GAIA15 T1.1 de Laperouse - Global AgInvesting...2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044 2046 2048 2050 Global&Middle&Class&Consumption

Global AgInvesting Asia 2015September 22 -‐ 24Singapore

Welcome and Opening CommentsPhilippe de LapérouseManaging DirectorHighQuest Partners LLC

HighQuest Group -‐ advisory services and industry events

Strategic advisor in global food, agribusiness and biofuels

Media and conferences forthe agricultural industry

The world's leading resource for events, research, and insight into the global agricultural investment sector

2Proprietary information – not for distribution. Copyright © 2015 by HighQuest Partners LLC. All rights reserved.

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


HighQuest events

4

The leading event in agribusiness focused on recruiting, retaining and developing advancing

female professionals

The global oilseed and grain sectors’ annual event addressing key industry trends and promoting networking across the supply chain -‐ celebrating its 10th anniversary

in 2015

SUMMIT • MINNEAPOLIS • 2015

th

The world's premier agriculture investment conferenceand investment resource

Proprietary information – not for distribution. Copyright © 2015 by HighQuest Partners LLC. All rights reserved.

Our inaugural agriculture technology investment conference

Why food and agriculture – investment thesis?

Supply & Demand Imbalances

Inflation Hedge & Wealth Preservation

Low Correlation to Other Asset Classes

Under-‐Owned by Institutional Investors

Demand for land & soft commodities is being driven by several strong macro

trends

Historically a tested store of value in inflationary

environments

Outperformed traditional asset classes long-‐term

Farmland is an underinvested asset class because access and execution are difficult

Page 5Proprietary information – not for distribution. Copyright © 2015 by HighQuest Partners LLC. All rights reserved.

Input

• Seed;• Fertilizer;• Pesticide; • Herbicide;• Farm

equipment;• Energy

Production

• Growers; • Cooperatives

Storage Handling/Trading

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

A complex market structure which requires appreciation for how margins are shared amongst players at different points along the supply chain.

Agriculture value chain – “conceptually simple and yet challenging for efficient execution”


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.

RetailConsumer ProductsProcessingFarmingInputs

Processing, Trading:

Cargill, ADM, Bunge

Food Distribution:Tesco, Walmart

Further Processing & Marketing:Kraft, Nestlé

§ Direct Investments§ Closed-‐End Funds§ Tailor-‐Made Structures

Fertiliser, Seeds, Pesticides:

BASF, Syngenta, Yara

Farm Investments:TIAA-‐Cref, Hancock, Macquarie, Rabo

Farms

Institutional Investment In Agribusiness

Page 12 Proprietary information – not for distribution. Copyright © 2015 by HighQuest Partners LLC. All rights reserved.

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

Range of investment opportunities in the ag sector


Agriculture – an emerging asset class?

• Institutional investment in farmland represents less than 0.5*% of the total – most land around the world is privately owned

• However institutional investment in farmland has been growing at 8-‐10*% p.a. -‐ currently around $45*bn

• While historically most investment has been concentrated in North and South America, there is new institutional appetite for agricultural investment in Australia and the Eastern Europe.

• 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.

FarmlandUSD $ billion

TimberUSD $ billion

Total land value 8,300* 425*

Investable universe 1,000* 300*

Institutional ownership 45* 60*

Growing appetite for farmland investment by institutions

*Estimates

Page 13Proprietary information – not for distribution. Copyright © 2015 by HighQuest Partners LLC. All rights reserved.

Key issues driving farmland values

Ø 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)

Ø Increasing urbanization • Pressure on available arable land for crop production• Increasing reliance on processed foods

Ø Constraints on supply• Water access • Climate change • Linkage to energy markets(biofuel mandates) • Deceleration of yield increases • Environmental regulations on production

Ø Human capital• Generational transfer in both developed and developing markets• Lack of capacity building in developing markets


Availability and location of available global land reserves

WHILE LAND IS AVAILABLE FOR PLANTING, MUCH OF IT IS NOT EASILY ACCESSIBLE

Net Reserves547 18%

Forest804 26%

Protected 204 Urban

58 2%

Current Arable141147%

Potential Rainfed Cropland (3,024 million hectares)

Africa256 47%

Latin America152 28%

Asia87 16%

North America30 5%

Oceana18 3%

2

Net Reserves By Region(547 million hectares)


Demographic trends a major driver


Urbanization increasing demand for food commodities



0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

2022

2024

2026

2028

2030

2032

2034

2036

2038

2040

2042

2044

2046

2048

2050

Global Middle Class Consumption2000-‐2025

Others

India

China

Japan

US

EU

Source: OECD

Middle class consumption in China and India continues to fuel growing demand for commodities

14

World population growth 2015-‐2045

Source: UN Population Division (Medium Variant)

% Change

-‐200% 200%15


Commodity boom driven by shift of poor into the middle class


Protein demand increases a global phenomenon

Substantial increases in protein consumption between 2000 and 2010

7.5%

29.0%

32.2%

70.2%

41.4%47.7%

23.7%

48.7%

23.3%

Source: Baumé, FAPRI 17Proprietary information – not for distribution. Copyright © 2015 by HighQuest Partners LLC. All rights reserved.

