Pricing Agribusiness Risk

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Category: Publications

African Forestry Sector Review

The African tropical forestry sector, largely operated under concessions by European, Asian and Middle Eastern logging and milling companies, is characterised by significant logistical challenges, a strong focus on sustainability and certification in the European and North American markets (but less so in Asia), strong international demand (driven significantly by Asian countries), and high growth consumption patterns across the African Mediterranean and North African countries. European concession operators are subject to very considerable scrutiny for compliance with global best practice, but many Asian concession owners appear to operate more opaquely. The challenge for African countries is to manage their forest reserves sustainably, to protect their national heritage of biodiversity and natural landscapes, while providing for their expanding populations. For the companies operating in this complex sector, demand growth looks to be a given, but price formation may have been restricted by the ‘illegal’ supply of forest products, and by the dominant influence of Asian purchasing. The increasing focus of European and North American consumers, and government agencies, on certified supplies, implies that with continued growth in demand, there may be strengthening in prices for certified production. Ulrich Grauert, CEO of the Swiss domiciled Interholco, which operates 100% FSC certified concessions in the Republic of Congo, has observed to us that “our experience is… prices have been strongly increasing since 2000… and the markets driving prices are… Asia, North Africa, Middle East and the USA. We… foresee steady price increases in almost all major species in the years to come.”

While Chinese demand for wood has been the leading influence on the global wood economy in the past 20 years, and continues so to be, African demand will increasingly be in contention with China and other Asian economies. It is not improbable that the population of Africa will become the world’s largest consumer market around the middle of this century. The Forest Stewardship Council has projected that African demand for industrial roundwood could reach between 100 million and 400 million m3 as soon as 2030, under variable scenarios for demographic and economic development. Some describe this vision of African demand as an impending ‘supply crisis’. Not surprisingly, at least one large concession operator, Likoula Timber (Republic of Congo), has stated that its primary focus is now on supplying demand from within Africa itself. Yet the patterns of production and consumption are very different across the African continent. It is also the case that many tropical African countries lack the facilities for secondary and tertiary processing of significant volumes of timber, and the logistics infrastructure across Central and Western Africa will need significant upgrading to support the development of an efficient and profitable internal timber market.

Please click to download: African Forestry Sector Review – March 2018

Jatropha Sector Review – Too good To Burn

The success of humanity in taking control of Earth has involved a series of partnerships with plants of outstanding utility. Our relationship with these crops is a constant strand in the history of our species and a defining expression of our presence on the planet. Consider that just four crops: wheat, corn, rice and soya cover more than 5% of the World’s land area. This compares with 2.7% for cities and 12% for the remaining rainforests. These are ‘conqueror crops’. Jatropha curcas, traditionally an undomesticated hedging plant with secondary utility as a source of oil, came to prominence when it was proposed as a feedstock for biofuel during an earlier era when crude oil was trading over $70 bbl. Research into the plant’s properties reveals that it has far greater utility than just as a source of energy. In this report we detail how Jatropha derived products have the scope to address an annual global sales opportunity of more than $120 billion in a variety of high value industrial applications. Addressing at least 8 classes of industrial applications, Jatropha derived components, have in a number of cases, superior technical functionality to competitor plant products, hinting at the crop’s potential to increase its importance for mankind. However, unless there is a credible prospect of scaled, economic, upstream supply of Jatropha commodities, these opportunities will be lost to proven commercial crops, such as soya and oil palm. A group of industrial investors and the crop science entities they are supporting (including names such as JOil in Singapore and Resolute Genetics in San Diego), are racing to put Jatropha into contention, to address the opportunities briefly detailed herein.

Please click to download: Jatropha Sector Review – Too Good To Burn – December 2017

The Tropical Tree Crop Sector of Sub-Saharan Africa

Sub-Saharan Africa has suitable conditions for the cultivation of the most important tropical ‘tree crops’ including Oil Palm, Natural Rubber, Coconuts, Cocoa and Bananas. Yet, with the exception of cocoa production, African production of these big tropical ‘tree crops’ is small relative to the output of the Asian producer nations: Indonesia & Malaysia in the case of palm oil, Thailand and Indonesia in respect of natural rubber, Indonesia and Philippines in respect of coconuts, and India, China and the Philippines in respect of banana production.

