February 1, 2019

By Michelle Pelletier Marshall, GAI Media

Tai Lin is a managing director at Proterra Investment Partners, the $2.4 billion private equity firm that was spun off from Cargill’s Black River Asset Management in 2016. Proterra – which has offices in Minneapolis, Shanghai, Singapore, Mumbai, Sydney, Sao Paulo, and London – focuses primarily on investments in food and agriculture.

Working out of offices in Shanghai and Singapore, Lin directs the company’s food sector investments across China and Southeast Asia, and has been instrumental in building Proterra’s growth across Asia. In 2017, Proterra had over half of its total assets under management invested in China, Indonesia, India, Thailand, and the Philippines.

Lin has over 16 years of private equity investment and M&A experience, which includes a managing director post with Black River Asset Management. He spent multiple years in M&A investment banking in Hong Kong, London, and New York, during which time he worked on various transactions involving Asian markets and companies.

Lin currently serves on the board of numerous companies in the food and agriculture sector, including NR Instant, FKS Food & Agri, Guilin Seamild, PFI Foods, Golden Maple, Phoenix Eggs, and Riverstone Farms. He is a graduate of Vienna University of Economics in Austria.

GAI News caught up with Lin during his recent visit to Boston.

Global M&A totaled $3.6 trillion in 2016 with Asian and European countries favored as the epicenter due to a pro-deal receptive environment. Have you seen this hold true for agriculture, and what are the micro and macro-economic driving forces?

Overall, it appears that the global agribusiness sector is increasingly becoming a more corporatized business. Over the last 10 to 15 years we’ve seen – especially in emerging Asia and countries like China, India, and most in Southeast Asia – increased professionalism where families and farmers are handling more corporate-like activities. We believe the reason this is happening is the growth of population and demand, which in turn makes for larger companies that ultimately need a way to operate in a more structured manner. Further, the market is becoming more sophisticated as is the consumer, and agribusinesses are faced with a more competitive environment. Many of these traditional family businesses are now quite interested in partnering with larger overseas or Asian companies because they can provide additional value via brands, networks, or capital.

Additionally, Asia in general is an agri-commodity deficit region, and imports much of its soft commodities and food products. We believe the gap that has been created by the consumer demand for food and the inability or increased cost of producing those products, makes companies in Asia seek overseas options to procure their raw materials or food products. As they do this, it increases their partnerships with foreign groups, leading to M&A opportunities.

With this rising confidence in mergers and acquisitions in ag, where does Proterra see the most potential for M&A in Asia, as far as region and ag category?

With regards to the activities of the Food Strategy, which is focused on meeting food demand, we see emerging Asia as the biggest, strongest driving force in the growth for food globally. The areas we are focused on are China, India, and Southeast Asia.

China is a crowded market when it comes to foreign investments and M&A. If you look back 20 years within the food space in China, the focus was on food security and quantity – more was better; 10 years ago the focus was food safety. Today, the focus has appeared to move on to premiumization of foods, which means higher quality, more nutrition, more transparent as to where it comes from and how it’s made, more convenient, and more value-added. This change in consumer play means that many companies need to shift their strategy – where you were once a pure producer, now you need to think more about how to market, package, and make your product more convenient. In our opinion, this shift creates additional opportunities in M&A where you see a midstream player team up with a downstream company, and more joint ventures formed. You see big retail platforms team up with agricultural companies to help them sell their product better. We believe that this is driving M&A in the agribusiness space for China.

In Southeast Asia, we also foresee increased M&A opportunities. There we see most businesses run by families, built up over generations. There’s a changing of the guards where the next generation – the older millennials – are taking over, and they have different ideas for the business. They want to professionalize it, make it more attractive, and move more to B2C, which fuels M&A activities because this new generation is very open to input from the outside. They want foreign strategic or financial player input, which is very different from the traditional businesses of this area.

In India, our local investment team sees a strong consumer growth story driven by millennials. Surveys show that India is expected to have one of the fastest growing economies for the next 10 years, and even though they won’t reach the levels of China in terms of size and GDP, the growth in food consumption will still be a major growth driver for the consumption bucket of the overall economy for the next decade or more.

Proterra has its hand in many deals, such as last year’s divestiture of Goondiwindi Aggregation in Australia, 2017’s $100 million investment in Indonesia’s FKS Food & Agri, and the sale of the company’s stake in India’s Dodla Dairy Ltd. in 2016. How does Proterra go about evaluating these opportunities?

I can’t comment on the Australia divestiture as I was not directly involved, but it’s a positive event for Proterra and a nice achievement for the company and the team.

