food security: global trends & opportunities seminar

Global Agri-food Investment Environment Food Security: Global Trends & Opportunities Seminar

© Farrelly & Mitchell 2010

Malachy Mitchell, Managing Director

Riyadh, Saudi Arabia, October, 2009

www.FARRELLYMITCHELL.ie

M&A

» Buy & Sell Mandates

» Strategic Partnerships & Joint Ventures

» Funding

» Commercial and Operational Due Diligence

» IPO Preparation / Vendor Support

» Business Valuations

Advisory

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» HR & Reorganisation Consulting

Our Services include: “We help companies to grow profits, increase efficiencies or invest or divest a business”

Presentation:

1: Drivers of Global Food Prices

2: Global Arable Land in 2007

3: Global Population

4: Evaluation of Large Scale Investment in Agriculture

5: Principals for Responsible Investment in Agri-Investments

6: The Research & Due Diligence Process

7: Global Food Trade Flows

8: Investor Strategies

9: Global Value Chain

10: Building an Investment Strategy

11: Valuing Farm Land

12: Investment Sector & Locations

13: Potential Rates of Return

14: Sourcing the Right Opportunity

www. FarrellyMitchell.com Food Security: Global Trends & Opportunities Seminar

1: Drivers of Global Food Prices


Source: Farrelly & Mitchell Research Department

s » Increasing speculation & hoarding

» Increasing trade protectionism

» Rising correlation with oil prices

Feedback Loops

» A severe Ei Nino event

» Climate change

» A renewed surge in oil prices

» Further productivity improvements

» Availability of additional land

» Availability of water

» Diverting land for biofuels

» Population & income growth

Particularly Asia

» Shifting diets - Higher calorie intake

» Diverting food commodities to biofuels

Uncertainties

Key Supply DriversKey Demand Drivers

Price of Food

2: Global Arable Land in 2007


Source: Farrelly & Mitchell Research Department

0

20

40

60

80

100

120

140

160

180US

A

India

China

Russia

Brazil

Canada

Australia

Nigeria

Argentina

Ukraine

Mexico

Kazakhstan

Indonesia

Turkey

Pakistan

France

Iran

Thailand

Niger

South Afric

a

Ethiopia

Spain

Poland

Germ

any

Romania

Afghainstan

Bangladesh

Italy UK

Japan

Saudi Arabia

10 countries hold 65% of the world’s arable farm land and

48% of its popula;on

» 1.4 bn hectares of land currently in arable production

» Additional 1.6 bn hectares could be added to production

Millions of hectares

3: Global Population Past & Future Trends


Source: UN Department of Economics & Social Affairs

0

2000

4000

6000

8000

10000

12000

2,000 years ago

1500 -‐1825

1825 -‐1927

1927 -‐1960

1960 -‐1975

1975 -‐2000

2000 -‐2008

2008 -‐2050

2050 -‐2200

Primitive cultivation/clearing

forests

Population Forecasts:Most of the growth will emanate from

Asia & Africa

Introduction of artificial fertilizers /

agri research

Green Revolution:Yield increase drive net

production

Global area extended from 1 bn to 1.4 bn ha’s/

Plant breeding commercialized

World’s Population in

Milli

ons

10.1 billion

people

4: Evolution of Large Scale Investment in Agriculture

Pioneer: 1980’s

United States Forest product companies

100% 8mber

Expansion: 1990’s

United States US ins8tu8onal funds &

private co’s 90% 8mber

10% non 8mber

Ins/tu/ons: 2000’s

US, Oceania, Brazil, Paraguay & Chile

Ins8tu8ons, Private/public co’s & REITS 75% 8mber

25% non 8mber

Globalisa/on: 2008+

US, Oceania, S&C America,

Europe, Africa & Asia Emergence of private

equity interna8onal funds 65% 8mber

35% non 8mber


5: Principals of Responsible Agro-Investment Developed by: World Bank, FAO, IFAD, UNCTAD


» Respecting land and resource rights

» Ensuring food security

» Ensuring transparency, good governance, and a proper enabling environment

» Consultation and participation

» Responsible agro-investing

» Social sustainability

» Environmental sustainability

6: Research & Due Diligence


P E S T

1st Stage

•  Country profiling •  PEST analysis

2nd Stage

•  Opportunity search •  Bench analysis

3rd Stage

•  Early due diligence •  Site visits & inspec@on of assets

4th Stage

• Advanced due diligence • Close acquisi@on/investment

7: Global Food Trade Flows


Rank Country Net Food Exports

(% of GDP)