In all these segments, a distinguishing feature of African production is the bias towards production by the informal, smallholder sector. Within the smaller agro-industrial sector, the influence of European and Asian plantation companies is fundamental to the current structure of the industry, and it seems likely that the future shape of the sector will also be led by these companies. However, for investors, there are limited direct investment opportunities in businesses able to benefit from the growth in demand for African tropical ‘tree crops’. Those companies which have significant Africa based business operations, and which also have a stock market listing, are detailed herein.

Please click to download: Tropical Tree Crop Sector of Sub Saharan Africa

Indonesian Palm Oil Sector Consolidation: A Wave of Consolidation To Come

Indonesian palm oil production assets have become too cheap: KLK’s unsolicited offer for MP Evans looks likely to change all that.

Above $550/mt FOB, or $770 CIF Rotterdam, the production of palm oil is a profitable business for commercially scaled and efficient Indonesian producers. At higher prices, palm oil production businesses are quite literally ‘money pumps’. The KLK bid for MP Evans will have jolted the investment community to take note that many quality names, like MP Evans, are or have been trading below replacement value. At the offer price for MP Evans, KLK could expect to earn a return of up to 16.5% on every hectare purchased. In an era of negative bond rates, considering that the megatrend of human population may push beyond 9bn to 12bn by the end of this century, noting that although slowing, the Chinese economy is now by some measures the largest in the world and still young, palm oil assets look anomalously cheap.

Please click to download: Indonesian Palm Oil Sector Consolidation

Cocoa – The Midas Commodity

For investors the cocoa value chain has provided some outstanding investment opportunities and as the demand for chocolate confectionery continues to grow in new markets, and to mould to shifting consumer tastes in the developed markets, further opportunities for wealth creation can be expected.

Hardman Agribusiness (HAB) estimates that the global cocoa derived consumer goods sector has a brand value of some $300bn, equal to 0.41% of global GDP. A review of the spread of this wealth effect suggests that there is scope for further significant growth in brand value, especially in the big emerging market economies.

We detail in this report the outstanding examples of Hotel Chocolat and Royce. Additionally, a growing group of developers of modern upstream cocoa production assets is assuming that tightening supply / demand tension will allow their projects to develop profitable and valuable production businesses, hoping that the ‘Midas Commodity’ effect will flow upstream as well as downstream.

Click for our report: Cocoa – The Midas Commodity

A Progressive Culture – ICCO World Cocoa Convention – Dominican Republic

Hardman Agribusiness presented at the ICCO World Cocoa Convention in Baravo, Dominican Republic, on 24th May, 2016.

Today 95% of the cocoa produced comes to the market thanks to the efforts of some 5 million subsistence smallholder farmers practising a form of agriculture that has changed little in centuries. Over many years, and continuing today, the downstream end of the cocoa value chain has instituted numerous initiatives to modernise farming practices with the goals of improving farmers’ lives and making cocoa production sustainable. The evidence that these initiatives have been successful, certainly in respect of the latter objective is slim. Dr Jean-Marc Anga, Executive Director of the International Cocoa Organisation (ICCO) speaking that the 3rd World Cocoa Convention in Bavaro, Dominican Republic observed that “the producers are the weakest link in the cocoa value chain”. Dr Anga noted that in 1960/61 cocoa produced globally averaged 0.29mt per hectare against 0.52mt in 2015. Progress, but not enough over 55 years. Today in parts of the Americas, innovative farmers are achieving up to 3.0mt/ha. Hardman Agribusiness reviewed the outlook for cocoa production in the Americas at the 3rd World Cocoa Convention in the presentation below.

Please click for our presentation: A Progressive Culture – Dominican Republic

Cocoa’s Latin Future – 2nd Cocoa Revolution Conference – Vietnam

Hardman Agribusiness presented at the 2nd Cocoa Revolution Conference in Ho Chi Minh City, Vietnam, on 11th March, 2016.