As far as the investment of FKS in Indonesia, it was relatively big for the country and the sector. If you think about Indonesia – where most studies predict it will be the fourth largest economy in the world very soon – we are seeing a “curious” situation. Curious in that it is a country that is huge – 268 million people – and it has many natural resources such as oil, gas, copper, gold and more, but for ecological reasons doesn’t have the ability to produce enough of its own food. FKS is the company who has leading market positions in origination, logistics, import handling, and distribution of most food commodities – soybeans, soymeal, sugar. It is the only company with a nationwide footprint of warehouses, providing, in our opinion, the best platform for the Indonesian supply and demand deficit for food and agri.

With Dodla Dairy, we took them to visit dairy farms in China where certain funds had made investments, and both parties were impressed with each other, so we decided to partner. Dodla has seven factories where they process the milk, purchasing it from tens of thousands of villages and farmers, oftentimes in very small volumes. This company provides an important livelihood for thousands of families, which is one of the reasons that when we exited Dodla, the buyer was a leading global impact investor. We are very proud of the financial and societal returns with Dodla.

Our strategy for our growth private equity Food Strategy sees us being more than just a shareholder – we need to be a driver of progressive change.

Has the U.S-China trade war affected food sector investments in the regions Proterra serves? If so, how, and what is the market doing to counter this?

Yes, there has been an impact from the trade war, however, there are good and bad things happening.

The trade war has certainly created havoc with commodity prices. Soybean prices are up and as a result in China, for example, feed prices for livestock are up so you would figure the cost of production would go up as well. But what companies are doing to counter this is to reformulate their feed and procure soybeans from other places, such as Argentina. There are all sorts of counter-measures being used. The net/net of it is that you can counteract the increase in soybean prices somewhat but you cannot remove the whole negative impact (for livestock).

My more important point is that this trade war is not as big of a deal. What makes the Chinese economy or a company perform well or not – is determined by 100 factors – and the trade war fallout is just one of them. The media currently talks about the U.S. trade war nine out of 10 times when it talks about things that matter to the Chinese economy, but it’s just not true that this trade dispute represents 90 percent of what impacts China’s economy overall. Ninety-nine other factors determine whether the economy or a company does well or not, and soybean prices are just one of these. In short, we believe it doesn’t matter as much as you would think to the individual company and when it does, it could actually be a good thing as well.

The primary impact of the trade discussions is that U.S. farmers can no longer sell their soybeans as well, and the Chinese livestock farmers are suddenly faced with higher prices, so no one is happy. The secondary impact is that in countries like Argentina and Brazil, they have seen their soybean prices go up 20 percent and they should be jumping for joy and cultivating more and more acreage and investing in logistics and the supply chain. China has a strategy now to diversify away from the U.S. and create new procurement relationships. So even if the trade war settles down in the next 90 days, you might not return to a previous normal because the landscape might have shifted somewhat. China might try and buy less from the U.S. and more from other areas going forward and that might shape the global soybean trade in the longer term. Livestock farmers in China too will likely have figured out more alternative substitutes.

More and more investors consider ESG standards before choosing investments for their portfolios. How has Proterra aligned itself with this growing sentiment and incorporated it into its target investment search?

ESG is very important to our firm. What I find a little frustrating with the current ESG topic is that everybody talks about it and says it’s important, but defining it is more complicated, and whether it makes sense in certain cases, especially when dealing in emerging markets, is a difficult question. For example, we were interested in investing in a banana/cocoa plantation in one of the poorest regions of the Philippines, but we said if we are to invest they would have to remove the under-aged workers. My contact said we will do as you say, but please know that if we send them home, their family will have no income and she and her sisters will have to stop going to school and be forced to do the worst jobs to make money. He asked if this is what we wanted? It’s all good intentioned, and it’s the right thing to do, but we have more work to do to refine and understand exactly what is good and what is bad when it comes to emerging markets.

Having said that, we conduct ESG due diligence on every potential deal, and we’ve rejected several deals for not meeting our required standards. We request annual certifications, we pay outside consultants to help our companies, we make periodic ESG reports, and we quantify the benefits of ESG activities of the companies we have partnered with. This is a very important topic that we continue to push and examine.

What sets Proterra apart from other private equity firms?

 There are not a lot of sizeable, pan-regional PE firms that are focused on food and agriculture. The focus on the sector makes a difference as we navigate our deals – it’s easy for us to find operators, we know people in the right places, and we can easily make the connections.

Another thing we’ve successfully undertaken several times is to build companies from the ground up. We seek to hire established management teams and then set up legal entities and fund them so that these teams can build up new industry-leading companies. These “greenfield” investments have been quite successful, and we have built industry leaders in this way. This is something we are proud of and is not easily duplicated by financial investors.

Michelle Pelletier Marshall is managing editor for Global AgInvesting’s quarterly GAI Gazette magazine and a regular contributor to GAI News. She can be reached at mmarshall@globalaginvesting.com.