Investor interest likely to go up in agribusiness

As per the Emerging Markets Private Equity Association (EMPEA) 2015 Global Limited Partners Survey, 55 per cent Limited Partners (LPs) are looking to build exposure in agribusiness PE over the next two years.

Even as India is ahead of China (48 per cent) and Brazil (53 per cent) in terms of global LP investor interest in the agri space, Middle East & North Africa seem to be the favourite destinations for LPs to invest in - 71 per cent LPs want to bet in them in the coming two years. Rajesh Srivastava, Chairman & Managing Director of Rabo Equity Advisors, forecasts that activity in India and China may more than double over the next 10 years.

The just released Private Equity and Emerging Markets Agribusiness: Building Value Through Sustainability report states that since 2008, Emerging Asia and Sub-Saharan Africa has seen 73 per cent of investment activity, accounting for 139 and 69 transactions, respectively, while Latin America (46), the Middle East and North Africa (13), and Central and Eastern Europe and the Commonwealth of Independent States (16) constituted the remaining 27 per cent of investments. Four middle-income countries-China, India, Brazil and South Africa-accounted for 55 per cent of deals.

Vineet Rai, CEO & Managing Director, Aavishkaar pointed out that agribusinesses have significant seasonal risks; they are often of long gestation but have the potential to be highly scalable. Such businesses can depend on banking relationships once the company has grown larger. However, the high scale potential, wide variety in products, multi-layered value chain and significant need for equity before banking relationships can step in make PE and venture capital a very vaunted need both at early and scale stages of these businesses. "Specialised fund managers can add value at each stage," says Rai.

As per the report Emerging Asia represents a multitude of countries, yet the vast majority-87 per cent-of deal activity has taken place in China and India. This outcome may be due to the relatively advanced stage of development of the PE industries within these countries rather than the state of agribusiness opportunities. Within Emerging Asia, dairy operations have been a popular target for investment, as have assorted protein producers and processors. Crop production, by contrast, has not received as much investment, which-at least in China-may be due in part to evolving government restrictions on foreign investment in agribusiness companies, and in India, the societal importance of small-holder farmers.

Of the 193 deals the vast majority have been investments of less than $50 million. The report mentions that while it is too soon to definitively conclude that this launches a new trend of larger deals, a number of multi-billion dollar generalist funds have been raised for Emerging Asia over the last three years, which could soon drive deal flow above the $100-million level.