automation techniques are likely to contribute to reduced
Increased urbanisation and the rise of the middle class volatility and improved efficiency at the field level.
As incomes rise and populations become more urbanised,
there is a shift towards more protein-rich diets, placing upward
pressure on demand for grain and eventually farmland pricing.
Constraints on supply
Factors driving constraints on supply include: water access,
climate change, linkage to energy markets (biofuel mandates),
deceleration of yield increases, and environmental regulations
on production.
 2017 GLOBAL AGINVESTING FORUM

INVESTMENT THESIS FOR FOOD & AGRICULTURE

Figure 1: Why Food and Agribusiness - Investment Thesis

Demand for land & soft commodities is

Supply & Demand Imbalances being driven by several strong macro trends

Inflation Hedge & Historically a tested store of value

Wealth Preservation in inflationary environments

Low Correlation to Other Outperformed traditional

Asset Classes asset classes long-term

Under-Owned by Farmland is an underinvested asset class

Institutional Investors because access and execution are difficult

Source: Philippe de Lapérouse, Managing Director, HighQuest Partners

In addition to favourable industry trends, low leverage, low Lower capitalisation rates are expected to be applied to
turnover rates, and thin markets also support the positive agricultural assets. Historically in the USA, the lease rate to
investment thesis for agricultural investment. TIAA Center farmland value implied capitalisation rate has tracked the USA
for Farmland Research estimates that in the USA the debt to 10 year Treasury Constant Maturity Rate.
equity ratio for the agricultural sector in 2016 was estimated
Despite the strong evidence to support food and agribusiness
to be 13.2% with real estate value of total assets being 83.7%.
investment, an investors’ bias as to what asset they would ‘like
Furthermore, tax advantages (both income and capital related)
to own’ is expected to continue to be a key factor in determining
and low interest rates compound the support for agricultural
agricultural investment decisions.
investment.
Within a portfolio, low correlation with financials and positive
correlation with inflation make farmland a strong portfolio
anchor asset.
Professor of Farmland Economics and Director of TIAA Center for
Farmland Research, Bruce Sherrick, believes positive outcomes
for capital providers to the Food and Agribusiness industry
are likely and future trends will include ‘financialisation’, with
equity and indexing vehicles to become more commonplace and
complex.
2017 GLOBAL AGINVESTING FORUM

A PERFECT STORM OF OPPORTUNITY FOR FOOD

& AGRIBUSINESS INVESTING
Strong and persistent secular tailwinds

1
• Population growth, coupled with increasing wealth and resulting animal protein consumption, creates
multiplicative impacts on upstream production requirements
• Increasing supply constraints create long-term challenges, strengthening the need to produce more with
less, increasing the need for investment.

Sector complexity reduces competition

2
• Multiple commodities and end products, complex value chains, and an evolving and expansive global
footprint
• The investment market is inefficient which provides opportunities
• A sector specialist with a long-term focus can invest across the value chain and construct a diversified
portfolio.

Industry consolidation creates opportunity

3
• Players looking upstream and downstream to gain tighter control of supply chain
• New entrants with disruptive aspirations
• Ongoing M&A consolidation will cause management distraction, talent migration, and asset sales
• Window to capture talent, acquire technologies and pursue development of opportunities while sector is
‘sleeping’
• Distraction and reduced R&D spending.

4
Changing consumer behaviour
• Consumer desire for healthy, natural and organic foods coupled with traceability of the supply chain to
ensure supplier accountability is increasing the requirement to understand the entire value chain, creating
a need to leverage new technologies and business models
• Large consumer goods packaging players are experiencing erosion.

5
New technologies coming to agriculture
• Autonomous vehicles, advanced robotics and image analysis
• Precision agriculture
• Next generation genomics, biologicals and chemistry
• Increased farmer sophistication through consolidation and generational transition
• ‘Internet of Things’ and cloud architecture for connected farms.

6
Evolving regulations
• New food safety regulations and testing requirements
• Rising tension between urban and rural stakeholders
• Changes in the global regulatory environment including trade agreements.