World annual agrifood demand by region to 2050

Source: ABARES, Baumé

$815

$511

$1,745

$1,993

$3,071

$480

$225

$798

$1,350

$1,503

$0 $500 $1,000 $1,500 $2,000 $2,500 $3,000 $3,500

Rest of Asia

India

China

Rest of world

Asia total

Billion (2007 USD)

2007 2050


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


China – meal demand forecast to increase 60%

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).

20Proprietary information – not for distribution. Copyright © 2014 by HighQuest Partners LLC. All rights reserved. *USDA GAIN

Actual Chinese protein meal consumption was 73.8 MMT in 2013* – substantially exceeding past forecasts

Impact of exports to China and ethanol production on US farmland use


Source: USDA NASS, USDA GATS, USDA ERS, American Petroleum Institute, RFA

End of the commodity super cycle?


The long commodities supercycle may not be over


A new inflection point?

Source: FAO 24Proprietary information – not for distribution. Copyright © 2015 by HighQuest Partners LLC. All rights reserved.

130

155

180

205

230

255

280

Jan

Feb

Mar Apr

May Jun Jul

Aug

Sep

Oct

Nov Dec

(2002-‐2004 = 100)

FAO Food Price Index

2012

2013

2014

2011

2015

130

155

180

205

230

255

280

Jan-‐13

Mar-‐13

May-‐13

Jul-‐1

3

Sep-‐13

Nov-‐13

Jan-‐14

Mar-‐14

May-‐14

Jul-‐1

4

Sep-‐14

Nov-‐14

Jan-‐15

Mar-‐15

(2002-‐2004 = 100)

FAO Food Commodity Price Indices

Meat

Cereals

Vegetable Oils

Sugar

Dairy

It would appear that climate change is real


-‐8

-‐6

-‐4

-‐2

0

2

4

6

1900

1903

1906

1909

1912

1915

1918

1921

1924

1927

1930

1933

1936

1939

1942

1945

1948

1951

1954

1957

1960

1963

1966

1969

1972

1975

1978

1981

1984

1987

1990

1993

1996

1999

2002

2005

2008

2011

U.S. Annual Palmer Drought Severity Index1900-‐2013

Wet Spell

Dry Spell

While frequency of severe droughts is not new, the stakes are much higher now

26Proprietary information – not for distribution. Copyright © 2014 by HighQuest Partners LLC. All rights reserved. Source: NOAA

Pressure on the biosphere from developing economies


Impact of climate change in Iowa


Potential agricultural yield decreases by 2050 due to climate change

Source: C. Muller (2010) “Climate Change Impacts on Agricultural Yields,” background note to the “World Development Report 2010.”


Impact of climate change on food export prices in 2030

Source: D. Willenbockel – “Exploring Food Price Scenarios Towards 2030 with a Global Multi-‐Region Model,” Oxfam research report (2011).


Have yield improvements hit an inflection point?

Trailing 10-‐Year Yield Improvement

Source: USDA, HighQuest analysis


0

1

2

3

4

5

6

7

1980 1984 1988 1992 1996 2000 2004 2008 2012 2016 2020 2024

MT/ha

Global Yields for 4 Major CropsHistorical and Projected

Corn

Rice

Wheat

Soybeans

0%1%2%3%4%5%

Corn

0%1%2%3%4%5%

Rice

0%1%2%3%4%5%

Wheat

0%1%2%3%4%5%

1971 2014

Soybeans

2.24%

1.53%

2.60%

2.42%

1.78%

3.37%

1.96%

1.43%

0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0%

Russian Federation

Southeast Asia

China

Brazil

Latin America

Sub-‐Saharan Africa

Developing Countries

Developed Countries

Total Factor Productivity Growth of AgricultureAverage Change in Growth Rates (1961-‐2009)

Source: OECD, FAO

Opportunities for increasing productivity in emerging markets


New pricing dynamic created by biofuels mandates

Source: DTN ProphetX 33Proprietary information – not for distribution. Copyright © 2015 by HighQuest Partners LLC. All rights reserved.

