Rabo Equity Advisors is reportedly planning to raise between $350 and $400 million beginning in the first quarter of 2019 for a third fund created to invest in distressed food and agriculture companies.
Headed by Executive Chairman Rajesh Srivastava, Rabo Equity Advisors is the first private equity fund in Asia to be dedicated to the food and agribusiness sectors. With offices in Mumbai and New Delhi, it is controlled by Rabobank, which owns a 51 percent stake, while the remaining 49 percent is held by senior team members.
Through its first fund – India Agri Business Fund I – Rabo invested approximately $120 million in 10 companies. For its second fund – the India Agri Business Fund II – Rabo Equity Advisors raised $150 million in 2014. More recently in October 2017, the fund announced its plans to double its investments in the country, aiming to raise $400 million from global institutional investors.
Driving this push are actions that have been taken by the Indian government in support of its farming sector, including enhancing crop insurance programs, which in turn will mitigate the risk associated with agricultural production in the country. However, there are trends at work that indicate growing investment potential in the country.
Over the 32 years to 2012 India’s agricultural gross domestic product (GDP) increased at a rate of 3 percent per year, according to the report, India as an Agriculture and High Value Food Powerhouse: A New Vision for 2030 by McKinsey & Company.
The country’s vast and growing population, combined with increasing affluence and socio-economic shifts, are expected to see the country’s overall food consumption increase by 4 percent per year to 2030, while per capita food consumption is expected to increase by 3 percent per year. Consumption in rural areas is expected to climb by 2.5 percent, while food consumption in urban areas will see double this growth at 5 percent.
Based on these projections, and the expected growth in the country’s agricultural production, processing, and exporting activities, McKinsey foresees India’s agricultural industry growing at a rate of between 5.2 and 5.7 percent over the next two decades.
So far, the India Agri Business Fund II stands at approximately 60 percent deployed through minority deals with an average ticket size of $15 million. And after an expected three or four more deals completed, Fund II should be fully deployed next year. However, Srivastava told Live Mint that as markets expand and the level of comfort with investing in the space grows, the new fund will require a larger corpus, which it expects to raise through both domestic and overseas investors.
The most recent investment from Fund II occurred in September of this year when Rabo Equity Advisors agreed to invest Rs 140 cr (US$21 million) in Indian organic food company Nature Bio Foods Ltd. (NBFL), a wholly-owned subsidiary of LT Foods.
Launched in 1998, NBFL produces lines of organic products including rice, oils and oilseed products, grains, nuts, sweeteners, and spices, among others, generating 90 percent of its business through exports which are mainly focused on the U.S. and European markets.
Since its launch, NBFL has forged relationships with 80,000 farmers, or 12.4 percent of all organic farmers in India, reports Equity Bulls, while building out an extensive infrastructure including sourcing, processing, and selling, which all comply with global certification.
For the third fund, Srivastava told Live Mint that there are certain categories already on the radar for possible investment.
“Food and agriculture is a wide spectrum and there is a lot more to explore with around 35-odd sub-sectors that are suitable for PE firms to invest in,” he said. “Some of the segments we would like to invest in would be bakery and confectionery, cold chain, micro-irrigation and farm implements.”
Lynda Kiernan