April 27, 2016

By Tiffany Agard

After Monday’s short course on the fundamentals of agriculture as an emerging asset class, the second day of the 8^th annual Global AgInvesting (GAI) conference began with an overview of the global agricultural investing landscape.  Philippe de Lapérouse, Managing Director at HighQuest Group, producer of the annual event, opened the program with some insights on emerging trends in agricultural investing.

Advancing Strategies

As the industry has grown in importance and recognition, a number of large-scale institutional investors are bringing expertise in-house to enable direct investment, rather than investing through funds. Direct investment allows for greater control of diversification in investment strategies, potential profits and executive management. Companies like Credit Suisse have begun to expand directly into the ag space, and the growth of first-time attendees exploring the ag space at GAI is indicative of that. As knowledge, familiarity, and expertise increases in this space as well, investors are beginning to include operating risks into their portfolios along with real assets. Permanent crops, despite their capital-intensive start-up costs, can promise high returns and are increasingly added to portfolios as a long-term strategy play. Diminishing availability of real land assets and low annual turnover of these in the midst of an ag industry that is still growing has also urged investors to consider other parts of the agricultural value chain.

Consumer Influence

Additionally, changing consumer trends and sustainability are acting as a driver of new technology and business models. CPG companies are developing venture capital arms to acquire start-ups that are more receptive to consumer trends than internal product creation. Organic and non-GMO products still acquire a premium in the food industry. Consumer demand for these products and sustainable production has led a number of major food retail companies such as McDonald’s and General Mills to commit to producing products exclusively with cage-free eggs in the near future.

Regional Drivers

Beyond industry trends, there are also regional and country-specific drivers to consider. Africa’s potential has continuously been expounded frontier markets on the continent continue to attract capital. The recent $104 billion Anheuser InBev-SABMiller merger has been seen as a strategic move to expand deeper into African markets where SABMiller has a significant market share. In a recent report on deal activity in the agricultural space, HighQuest noted that 45% of investments in ag, approximately $6.9 billion, were invested in this sector in 2015. In addition to strategic industry players, private investments and family offices are increasing investment on the continent. Distressed assets in Brazil are also presenting an opportunity to invest capital. Real devaluation and the commodity downturn overleveraged companies who were buying large amounts of land. Companies are seeking capital as most efforts for capital-raising have been diverted in an effort to service debt. Most interestingly, de Lapérouse posits that Argentina is back in the game. After a recent trip to the country assessing agricultural production, meeting with government officials and interacting with industry professionals, de Lapérouse was impressed by the optimism and bullish outlook from industry players and investors as well as favorable government policy to encourage investment and production.