Black Sea Grain 2018 Kiev April 18

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1 Fundamentals Driving Investor Interest in Global Agriculture Investing to Achieve Annual Returns and Capital Appreciation Philippe de Lapérouse Managing Director HighQuest Partners LLC Black Sea Grain 2018 Kiev April 18

2 HighQuest Group - advisory services, media and industry events Strategic advisor in global food, agribusiness and biofuels Leading industry event addressing growing demand for organic and non-gmo products The world's leading resource for events, research, and insight into the global agricultural investment sector 2

3 Supporting informed decision-making for strategic and financial investors across the global agricultural value chain 3

4 HighQuest Consulting 4

5 Why food and agriculture investment thesis? Supply & Demand Imbalances Inflation Hedge & Wealth Preservation Demand for land & soft commodities is being driven by several strong macro trends Historically a tested store of value in inflationary environments Low Correlation to Other Asset Classes Outperformed traditional asset classes long-term Under-Owned by Institutional Investors Farmland is an underinvested asset class because access and execution are difficult 5

6 Agriculture value chain - conceptually simple and yet challenging for efficient execution A complex market structure requires appreciation for how margins are shared amongst players at different points along the supply chain. Economic influences Technical influences Political influences Social influences Input Seed; Fertilizer; Pesticide; Herbicide; Farm equipment; Energy Production Growers; Cooperatives Storage Handling/ Trading Grain elevators; Brokers and traders Transportation & Logistics Ocean; Barge; Rail; Truck Processing Primary processing; Food and feed ingredients End users Food; Feed; Biofuels; Industrial Threat of new entrants Threat of substitutes Rivalry of industry competitors Products Bargaining power of buyers Bargaining power of suppliers Information and Money 6

7 Where to invest in food/agriculture? There are many ways to invest in most stages of the agricultural value chain via equities, corporate bonds, futures, options and ETF s. However the farming/production sector is not as easily investable, as it traditionally has been a fragmented industry with tightly held family run enterprises. This is slowly changing due to increased consolidation, driven by the demographics of the farming community and pressures to achieve economies of scale in production. Fertiliser, Seeds, Pesticides: BASF, Syngenta, Yara Farm Investments: TIAAf, Hancock, Macquarie, Rabo Farms Processing, Trading: Cargill, ADM, Bunge Further Processing & Marketing: Kraft, Nestlé Food Distribution: Tesco, Walmart Inputs Farming Processing Consumer Products Retail Institutional Investment In Agribusiness Direct Investments Closed-End Funds Tailor-Made Structures 7

8 Range of investment opportunities in the ag sector Real Assets Farmland Infrastructure Private Equity Upstream inputs(seed, chemicals, fertilizer, technology services, capital goods) Downstream storage and logistics value added processing of ingredients food/feed/industrial processing Venture Capital Biotech Enabling technologies (precision ag, biologicals and big data) Water theme investments Liquid Assets Public equities Commodity index funds 8

9 Dramatic increase in investment activity Institutional investment in farmland represents less than 0.5*% of the total most land around the world is privately owned. Institutional investment in farmland has been growing at 8-10*% p.a. ; currently +/- $45* billion. Farmland funds have increased from 20 in 2005 to in While historically most investment has been concentrated in North and South America, there is institutional appetite for agricultural investment in Australia, Eastern Europe and Africa. While farmland is an immature asset class in comparison to timber, the investable universe for farmland is over 3*x size many traditional institutional timber investors are either now investing or looking to invest in farmland.

10 Agriculture an emerging asset class? Farmland USD $ billion Timber USD $ billion Total land value 8,300* 425* Investable universe 1,000* 300* Institutional ownership 45* 60* *Estimates 10

11 Key issues driving farmland values Population growth and increase in GDP World population 9 billion in 2050 Increased demand in developing markets, particularly Asia, SE Asia and North Africa Shift in diets from grain to animal protein (Bennett s law) Increasing urbanization Pressure on available arable land for crop production Increasing reliance on processed foods Supply constraints Water access Climate change Linkage to energy markets(biofuel mandates) Deceleration of yield increases Environmental regulations on production Human capital Generational transfer in both developed and developing markets Lack of capacity building in developing markets 11