Food and Agriculture is a new capital frontier and growth equity is white space

7
• Venture capital has identified food and agribusiness as a new vertical and has deployed capital to bring
new technologies to the sector
• Companies are reaching commercialisation and are in need for growth equity to continue in their
development
• Despite the need, there are few firms participating in food and agribusiness growth equity
• Limited competition affords an opportunity to invest into competing growth platforms.
Source: Summary of Speaker and Panelists comments at Global AgInvesting 2017
 2017 GLOBAL AGINVESTING FORUM

AGRIBUSINESS AS AN ASSET CLASS

HighQuest Partners LLC highlighted that over the past three However whilst now growing by 8-10% per annum, HighQuest
decades, farmland investing has grown exponentially from a Partners LLC assess that institutional investment in farmland
‘niche’ investment dominated by a few large pension plans still represents less than 0.5% of the total global farmland
and insurance companies to a mainstream institutional real investment and is significantly less than institutional investment
asset class that increasingly can be accessed by retail-oriented in timber. Yet farmland is more than 3 times the investable
investors. universe of timber.

Table 2: Global Investment in Farmland

Total Global Farmland US$ Billion Total Global Timber US$ Billion

Total land 8,300* 425*

Investable universe 1,000* 300*
Institutional investment 45* 60*
* Estimates Source: HighQuest Partners LLC

Mark White, Head of Real Assets, Albourne Partners, gave a He also cited the key reasons an agricultural investment may
presentation at Global AgInvest on agriculture as an asset class. fail which included:
His principal point was that agriculture is an emerging and • Poor transparency
structurally developing asset class for institutions that provides • Irrelevant background
multiple opportunities for portfolio enhancement.
• Conflict of interest
Benefits include: • Hidden/high fees
• Diversification • Span of control
• Return enhancement • Key person
• Structural improvements and cost reduction of return • Scale – works both ways
profiles • Regulation
• Inflation participation and forward beta profiles. • Strategic drift
• Legal upset
As an asset class, agriculture has unique social objectives • Poor succession.
(Environmental, Social and Corporate Governance ‘ESG’,
Socially Responsible Investing ‘SRI’ or Economically Targeted Due to the unique characteristics of agriculture, the Chief
Investment ‘ETI’), which must be understood and interpreted Investment Officer of an institution may examine the three
before investing. aspects of performance drivers (commodity, base asset and
operational land) and identify the Key Success Factors (‘KSFs’)
Mark believes the best ways to build an agricultural investment necessary to execute on each of these drivers before the
strategy are through governance, strategic placement, Investment Committee makes a decision on investment.
sustainable strategy, sustainable firm and partnership.
2017 GLOBAL AGINVESTING FORUM

Figure 1.3: Key Success Factors

Strategic Due Diligence
and KSF.s Analysis

The Commodity Driver Operational Levers

• Supply and demand • Dependent on the base asset and commodity driver
• Cyclical • Requires varying degrees of operating expertise
Op

• Macro • Contractual experience and regulatory drivers

era

β α
y
dit

tio

• Beta • Strategic, but also prone to disruption

mo

na

• Uncontrollable • Encompasses ESG

lL
m
Co

ev
ers

Base Asset

The Base Asset Analysis

• Tangible
• Value-based
• Beta
• Limited to no control after
acquisition Source: Albourne Partners

Successful investment structures have centred around direct The current landscape for investment in agriculture structured as
investment with local management left in place. This has driven a fund is shown in Table 3. Sustainability and consumer concerns
a recent trend for institutions to bring sector expertise in-house regarding quality (providence of food) are becoming the drivers
to pursue direct investment, as opposed to investing via a fund. for the adoption of new technologies and business models, for
example, indoor farming of leafy vegetables adjacent to large
Permanent crops and situations involving a mix of real assets
consumption markets.
with exposure to operating risks along the supply chain have
also been gaining popularity. These direct investments are seen
to be a natural progression as investors look to change their risk
profile and look for higher returns.

Table 3: Agricultural Fund Investment Landscape

Metric Range Average

Fund Life (Years) 4-21 11

Investment Period (Years) 2-10 5

Management Fee of Committed Funds (%) 0.5-2.5 1.7

Carry to GP (%) 0-20 12.4

Preferred Return (%) 0-8.5 5.3
Source: Albert Partners
 2017 GLOBAL AGINVESTING FORUM

