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 November  2013  

INVESTING  IN  AGRICULTURAL  INNOVATION:  JUMPING  THE  KUZNETS  CURVE  

Why  are  you  here?  

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Kuznets’  theory  of  development  Society  demands  a  beMer  environment  as  it  grows…  

…But,  the  global  environmental  resource  stock  is  diminishing  rapidly,  and  do  emerging  economies  need  to  go  through  the  same  growth  paradigm?    

Stage  of  economic  development:  Income  per  capita  

Environmental  degrada5on  

?  

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Why  agriculture?  •  Heavy  reliance  on  agriculture  par;cularly  among  rural  poor  •  Improved  agriculture  can  reduce  poverty  &  s;mulate  growth  •  Increasing  pressure  on  land  for  food,  fuel,  fiber,  habitats  •  Environmental  resource  base  is  being  degraded  &  altered      

For  developing  economies  to  grow  &  prosper  with  constrained  natural  resources,  they  have  no  choice  but  to  jump  the  curve!  

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Trends  to  help  jump  the  curve  within  agriculture  •  Mobile  &  RFID  technology    •  Applica;on  of  ‘big  data’    •  Regional  infrastructure  &  connec;vity  •  Voluntary  labeling  &  cer;fica;on    •  Urbaniza;on  &  growing  middle  class  •  Financial  product  innova;on  •  RemiNances  •  Innova;ons  in  agri  supply  chains  •  Legisla;on:  Coopera;ves,  collateraliza;on,  standards,  

transparency,  trade,  food  safety,  market  liberaliza;on…    

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Example  #1:  Producers  that  aggregate  

Nucleus  Farm  Smallholder  farmers  

Contracts  that  help  smallholders  gain  access  to  exper;se,  inputs,  infrastructure  and  markets  

Investor  

Security  to  investor  /  buyer  increases  

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Example  #2:  Market  &  Supply  Chain  Infrastructure  

Farmer   Buyer  

Warehouses  /  Markets  Products  graded  &  receipts  issued:  More  flexibility  &  transparency  to  farmers.  

Central  point  of  purchase  provides  the  buyer  more  transparency  and  choice.  

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Example  #3:  Reliable  &  affordable  energy  

Agri-­‐facility  

Gasifier  /  digester  /  solar    

RE  Facility  

Land,  waste  products  

Grid  

Energy  /  steam  /  heat  /  by-­‐products  

Energy    

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How  to  invest?  

Type   Pros   Cons  

Direct  equity  in  land  owner  /  manager  

-­‐  Asset  backed  -­‐  Infla;on  hedge  -­‐  Low  correla;on  to  equity  markets  -­‐  Stable  returns  if  well  managed  

-­‐  Med-­‐low  returns  -­‐  Illiquid  asset  /  long-­‐term  view    -­‐  Poli;cal  &  reputa;onal  risk  -­‐  Larger  ;cket  size  

Trade  finance  /  produc;on  loans  

-­‐  Poten;al  for  higher  returns  -­‐  Less  risky  due  to  shorter  ;me  and  

collaterals  -­‐  Smaller  ;cket  sizes  

-­‐  Transac;on  costs  -­‐  Difficult  to  assess  risk  -­‐  O`en  missing  basic  underlying  

infrastructure  &  informa;on  

Listed  equi;es  linked  to  agriculture    

-­‐  Liquid  -­‐  More  accessible  

-­‐  LiNle  choice  par;cularly  in  developing  countries  

-­‐  Ability  to  influence  may  be  low  -­‐  Typically  indirect  exposure  

Agri  products  &  technologies    

-­‐  Can  generate  high  returns  -­‐  Growing  demand  due  to  

mechaniza;on,  etc.  

-­‐  Rela;vely  new  sector,  dominated  by  large  co’s  

-­‐  Regula;on  &  patents    

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Inves^ng  to  jump  the  curve  Fit  depends  on  a  host  of  factors,  including:    ü  Partners  ü  Risk  /  return  appe;te    ü  Deal  size,  term  and  transac;on  cost  ü  Speed  to  act  /  entrepreneurialism    ü  Non-­‐financial  outcomes  ü  Geographies      The  right  deal  depends  on  the  par^es  involved,  but  we  see  opportuni^es  throughout  the  value  chain.    

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