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Why does an European Investor engages in Agribusiness in Sub Saharan Africa?. Pedro Marques dos Santos Principal at Quifel Natural Resources. Geneva, November 2010. What is Quifel? Lisbon based Holding for Multiple Businesses in Multiple Geographies. - PowerPoint PPT Presentation
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Company
LOGO
Sub Saharan Africa – The Last Frontier
Why does an European Investor engages in Agribusiness in Sub Saharan Africa?
Pedro Marques dos Santos
Principal at Quifel Natural Resources
Geneva, November 2010
Company
LOGO
Sub Saharan Africa – The Last Frontier
What is Quifel?Lisbon based Holding for Multiple Businesses in Multiple Geographies
Editions/BooksEditions/Books
ITIT
Real EstateReal Estate
Financial ServicesFinancial Services
EnergyEnergy
AgribusinessAgribusiness
WinesWines
Company
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Sub Saharan Africa – The Last Frontier
Why is Quifel interested in Agribusiness?
“Is the current food crisis just another market vagary? Evidence suggests not; we are undergoing a transition to a new equilibrium, reflecting a new economic, climatic, demographic and ecological reality.”Japanese Prime Minister, Taro Aso, 2009
“The best sector in the world that I know right now is probably agriculture. Everybody should become a farmer. Farming is going to be one of the greatest industries of our time for the next 20 to 30 years. I’m convinced that farmland is going to be one of the best investments of our time”Jim Rogers, 2009 (Jim Rogers cofounded the Quantum Fund with George Soros which gained more than4,000% in 10 years, while the S&P rose less than 50%.)
“Land is scarce and will become scarcer as the world has to double food output to satisfy increased demand by 2050. With limited land and water resources, this will automatically lead to increased valuations of productive land.”Joachim von Braun, Director General at the International Food Policy Research Institute, 2009
What do experts say? What can Investors
do about it?
Why Include Agribusiness in a portfolio?
Agribusiness represents a dynamic investment opportunity and is fast becoming an established asset class.
Agribusiness investments have the potential to produce an income or growth on your original amount invested and has historically had little, or no correlation to traditional investments such as the stockmarket. i.e. investment returns don’t follow the stockmarket up and down
What are the benefits? Diversification – Negative correlation with the
stockmarket is a good way of ensuring the value of your portfolio doesn’t go through the floor
Alternative asset classes – Agribusiness schemes can be a good alternative to investing in traditional assets such as direct shares or stock market based managed funds.
Tax benefits – Some countries encourage investment into Agribusiness, by introducing a series of tax incentives
Strategically Interesting
Financially
Reasonable
Company
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Sub Saharan Africa – The Last Frontier
So how does Quifel look at the Fundamentals?
Company
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Sub Saharan Africa – The Last Frontier
Need for more land
Need for higher productivity
2 major long term trends have determined Quifel’s overall business development and investment strategy in Agribusiness
• Asian land scarcity
• Brazilian current availability will decrease through time (and with increasing prices)
• Sub Saharan Africa’s available and less expensive land
• Increasing population (increasing demand)
• Globalization of consumption patterns (convergence)
• Increasingly globalization of the supply chain
Demand Side
FoodTrends
Supply Side
Land Trends
Source: The Economist, August 28th 2010
Land development as a no regret
approach
Context
… Will lead to a greater emphasis on
land expansion
Marginal improvements expected (after
decades of fast growth due to biotech
enhancements and farming techniques)…
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Sub Saharan Africa – The Last Frontier
495488
Europe
1.288
19% 1,9% 18% 2,3%
AsiaNorthern America
48% 2,7%
85% of total agricultural production
189
Latin America
172
Africa38
Oceania
7% 2,2%
7% 4,1%
1% 0,1%
Share of world production
CAGR (2000-2009)
Although Agricultural production is concentrated in the North, it is in the South that growth prevails
Oil seed and cereal crop production in the World (Million tonnes) in 2009
Source: FAO Statistics
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Sub Saharan Africa – The Last Frontier
Latin America
Expected
Agricultu
ral Flow
Cropped area Vs available land for agriculture (Million Hectares) in 2008
AsiaNorthern America Europe
Source: FAO and USDA statistics
Cropped area
Available land
In the Future, Africa should become increasingly relevant since it represents nearly 42% of available land in the world
Africa
• Latin America and Africa represent 75% of available land in the world
• Africa alone stand for 42%
Oceania
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Sub Saharan Africa – The Last Frontier
Different regions, different challenges
Northern America Europe Asia
Latin America Eastern Europe
Sub Saharan Africa
Optimization
Conversion of land use (to agriculture; frontier lands)
Land expansion (revamp of past large plantations)
Land Availability
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Sub Saharan Africa – The Last Frontier
So what to expect from Agribusiness in SSA ?
