November 6, 2019

By Lynda Kiernan

EXEO Capital’s Agri-Vie Fund I has exited its investment in South Africa-based HIK Abalone Farm. After a partnership lasting more than eight years, the interest has been sold to African Pioneer Group.

HIK was established in 1998 in the coastal town of Hermanus, and already had a strong leadership team and presence  in the abalone farming industry when acquired by Agri-Vie.

Over the course of the eight years in the Agri-Vie portfolio, the investment firm committed R41.5 million (US$2.8 million) across two tranches in the business, and Izak Strauss, partner, EXEO Capital, states that upon exiting, the firm realized “an excellent return” that was aligned with expectations.

“Over the eight-year investment term, we were able to assist the company in improving the evaluation of new investments and capital projects, as well as improve their financial reporting and corporate governance,” said Strauss.

“We were also able to enhance our knowledge of aquaculture business in our interaction with the company and industry,” he continued. “We expanded our network in the industry through building a strong relationship with management and fellow shareholders.”

A Look at Abalone

As per a report issued by the UN Food and Agriculture Organization (FAO), global abalone production was 150,000 tons in 2016. Of this total, Africa accounted for 1,500 tons, or 1 percent of global output. Even at these levels, Africa is the third largest producer after China and South Korea. 

Though a niche market, abalone is a very high-value segment with average prices holding steady in South Africa between US$30 and US$50 per kilogram, as the South African Haliotis midae is highly valued in eastern markets due to the high quality of its meat, which is similar to the Japanese variety, Haliotis discus hannai. 

As rampant poaching has significantly reduced wild abalone populations in South Africa, abalone farming has seen rapid growth in the country to become the fastest growing aquaculture segment. However, there exist some serious challenges for the industry. 

Armed criminals have begun stealing from farms, even going to far as taking security guards hostage, according to National Geographic, which also tells of farms hiring expensive security forces and transporting their harvested abalone in armored vehicles and with armed guards. And as abalone becomes more scarce and more controlled by fewer private players, these issues are only expected to intensify. 

Other challenges include red tides, that in one instance lasted for 42 days and led to the loss of up to 50 precent of some farms’ stock; a difficult regulatory environment with multiple permits required; high energy costs; labor issues; and a wide-reaching black market. 

But there is a great advantage to operating a business in rands and selling abalone in dollars, creating a good hedge for investors such as Agri-Vie, which states that aquaculture remains an investment focus.

“Just last year, our Agri-Vie Fund II concluded an investment into TerraSan – a fast-growing aquaculture company operating on the South and West coasts of South Africa,” said Strauss. “This is our second Agri -Vie Fund, building on the success of its predecessor $100m Fund.”

– Lynda Kiernan is Editor with GAI Media and daily contributor to the GAI News and Agtech Intel platforms. If you would like to submit a contribution for consideration, please contact Ms. Kiernan at lkiernan@globalaginvesting.com.