We discussed the supply chain risk represented by the global cocoa related consumer goods sector’s reliance on the production output of Ivory Coast and Ghana, noting that cocoa production, dominated as it is by small holder farmers (95% of total production) is one of the least evolved systems of agriculture in the world. Unlike the other large soft commodity categories, cocoa does not feature a significant professional production sector. With stock to use ratios consistently falling over this century and the cocoa price rising under demand pressure, there are real fears that supply deficits will impact over the next few years. In contrast to West Africa (72% of world production), Latin America (18% of world production) has the nucleus of a professional cocoa farming industry and unlike most of Asia, Latin America has a vibrant cocoa culture.

Please click for our presentation: Cocoa’s Latin Future – 2nd Cocoa Revolution Conference – Vietnam

Destruction by Chocolate


To read our report click photo above.

ICCO Cocoa Market Outlook Conference

Hardman Agribusiness presented at the ICCO Cocoa Market Outlook Conference in London, 22nd September, 2015. We focused on the supply chain risk represented by the global cocoa related consumer goods sector’s reliance on the production output of Ivory Coast and Ghana, noting that cocoa production, dominated as it is by small holder farmers (95% of total production) is one of the least evolved systems of agriculture in the world. Unlike the other large soft commodity categories, cocoa does not feature a significant professional production sector. With stock to use ratios consistently falling over this century and the cocoa price rising under demand pressure, there are real fears that supply deficits will impact over the next few years. In contrast to West Africa (72% of world production), Latin America (18% of world production) has the nucleus of a professional cocoa farming industry and unlike most of Asia, Latin America has a vibrant cocoa culture.

Please click for our presentation: Latam Leadership – ICCO Cocoa Market Outlook Conference

21st Century Revolution in Farming

Green revolutions, digital agricultural, precision farming, big data: investors are asking what’s going on ‘down on the farm’? And they have not failed to note what is happening on ‘Wall Street’ either. Monsanto has offered Syngenta’s shareholders $45bn (a 43% premium to pre-bid value) to combine its leading supply position in seed technology with Syngenta’s world class agri-chemicals manufacturing capacity. The Monsanto/Syngenta story is just the latest development in what has been termed an Agritech Gold Rush. According to the online magazine Inc, “the breakout year for “agtech” was 2014, with $2.36 billion in venture money invested” across the sector. With populations soaring and growing richer, the pressure for food resources is climbing. This pressure risks social and political upheaval, perhaps even existential challenges and it is prompting an upsurge in investment in technologies to deliver ever bigger crops alongside more sustainable farming practices.

Smart Farming, Stable Society

Uruk was a city in the region of Sumer, southern Mesopotamia, in what is modern-day Iraq. Beginning it is thought as a small village in the Ubaid Period of Mesopotamian history (5000-4100 BC) Uruk became a significant port city on the Arabian Gulf with a peak population estimated at some 80,000 citizens. Yet after a period of 5,000 years this first great city was abandoned when it could no longer feed its population. The agricultural resources that had supported its development were utterly depleted.

Agriculture has been a ‘Cinderella’ sector of the economy for decades, marginalised for 100 years by growth of the industrial sector and then for the past 20-30 years by the extraordinary growth of the financial services sector. Yet this economic backwater underpins the smooth functioning of all societies on the planet. Agriculture has historically been the most complex and important of mankind’s interactions with nature, and it has been the focus and the facilitator of many of our species’ greatest social and scientific achievements. With estimates of peak human population continuing to rise, the existential importance of agriculture (think food security), has brought the sector back into political and economic focus, and no more so than since the 2010 Food Crisis, which many commentators believe gave rise to the Arab Spring. In 2010, droughts in Russia, Ukraine, China and Argentina plus heavy rains in Canada, Australia and Brazil — all major wheat and grain producers — considerably diminished global crops, driving commodity prices up. North African and Middle Eastern societies, riven with internal socio-political, economic and religious tensions snapped as food prices rose (see chart below for 2010/11). Indeed the chart below suggests that food prices are now likely on a long term inclining trend.

Food Price Index From 2000Source: FAOSTAT

Analysis produced by Professor Raftery, University of Washington in September 2014 suggests that the global human population will continue to grow beyond the previously assumed peak of 9bn or so by 2050. The analysis indicates that there may be as much as a 70% chance that the total population will expand from 7bn today to 11bn (or even more) in 2100. Sub-Saharan Africa is set to be the fastest growing region; the Washington University study projects the SSA population expanding from 1bn today to between 3.5bn and 5bn in 2100. Nigeria’s population alone is expected to climb from 200m today to 900m by 2100.