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Sub Saharan Africa – The Last Frontier
Investment Flow in Agriculture Projects
Investment flows in Sub Saharan Africa will strengthen contributing to another Agribusiness Revolution (and with increasing liquidity)
Emerging Investment Flow
Current Investment Flow
Hundreds of Million USD
per year
Tens of Million USD
per year
Steady investment
flows mainly by
institutional investors
Rapidly increasing investment mainly from operators
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Sub Saharan Africa – The Last Frontier
The gap between SSA’s increase in harvested area and production is a clear indicator of the potential underlying the growth of commercial farming
Source: FAO
Sub-Saharan Africa percentage in Total World harvested area (1961)
364,4 USD
CAGR1,6%
1961 2008
92.734.318 199.323.693
SSA Harvested Hectares
(Cereals + Oilseeds)
SSA Production in Tons
(Cereals + Oilseeds) 364,4 USD
CAGR 2,5%
1961 2008
61.943.983 206.996.596
Sub-Saharan Africa percentage in Total World harvested area (2009)
Sub-Saharan Africa percentage in Total World production (1961)
Sub-Saharan Africa percentage in Total World production (2009)
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Sub Saharan Africa – The Last Frontier
Examples of Agribusiness Companies already operating in large scale projects in SSA
ç
• Sugar Cane 10.000 ha
• Palm Oil 40.000 ha
• Pineapple Exports 2.000 tons/year
• Sugar Cane Africa’s biggest producer
• Maize Mills ~70.000 tons per year• Sugar Cane
100.000 Ha
• Sunflower seed30.000 ha
• Sesame SeedOne of the biggest agribusiness
producer in the world
Source: Press Clippings and Publicly available information
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Sub Saharan Africa – The Last Frontier
Strategy for obtaining land concessions (2007-2012)
Based in:
-Geographical diversification
-Diversification of crop systems
Context
The growing demand for vegetable oils
Excluding Brazil, Sub-Saharan Africa represents the “last frontier" for large scale agricultural projects
oLarge available areasoAccess to land at a low costoAggressive policies to attract FDI
Need to have a strong realism about the operational difficulties Africa (and the global management capacity to address them)
2
Establishment of a portfolio of land previously explored
1
Proven
Scale and Utility
Risk
Mitigation
Operational
Confidence
Infrastructural development and crop testing
3
Nevertheless, long term land concessions in SSA must address very relevant issues
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Sub Saharan Africa – The Last Frontier
So how does Quifel approach Agribusiness in SSA?
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Sub Saharan Africa – The Last Frontier
In 2007, QNR started its Agribusiness initiatives towards the creation of a multi geography operation
Angola
Con
go
Moç
TanzaniaM
alaw
i
The deployment of Agribusiness in 3 regional centers in Africa will:
•Diversification of crop systems
•Maximize yields at farm level, through economies of experience and R&D regional centers
•Create conditions for the know-how transfer and the possibly of innovative biotechnology projects
Liberia
Ivory Coast
SierraLeone
Gab
on
Equatorial
Guinea
Ghana
Current Concessions: 10.000 ha for Soy, Sesame and Sunflower
Concessions under legal process:
30.000 ha
Current Concessions:
20.000 ha for Staple Foods, Fruits and Sugar Cane
Concessions under legal process:
15.000 ha for Palm
Current Concessions: 28.000 ha for Soy, Sesame and Sunflower
Concessions under legal process:
20.000 ha
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Sub Saharan Africa – The Last Frontier
These initiatives were conducted following on a two step approach Business Model for Agribusiness
• Strategic definition (Which Grains? Where? How?)
• Land scouting and selection
• Soil testing and climate evaluation
• Technical feasibility studies
• Operational deployment study
• Management Team selection
• Seeds, fertilizers, agrochemicals and machinery selection and testing
• Machinery acquisition
• Agricultural infrastructure development (example: grain containers)
• Soil preparation and plantation
• Harvests
• Seed enhancement
• Increasing acreage development
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Sub Saharan Africa – The Last Frontier
SSA Project Deployment in Mozambique
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Sub Saharan Africa – The Last Frontier
SSA Pre-Deployment in Sierra Leone