$0

$20

$40

$60

$80

$100

$120

$140

$0.00

$0.10

$0.20

$0.30

$0.40

$0.50

$0.60

$0.70

Jan 2000

Sep 2000

May 2001

Jan 2002

Sep 2002

May 2003

Jan 2004

Sep 2004

May 2005

Jan 2006

Sep 2006

May 2007

Jan 2008

Sep 2008

May 2009

Jan 2010

Sep 2010

May 2011

Jan 2012

Sep 2012

May 2013

Jan 2014

Sep 2014

Brent C

rude (USD

/barrel)

Soybean Oil (USD

/lb)

Soybean Oil and Crude PetroleumJanuary 2000-‐April 2015

Soybean Oil Brent Crude

Jan 2000-‐Dec 2006Correlation=0.50

Jan 2007-‐April 2015Correlation=0.80

Annual and permanent cropland returns compared to other assets

Source: NCREIF, Federal Reserve Board

-‐20%

-‐10%

0%

10%

20%

30%

40%

50%1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Asset Returns1992-‐2014

Annual Cropland Return Permanent Cropland Return

Timberland Return Commercial Real Estate Return

10-‐year Treasury Yield Moody's Aaa Yield


Returns on Corn Belt cropland compared to other assets

Source: NCREIF, Federal Reserve Board

-‐20%

-‐10%

0%

10%

20%

30%

40%

50%1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Asset Returns 1992-‐2014

Total Farmland Return Corn Belt Annual Cropland Return

Timberland Return Commercial Real Estate Return

10-‐year Treasury Yield Moody's Aaa Yield


Historical returns – 100-‐year Illinois farmland appreciation

-‐40%

-‐30%

-‐20%

-‐10%

0%

10%

20%

30%

40%

-‐$7,000

-‐$5,000

-‐$3,000

-‐$1,000

$1,000

$3,000

$5,000

$7,000

1950 1953 1956 1959 1962 1965 1968 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013

Real Appreciation Re

turn

USD

per acre

Illinois Cropland Nominal Value and Real Returns1950-‐2014

Nominal Value Real Appreciation Trailing 10-‐Year Average Appreciation

36Proprietary information – not for distribution. Copyright © 2014 by HighQuest Partners LLC. All rights reserved. Source: USDA NASS, USDA ERS, BLS

Farmland values low relative to capitalized value

Source: USDA NASS, University of Illinois 37Proprietary information – not for distribution. Copyright © 2015 by HighQuest Partners LLC. All rights reserved.

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


5 key risk factors

1. Seed Technology

2. Slower Growth

3. Algae or Microorganisms

4. Infrastructure/Food Wastage

5. Government and Trade Policy


n Step-‐change improvement in yieldsn Launch of drought resistance varieties

n China n SE Asian North Africa/Middle East

n Technology on the distant(?) horizonn biofuels; protein meal; fat

n Double-‐edged swordn Inverts the supply curve

n Food security n Export bans / trade embargoesn GMO acceptance n Renewable fuel mandates

M&A activity accounts for >50% of deal activity in the ag sector

Source: Global AgInvesting

58%

4%

17%

12%

9%

2014 Agribusiness Deal Activity92 Billion USD

M&A

JV

Investments

Financing

Multilateral/Gov't

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

$40,000

Q1 Q2 Q3 Q4

Million U

SD

2014 Agribusiness Deal Activity

M&A

JV

Investments

Financing

Multilateral/Gov't


North America and food processing account for more that two thirds of M&A activity


11%

13%

7%

64%

5%

2014 Agribusiness M&A Activity53.7 Billion USD

Asia

Europe

Latin America

North America

Oceania

12% 5%

67%

7%

4%

3%

2%

2014 Agribusiness M&A Activity53.7 Billion USD

Animal Proteins

Farmland and Crops

Food Processing

Inputs

Milling and Processing

Origination and Trading

Retail


Africa, animal protein production and infrastructure are attracting large commitments of capital


45%

19%3%

2%

10%

21%

2014 Agribusiness Investments 15.6 Billion USD

Africa

Asia

Europe

Latin America

North America

Oceania

28%

14%

6%27%

12%

13%

2014 Agribusiness Investments 15.6 Billion USD

Animal Proteins

Farmland and Crops

Food Processing

Infrastructure

Inputs

Milling and Processing


Example of sub-‐allocation framework for an ag portfolio

Geography

Operational / Development

Type of Asset

• Australia• South America• Eastern Europe• Russia• Asia• Africa

• Land ownership (free title) • Risk-‐ sharing lease structures• Farm management• Land development /conversion• Upstream or downstream value chain investment • Permanent crops

• Dairy• Land-‐based animal protein production• Aquaculture

Core8-12%

• North America• Row crop Land• Cash lease


Informed decision making for global agricultural investing

Philippe de Lapérouse

Managing DirectorHighQuest Partners, LLC

314-‐994-‐3282

[email protected]

44

Documents

GAIA15 T1.1 de Laperouse - Global AgInvesting...2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044 2046 2048 2050 Global&Middle&Class&Consumption