12 Availability and location of available global land reserves Urban 58 2% Potential Rainfed Cropland (3,024 million hectares) Current Arable % Net Reserves % Protected 204 Forest % Oceana 18 3% Net Reserves By Region (547 million hectares) Asia 87 16% North America 30 5% Latin America % Africa % 2 WHILE LAND IS AVAILABLE FOR PLANTING, MUCH OF IT IS NOT EASILY ACCESSIBLE 12

13 Commodity boom driven by shift of poor into the middle class 13

14 Protein demand increases a global phenomenon Substantial increases in protein consumption between 2000 and % 29.0% 32.2% 70.2% 41.4% 47.7% 23.7% 48.7% 23.3% Source: Baumé, FAPRI 14

15 Commodity demand driven by rapid GDP/capita growth in developing and emerging markets 15

16 China meal demand forecast to increase 60% Actual Chinese protein meal consumption was 73.8 MMT in 2013* substantially exceeding past forecasts Over the past 15 years, meal consumption in China has had a 99% correlation with GDP per capita. Based on this correlation and OECD projections for future GDP growth in China, HighQuest projects that Chinese meal consumption will increase by 60% over the next decade (50 to 80 million MT). *USDA GAIN 16

17 It would appear that climate change is real 17

18 Impact of climate change in Iowa 18

19 MT/ha Have yield improvements hit an inflection point? Global Yields for 4 Major Crops Historical and Projected % Trailing 10-Year Yield Improvement Corn 7 6 0% 5% Rice Corn Rice Wheat 0% 5% Wheat 2 Soybeans 1 0% Soybeans 0 5% Source: USDA, HighQuest analysis 0% 19

20 Opportunities for increasing productivity in emerging markets Total Factor Productivity Growth of Agriculture Average Change in Growth Rates ( ) Developed Countries 1.43% Developing Countries 1.96% Sub-Saharan Africa 3.37% Latin America 1.78% Brazil China 2.42% 2.60% Southeast Asia 1.53% Russian Federation 2.24% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% Source: OECD, FAO 20

21 Million MT Emerging markets expected to drive global crop and livestock production growth Projected Crop Production Growth (Additional production in 2024 vs ) Projected Livestock Product Production Growth (Additional production in 2024 vs ) Least Developed Countries Other developing countries Developed countries Source: OECD, FAO 21

22 Thesis for farmland investment 1. Fundamentals a) Supply < Demand Increase in supply slower than increase in demand b) Demand Rationing High & volatile prices Price signal for capacity expansion New demand creation biofuels and industrial uses c) Higher Land Values......and potentially attractive economics throughout the sector resulting from application of technology and efficient agronomic practices which will generate higher cash rents per unit of land which will be capitalized into the value of the land. 2. Inflation & currency protection 3. Uncorrelated returns with other assets classes 22

23 Farmland returns have been higher than CPI (inflation rate) can mitigate impact of market volatility on returns 40% Farmland Correlation to CPI 35% 30% 25% 20% 15% 10% 5% 0% -5% Farmland to CPI = 0.37 Farmland CPI Source: NCREIF, Federal Reserve Board 23

24 Mean Real Returns Returns on US farmland compared to other assets 14% Mean Return vs. Standard Deviation % 10% 8% NCREIF Farmland NCREIF Timber NCREIF Property Russell 2000 S&P 500 6% 4% Moody's Aaa 10-yr Treasuries Gold 2% 0% 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% Standard Deviation of Returns 24

25 U.S. farmland returns have exceeded DOW and S&P over the last 10 years (2017) 14% U.S. Farmland Returns vs. Dow and S&P* 12% 10% 8% 6% 4% 2% 0% 3-year 10-year Dow S&P Farmland *Components of farmland returns include accumulation of annual income generated by cash leases or sale of crops (less cost of inputs and operations) and land appreciation. Source: NCREIF, Federal Reserve Board 25

26 Farmland returns has outperformed most assets Annual Average Standard Coefficient Return Deviation of Variation Correlation Illinois 10.14% 9.58% S&P % 16.47% NASDAQ 10.09% 24.89% TCM 10-year 6.48% 2.97% AAA 8.71% 2.79% Mort30F 8.07% 3.29% Gold 7.51% 22.56% All REITs 9.08% 19.90% CPI 3.91% 2.83% Source: TIAA Center for Farmland Research, University of Illinois 26

