WEAKNESSES AND OPPORTUNITIES: SHARING IN THE AGRI AND FOOD VALUE CHAIN THROUGH INVESTING

Transcription

1 WEAKNESSES AND OPPORTUNITIES: SHARING IN THE AGRI AND FOOD VALUE CHAIN THROUGH INVESTING 12 TH AGRIBUSINESS AFRICA CONFERENCE 18 JULY 2018 CHRIS POTGIETER HEAD OF PRIVATE CLIENT SECURITIES 1 1

2 WHY INVEST IN THE AGRI AND FOOD VALUE CHAIN? Demand will increase DEMAND Population growth (especially in developing countries) Higher calorie intake per person (a growing middle class) Supply will be constrained SUPPLY Arable land (less being added) Water (coupled to climate change) Skilled Farmers (ageing generation) 2 2

3 DEMAND DRIVERS: GLOBAL POPULATION GROWTH In the last 57 years more than 4 billion people have been added to the planet and today between 800 million and 1 billion people are starving. Population growth in developing countries is equivalent to adding the entire current US population every four to five years. If this trend continues, the world population will expand to 8.5 billion people by 2030 and swell to 9.7 billion by Agricultural production will need to increase by over 50% to meet the needs of population growth Source: UN Report: World Population Prospects (2015 Revision), pg

4 4 4 AFRICA WILL SEE MASSIVE POPULATION GROWTH Source: Rabobank analysis based on World Bank & FAO, 2016

5 SUPPLY CONSTRAINTS : ARABLE LAND PER CAPITA 1965 (3.3bn) 1975 (4.1bn) 1985 (4.8bn) 1998 (6.0bn) 2015 (7.3bn) (world population) Source: UN Food & Admin Org, World Agriculture Towards 2030/2050, The 2012 Revision, Food & Agriculture of the UN: World agriculture towards 2015/2030, pg

6 SUPPLY CONSTRAINTS: WATER SCARCITY 70% of global freshwater used for agriculture Globally, 70% of global freshwater is used for agriculture. It is estimated that in 2030, 40% of fresh water demand is unlikely to be met, meaning that harvests will come under increasing pressure. Geographic selection and application of relevant technology is critical to ensure sustainability. Access to diversified water sources provides agri investors with more optionality Source: UN Water Development Report, MIT 6 6

7 7 7 ONE MORE HUGE CONSIDERATION.

8 BEYOND THE MACRO THEMES - WHAT FACES SOUTH AFRICA? 8 8

9 SOME FACTS ON AGRICULTURE IN SA Only 12% of land mass considered arable Only 1.5% under irrigation producing 30% of SA s crops SA agricultural performance is highly dependent on climatic conditions 20% of farmers produces 80% of production by value (scale of economies) Contribution to GDP dropped from 21% in 1910 to 2.5% now, but the agro-industrial complex contributes one eighth of SA s GDP Employed around 2million people in 1910, now less than 1million - modernisation played a role Biggest export market is Europe, followed by Africa and China 9 9

10 UNDERSTAND EXPORT OPPORTUNITIES AND THREATS Source: UNComtrade SA FOOD AND AGRI EXPORTS (2016)

11 UNDERSTANDING STAKEHOLDER INTERESTS UNDERSTAND THE ROLE PLAYERS & INTER-CONNECTIONS 11 11

12 WHERE TO FOCUS? KNOW YOUR MARKET & THE CHANNELS TO MARKET KNOW YOUR COMPETITIVE ADVANTAGES 12 12

13 Milestones by 2030 WHAT DOES THE NDP SAY ABOUT AGRI- AND FOOD BY 2030? Realise a food trade surplus, with one-third produced by small-scale farmers or households. Ensure household food and nutrition security. Critical Actions Boost private investment in labour-intensive areas, competitiveness and exports, with adjustments to lower the risk of hiring younger workers. Interventions to ensure environmental sustainability and resilience to future shocks. SA s comparative advantages Mineral and natural resource endowments A sophisticated financial and business services sector Proximity to fast growing African markets High-quality universities A modern, productive agricultural sector 13 13

14 14 14 SOUTH AFRICA S TWO WORLDS

15 15 15 A HUGE TASK, BUT AS SOMEONE SAID

16 16 16 HOW TO INVEST IN THE FOOD & AGRI VALUE CHAIN

17 THE AGRICULTURAL VALUE CHAIN INPUTS e.g. equipment, seeds, fertiliser, pesticides, FARMLAND COMMODITIES AND TRADING STORAGE /TRANSPORT /PROCESSING/ PACKAGING WHOLESALE/RETAIL OWNERSHIP Mostly public companies, some private companies Mostly private owneroperators. Some public/private funds Public and private companies Public and private companies Mostly public companies EXAMPLES OF KEY PLAYERS John Deere, Monsanto Yara, Mosaic, Bayer, Omnia Family ownership, Listed REITS e.g. Farmland Partners Bunge, Archer Daniels Midland, Amaggi, Raizen, Grainvest Cargill, JBS, Tyson Foods, Richardson, Mondi General Mills, Kraft, BRF, Nestle, Pioneer Foods, Tiger Brands INVESTMENT RETURN PROFILES Some cyclical Stable (if diversified) Highly cyclical Some cyclical Stable (if diversified) 17 17