Little wonder then that the Geological Society of London has proposed that the current geological era be christened ‘The Anthropocene’. In this era the growth in human numbers and the gathering effects of our activities on long term climate stability and availability of vital resources has prompted a drive for innovation in food production and an emphasis on sustainability. As food commodities face growing demand competition from larger and richer populations around the world, an increasingly corporate producer sector is turning to innovative, and sometimes disruptive agricultural technologies (Agritech) to produce larger and more reliable crop yields with fewer inputs and a lighter impact on the environment. The online magazine Inc., postulates that agriculture is ripe for disruption.

The drive by the big Agritech companies such as Monsanto, Syngenta, Bayer and BASF to acquire innovative high growth Agritech businesses has been dubbed a ‘Gold Rush’. A rush that has just reached a new high with the possible $45bn bonanza now on offer to Syngenta’s shareholders.

Agritech Deal Flow

Investment dollars are flowing into a wide range of innovative technologies including drones, big data and life sciences. University of California-Davis’ Sustainable AgTech Innovation Center (SATIC) points the way with a collaboration of academics, engineers, and investment professionals including an Agritech Innovation Fund with a reported $50m for Agritech start-ups.

On the demand side agriculture is becoming increasingly multifunctional. Whereas the main focus used to be on productivity in order to meet the needs of a growing and richer population – a 60% increase in output by 2030 is required (Source: FAO) – now the emphasis is increasingly on sustainability (in the face of limited land, water and fertilizer resources), food safety and contributing to the bio-economy. On the supply side agriculture is becoming increasingly multi-disciplinary. Biotechnology and ICT are playing an ever more important role alongside traditional chemical and seed breeding approaches. Moreover in some areas the different technologies are becoming integrated, adding a further degree of complexity. All this change creates opportunities for innovation and makes the Agritech sector one of the most exciting in the global economy.

Seven specific areas are identified as benefitting particularly from these underlying trends:

  • Genomics/biotechnology
  • Bio-pesticides
  • Bio-stimulants
  • Fertilizer application and use efficiency
  • Seed Care
  • Big data in agriculture
  • Precision agriculture-related hardware

Each of these is briefly examined below.


Since the introduction of the first GM traits in 1996 GM crops have grown phenomenally, despite the reluctance of some regulatory authorities to accept them. They have penetrated markets which have been open to them faster than any previous agricultural technology, for example reaching over 90% penetration in soybeans and maize in the US, Argentina and Brazil, driving growth of the overall seed market. Hitherto growth has been focused on input traits (such as herbicide tolerance and pest resistance), which offer significant benefits to the farmer in terms of increased efficacy of weed and pest control and decreased cost. There are signs that growth of these is slowing down, partly because they have achieved such high penetration in those markets where they have been launched. There are also signs of resistance to some traits (e.g. to Bt crops), offering opportunities for new modes of action to be introduced.   In future more growth is likely to be generated by agronomic traits, such as drought tolerance and nitrogen use efficiency, and also by traits which offer benefits to processors and consumers, such as biofortification whereby plants are bred to provide enhanced vitamin levels. These will not necessarily be GM but may be based on ‘native traits’ whose effect is enhanced through the techniques of biotechnology. There is a large amount of R&D taking place in the private sector with a combined value of over $20bn: for example the seed industry spends around 10% sales on R&D equivalent to $4bn. Moreover there is rapid progress in the platform technologies which underpin biotechnology such as plant genome sequencing and RNAi. Whereas most innovation has so far been applied to four major crops – maize, soybeans, canola and cotton – in future the application will spread to other crops. For example there has been a considerable increase in investment in wheat, the largest global crop in terms of areas grown, in recent years.