1 New Zealand 7.5

2 Uruguay 6.6

3 Argen7na 6.6

4 Costa Rica 4.7

5 Chile 3.1

6 Malaysia 2.9

7 Thailand 2.7

8 Ecuador 2.5

9 Denmark 1.8

10 Brazil 1.8

Rank Country Net Food Imports

(% of GDP)

1 Hong Kong -‐4.4

2 Lebanon -‐3.9

3 Bangladesh -‐3.3

4 Algeria -‐2.8

5 Sri Lanka -‐2.7

6 Egypt -‐2.1

7 Morocco -‐2.1

8 Saudi Arabia -‐1.8

9 Portugal -‐1.8

10 Libya -‐1.7

Top 10 Net Food Exporters

Top 10 Net Food Importers

8: Investor Strategies


Key Metrics Gov/SWF’s P/equity, Inst. Investors & Hedge Funds

ObjecAves Strategic / Food supply Financial returns

DuraAon Long term Short term (4-‐10 yrs)

Geographic Focus Emerging Markets Today OECD/Brazil/ ArgenGna

Ownership Long term leases Preference for land ownership

*Deal Size 10,000 – 2m ha Up to 15,000 ha

Risks Accepts high poliGcal risks Favours low poliGcal risk countries

*Refers to size of individual deals – aggregated size of hectares under management by funds or investment

companies can also reach 1m hectares and above

9: Global Value Chain Analysis of publicly listed companies in global agribusiness


Suppliers

• 22.7% of value add

• 39.6% of market Cap

Farming


• 0.2% of market cap

Processing



Logis3cs



Packing & Distribu3on



» Agriculture globally is dominated by family owned and operated farms

» Processing and distribution are characterized by significant economies of scale

» Three factors are critical determinants to the development of farm structures:

- Access to credit & insurance,

- Lumpy inputs (machinery & skills)

- Nonagricultural wage rate

Source: The World Bank

10: Building An Investment Strategy


Investment Strategy

Risk

Time

Liquidity

Structure Sector

Currency

Loca9on

11: Valuing Farm Land


Land acquisi+on price

Lease price

Discounted value of all net future income streams

Net return to land a7er all other factors (labour, capital & management) have been remunerated –

35% to 50% of crop gross value

Soil quality Plot size Irriga2on/ water

Local climate Infrastructure Loca2on Development poten2al

Land value drivers -

12: Investment Sectors & Locations


Sector Comment Sample Loca/ons

Grain Weather/climate factor very important

Argen5na, Ukraine, Sudan, Kenya, Balkans, Bal5c's & Canada

Dairy Access to stable quality feed supplies and local market are

important

North America, Pakistan, Chile , Paraguay & New Zealand

Rice Weather/climate factor very important

Vietnam, Argen5na & India

Beef

Intensive system most profitable but highly vola5le market

Brazil, Argen5na, & Australia

Poultry

Specialist sector -‐ access needed to ver5cally integrated buyer/

processor

Brazil, Egypt & North America

13: Potential Rates of Return Potential rates of return for selected sectors/opportunities -


Opportunity Loca.on *Transparency Index (rank)

**Poten.al Returns (%IRR)

Intensive dairy produc1on

United Kingdom 12 20% plus

Grain produc1on Balkans 64 20% plus

Intensive dairy produc1on

United States 20 15 -‐25% plus

Grain produc1on South America 72 & 105 (Brazil & Argen1na)

15-‐20% plus

Grain produc1on Ukraine 118 30% plus Source: Farrelly & Mitchell Farrelly & Mitchell Research Department

*Source: The 2006 Transparency International Corruption Perceptions Index : Rankings; Finland – highest (1) & Somalia lowest (179)

**IRR calculations Includes discounted annual net cash flows and residual (movement) value of fixed assets

14: Sourcing the Right Opportunity


» Financial history

» Physical performance

» Capital structure

» Management team

» Information & control systems

» Location climate

» Location geopolitical / economic stability

» Infrastructure / water availability & sources

» Route to markets

» Scalability

» Future upside potential: Cash flow /

improvements / investment/ assets

» Planned exit strategy

Our initial Screening Check List

Contact Detailswww.FarrellyMitchell.com

EUROPE MIDDLE EAST & NORTH AFRICA AFRICA (SSA)SAUDI ARABIA

Dublin (Head Office)

Malachy Mitchell, ManagingDirector

United Arab Emirates

Chaitanya GRK, Senior Manager(MENA)

Ghana

Stephen Awuah, Senior Manager, Africa (SSA)

Riyadh

Najeeb Alhumaid, Partner

Telephone : +353 1 690 6550

[email protected]

Telephone : +971 4 279 8331

Mobile :+971 551991356

[email protected]

Telephone: +233 302 906850

Mobile: +233 59212 1723

[email protected]

Telephone : +966 11 4634406

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[email protected]

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