18 GROWTH RATE & VALUE CAN DIFFER SIGNIFICANTLY BY ROLE IN VALUE CHAIN, CROP & GEOGRAPHY Parts of the value chain Crops Geography Profitability differs significantly by role in value chain Global growth rates vary widely depending on the Global growth rates vary widely across countries for crop same crop Average return on invested capital , % Annual growth rate of total production , % Annual growth rate of sugar cane production , % 18 18

19 A NEW SUPPLY CHAIN FOR CHANGING CONSUMER PREFERENCES Convenient Healthy Organic Sustainable 19 19

20 20 20 HOTSPOTS WHERE AGRIBUSINESS INVESTMENT IS LIKELY TO FOCUS

21 AGRI INVESTMENT RISK ASSESSMENT FRAMEWORK HIGHER RISK LOWER RISK GEOGRAPHY Developing Emerging Developed REGULATORY REGIME Subsidised, controlled Quasi-subsidised Free market HISTORY OF PRODUCTION Greenfield Brownfield Long history COST OF PRODUCTION High Medium Low COMMODITY PRICE RISK Undiversified Intra-region diversified Diversified WEATHER RISK Single asset Intra-sector diversification Diversified MARKET OPTIONALITY Single customer Few customers Global market WATER OPTIONALITY Single water source Few water sources Multiple water sources 21 21

22 22 22 THE PCS GLOBAL FOOD & AGRI PORTFOLIO

23 THE PCS GLOBAL FOOD & AGRI PORTFOLIO Designed to exploit investment opportunities presented by the favourable trends and long-term growth opportunities of the food and agricultural value chain. Invests in companies that focus on agricultural inputs (equipment, seeds, fertiliser, pesticides, etc.); farmland; applied research and technology; commodities and trading; storage; transport; processing and packaging; and the wholesale and retail of produced goods. Suitable for long-term investors seeking a broadly diversified portfolio with exposure to global demand for nutrition. Portfolio aims to outperform benchmark (MSCI ACWI Select Agriculture Producers Investable Market Index (IMI) in USD), after fees, over a rolling seven-year period

24 24 24 PORTFOLIO HOLDINGS

25 25 25 THE BOTTOM LINE

26 THEMES SET TO CONTINUE FOR SEVERAL DECADES Food demand will keep growing Population will continue to increase GDP per capita will continue to rise 800m 1bn starving people will need to be fed Land use for agriculture must intensify Not much extensification opportunity today Urban expansion will continue to take land out of production Farmland lost is almost always higher quality than land added Closing the production gap will take time Declines in irrigation water will negatively affect productivity Non-GMO, organic, grow-local, free range, etc. uses more land & resources per calorie to produce than traditional commercial methods (sustainable?) 26 26

27 THEMES SET TO CONTINUE FOR SEVERAL DECADES Water resource management will be critical Productivity and reduction of waste is imperative across the value chain Innovation will equip agriculture to cope with the competing challenges of addressing food and nutrition security, improving livelihoods, combatting climate change and sustainably managing natural resources There will be a way to feed the world and money will be made by investors who are able to select the right investments 27 27

28 28 28 THANK YOU

29 DISCLAIMER Old Mutual Wealth Private Client Securities ( PCS ) is a division of Old Mutual Wealth Trust Company (Pty) Ltd ( OMWTC ), an authorised Financial Services Provider, Reg No: 1925/002721/07. PCS is authorised to provide financial services on the OMWTC licence. All the calculations and assumptions portrayed in this document are based on information that has been determined through a variety of investment methodologies. Past performance is not a real indicator of future performance. The projections contained in this document are in no way guaranteed and any reliance on the information is made solely at the investors own discretion and risk. The information contained in this document, is of a general nature only and does not take into account the particular needs, objectives and circumstances of any individual. Although every care is taken in compiling this document and the information therein, it does not constitute advice in terms of FAIS and no guarantees are offered in respect of the information provided, the investment returns and/or capital invested. Save as otherwise provided in this document, all intellectual property rights is the sole property of Old Mutual Wealth or such owner of any intellectual property used in producing this material ( third party ), and shall not be reproduced, distributed, transmitted, displayed, or otherwise published in any format without the prior written consent of Old Mutual Wealth or such third party