WHICH SECTORS ARE BEST FOR

INVESTMENT
In his presentation, Philippe de Lapérouse, Managing Director, The panel conveyed the view that protein and permanent
HighQuest Partners emphasised that because of agriculture’s crops are currently the highest in value and best use of land
complex market structure, there needs to be an understanding and water. They also mentioned one of the common themes
of how margins are shared at different points along the supply of the conference is that people are eating better and want to
chain. Ejnar Knuden, Chief Executive, AGR Partners, advised that know where their food comes from. A lot of best practices and
the best returns will be available to those that predict future technology are slow to be adopted due to a lack of knowledge
trends in agriculture, as by the time consensus is reached the and capital. Vertical integration and leveraging contracts to build
assets will be fully priced. bigger deals were highlighted as key performance predictors.
Kevin Schwartz, CEO, Paine Schwartz Partners, said they had
Optimising investment strategies in agriculture requires
achieved an IRR of 90% on their agribusiness post farm-gate
consideration, in particular, of:
private equity fund. He cited industry relationships as the key to
• Changes in consumer behaviour which results in food trends success and using partners and directors with significant industry
• Changes in government policy including trade deals, expertise. Kevin also said success requires extensive primary
import restrictions, and regulatory requirements including research.
environmental regulations
• Opportunities for changes in land and water use with more The key risks to investment performance were considered to be
intensive land use and greater efficiencies, with land and poor execution and commodity exposure.
water flowing to the highest and best use
• Opportunities to adopt technology
• Industry consolidation and shifts in the value chain.

The Agriculture Private Equity Panel members were:

• Rich Gammill, Managing Partner at Proterra Investment
Partners
• Alejandro Quentin, Founder and CEO, Pampa Capital
• Jason Silm, Head of Agriculture at ADM Capital
• Hunt Stookey, Director of Research & Investment Strategy at
Ceres Partners, LLC

TRUMP ADMINISTRATION IMPACT ON THE INDUSTRY

David Gray, the Senior Advisor of Altima Partners, talked about the effects of the Trump
administration on US agriculture and global trade. He expects bilateral negotiations to
become more difficult. However, the Trans-Pacific Partnership being scrapped increases
opportunity for other exporters, especially Australia and South America.
Trump’s general pro-business philosophy, coupled with that of the Republican Party, is
seen as beneficial for the Food and Agriculture industry at large. Confidence is high in
the agricultural sector, with some economists citing optimism among farmers following
Trump’s election.
David believes that despite Trump’s rhetoric, global supply chains are unlikely to be
materially modified.
2017 GLOBAL AGINVESTING FORUM

WHY AUSTRALIA FOR FOOD &

AGRIBUSINESS INVESTMENT?
Panelists in the discussion of Agribusiness opportunities in Investors were advised by the panel to be sensible when setting
Australia included: time frames and not to expect a quick return. Further, they
• Michael Blakeney, Investment Director, Blue Sky Alternative should conduct bottom up business valuations and not just rely
Investments Limited on third party property valuations.
• Richard Kriedemann, Partner, Allens
• Tim Biggs, Chief Investment Officer, Laguna Bay
• Elizabeth O’Leary, Head of Agriculture, Macquarie
“Foreign investment is very
Infrastructure & Real Assets. important for Australian
Key reasons cited by the panel as to why Australia represents
such a strong investment opportunity were: agriculture. Since European
• Attractive investment risk/reward returns
• Exposure to high growth, emerging Asian markets as a result
colonisation, there has always
of around two thirds of production being exported
• Well established and understood laws and government.
been foreign investment. Our
Traceability is another competitive advantage for Australia, first company in Australia was
with consumers demanding to know what they are eating and
where it came from. In order to exploit this, the panel believes the Australian Agricultural
Australian firms need to do a better job at marketing their clean,
green and quality food brands. Company. There has always
Strong deal flow exists across all asset sectors in Australia (not
just beef) with further consolidation of the industry required.
been wavesof capital from
Investors are adopting a range of investment models: direct
invest and operate, purchase and lease, asset management and
different sources over the
agricultural fund. There has been a dramatic shift in the supply
chain with a shift away from the spot market. Businesses need to
years.”
be of scale to fully capitalise on the opportunities available.
The panelists agreed that, although water is the most limiting Michael Blakeney, Investment
factor to Australian agriculture (as it is worldwide), the
developed water market in Australia means water flows to the
Director, Blue Sky Alternative
highest and best use. Investments Ltd
When choosing which Australian agricultural sectors to invest in,
the panelists recommended that investors consider:
• What products is Australia competitive in supplying?
• Which products are likely to be consumed in Asia?
• What products benefit from consumer desires for clean, green
and traceable foods?
The following sectors were considered by the panel to have the
greatest potential in Australia:
• Protein: beef, lamb
• Cotton
• Permanent crops such as nuts, avocados, citrus, wine grapes
and hops.
Looking to the future, Tim Biggs, the Chief Investment Officer
of Laguna Bay, is of the view that Australian farmland growth
rates are likely to be one of the highest in the world. Australian
rural land values are expected to increase at CPI plus 7-8%
which is the growth rate of Australia’s major Asian market, or as
a minimum at least two thirds of the high growth rates of Asia
plus Australia’s GNP.
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