27 Returns on Corn Belt cropland compared to other assets 50% Asset Returns % 30% 20% 10% 0% -10% -20% Total Farmland Return Timberland Return 10-year Treasury Yield Corn Belt Annual Cropland Return Commercial Real Estate Return Moody's Aaa Yield Source: NCREIF, Federal Reserve Board 27

28 Annual and permanent cropland returns compared to other assets 50% Asset Returns in the U.S % 30% 20% 10% 0% -10% -20% Annual Cropland Return Timberland Return 10-year Treasury Yield Permanent Cropland Return Commercial Real Estate Return Moody's Aaa Yield Source: NCREIF, Federal Reserve Board 28

29 USD/acre Farmland values low relative to capitalized value $14,000 Illinois Cropland - Nominal and Capitalized Values $12,000 $10,000 $8,000 $6,000 $4,000 $2,000 $0 Nominal value Capitalized value Source: USDA NASS, University of Illinois 29

30 Trends in agricultural investing as it emerges as an asset class Increasing tendency for large institutions such as pension funds to bring sectoral expertise in-house to pursue direct investments as opposed to investing in funds. Increased focus by investors on income components of returns with three implications: o Initial entry price more critical as long-term price appreciation opportunity less aggressive; o Permanent crops and situations involving mix of real assets with exposure to operating risks attracting investments as investors seek higher returns and o Investors are pursuing partnerships with strategic offtake partners Sustainability and consumer concerns regarding quality become drivers for the adoption of new technologies and business models (ex. indoor farming of leafy vegetables adjacent to large consumption markets). Frontier markets in Africa attracting capital. Argentina back in the game. Distressed assets in Brazil. Ag tech continues to attract capital. 30

31 Harvesting new opportunities North America Launch of REITS Growth of demand for organic food(crops and animal protein) Closed-loop land-based aquaculture South America Distressed assets in Brazil Argentina offers range of opportunities(grazing, crops and timber) Uruguay attracts FDI Paraguay cattle and timber Chile, Peru and Columbia specialty crops Europe Land consolidation in Eastern Europe Niche crops(olives + nut trees Conversion to organic production Sub-Saharan Africa Import substitution South Africa leads region in growth across wide range of crops and animal protein opportunities Sugar cane and palm Oceania + Australasia Opportunities in animal protein(cattle and dairy), row crops and permanent crops to supply Asian demand Water theme investments

32 Institutional Investor Views on Private Capital Performance

33 Unlisted Natural Resource Assets under Management by Primary Strategy(June 2017) Assets Under Management Div. Nat Res. = $36 B Water = $2 B Timberland - $16 B* Metals & Mining = $21 B Energy = $430 B Agriculture/Farmland = $28 B *Does not include institutional capital invested in TIMOs(estimated $31 B) and REITs (estimated $44-48 B). Source: New Forests 2017 Timberland Investment Outlook.

34 Unlisted Natural Resource Funds Raising Capital by Primary Strategy(January 2018)

35 Annual Unlisted Agricultural/Farmland Fundraising( ) 248 agricultural/farmland fund managers are active globally(2018). 117 funds closed( ) raising $25.3 billion.

36 Annual Unlisted Timberland Fundraising( ) 107 timber fund managers are active globally(2018). 77 funds closed( ) raising $19.1 billion.

37 Unlisted Funds Raising Capital by Geographic Focus(January 2018) Agricultural/Farmland Timberland

38 Fund Manager Views on Difficulty of Finding Attractive Investment Opportunities Compared to 12 Months Ago Fund Manager Views on Level of Competition for Assets Compared to 12 Months Ago

39 Risk/Return by Strategy( )

40 Investor Views on Sectors Presenting the Most Attractive Opportunities(2016 vs. 2017) Investor Views on Pricing of Commodities by Strategy

41 Investor Views on Macroeconomic Factors that Had Largest Impact on Natural Resource Portfolios in 2017 vs. Predictions for 2018

42 Example of sub-allocation framework for an ag portfolio Geography Australia South America Eastern Europe Russia Asia Africa Type of Asset Permanent crops Dairy Land-based animal protein production Aquaculture Core 6-10% North America Row crop Land Cash lease Operational / Development Land ownership (free title) Risk- sharing lease structures Farm management Land development /conversion Upstream or downstream value chain investment 42

43 Informed decision making for global agricultural investing Philippe de Lapérouse Managing Director HighQuest Partners, LLC North Warson Road, Suite 218 St. Louis, Missouri USA (314) / 43