Bio-pesticides, or naturally-derived products used for crop protection, have been around for a long time but are currently the subject of great interest on the part of the R&D-based majors who have been making acquisitions (such as Bayer’s acquisition of AgriQuest) and collaborations (e.g. Monsanto/Novozymes) and increasing internal resources devoted to the area. As a result they are experiencing a period of rapid growth with sales now approaching $3bn. Several reasons can be posited for this:

  • Regulatory support for these products which, being highly selective in their activity have a limited impact on non-target organisms and are suitable for integrated pest management.
    • There are fewer regulatory requirements compared to conventional crop protection products and quicker passage through the regulatory process (e.g. 1 year vs 3 in US)
    • Their use is encouraged in the EU’s Sustainable Use Directive
  • Support from retailers who perceive naturally-derived products to be safer than synthetic ones
  • Technology advances in adjacent and related sectors
    • Plant health and root health
    • Formulation and seed care (see below)
  • The declining rate of innovation for conventional crop protection products
  • The deregistration of older products under EU re-registration rules, creating opportunities to fill the resultant product gaps

The momentum from these drivers is likely to continue to propel growth in the sector.


Plant bio-stimulants are a diverse group of substances and micro-organisms which modify plant physiology to improve efficiency and resilience, resulting in higher yields and better quality. Many derive from natural sources. There has been significant growth in this sector in recent years and sales now exceed $1bn. Some of the drivers are the same as for bio-pesticides: the desire of companies to diversify, advances in the underlying science, the association with natural products and ‘greenness’, were applicable.   In the past such products were sometimes met with skepticism. However the scientific understanding behind them is rapidly improving and they have now gained more credibility, as reflected in the upsurge in interest from the R&D-based majors in crop protection and seeds.

Fertilizer use efficiency

There has been very little innovation in the fertilizer sector for over 50 years. Fertilizer companies commonly spend under 0.1% of their sales (combined industry sales are around $100bn, depending on the prevailing prices) on R&D. At the same time there are concerns over the finite nature of fertilizer resources, particularly phosphates, and the environmental damage stemming from their overuse and misuse in many countries. There are various ways of improving fertilizer use:

  • Improving the efficacy of synthetic fertilizers
    • Improved application
    • Improved bioavailability
    • Improved uptake by the plant
    • Improved use within the plant
  • Supplementing synthetic fertilizers with measures which improve nitrogen fixation

There are various approaches to addressing the above challenges – through seeds and biotechnology (addressed above), through improvements to equipment and in its usage, and through product formulation and through use of chemicals and additives.

Seed Care

Seed care, where crop protection products are applied directly to the crop seeds before planting, is the fastest growing sector in the crop protection market. The drivers of this growth are technological, environmental and economic. Technologically an ever increasing number of new molecules suitable for use as seed treatments is becoming available and adjacent technologies, such as polymer sciences, are offering new ways of enhancing their efficacy when used in this way. Moreover, use is extending beyond traditional crop protection products to embrace bio-stimulants and bio-pesticides, offering further potential for innovation. Environmentally seed treatments are a precise way of applying the product whilst minimising damage to non-target organisms. Economically, the low resultant rates needed to achieve control lead to attractive margins for companies and explains the increased level of interest in this segment over recent years.

Big Data

Since the acquisition of the Climate Corporation by Monsanto in 2012 for $1bn ‘big data’ has maintained a high profile in agriculture. The term is somewhat broad and ill-defined, but covers the integration of information provided by farmers, players in the agri-food chain and third parties into knowledge products which can be used to enhance productivity, reduce risk (e.g. through insurance products) and increase oversight in the food chain. Big data has relevance to all stages in the food value chain and also across it as an integrating force. For input companies it can improve the management and increase the utility of the data they work with (e.g. through bioinformatics), and create closer links with farmers. For farmers it can lead to increased productivity and efficiency, for example through use of prescriptions provided by input companies. A major driver for the increasing involvement of companies such as Monsanto and DuPont Pioneer, is that they perceive farmers, particularly in developed markets, as being information rich but not fully leveraging this wealth of knowledge. For downstream food chain players ICT tools can help with tracking and traceability and certification schemes. With the inexorable rise of smart phones the interface is becoming increasingly mobile promising to provide added value to small farmers in emerging markets as well as the larger ones in developed countries.

Equipment/Precision agriculture

In order to both facilitate and benefit from the opportunities provided by of big data there need to be parallel advances in the equipment sector.   Sensors, RFID’s and UAV’s are required to gather the data which feed into the algorithms and prescriptions being used to predict and improve crop yields. In the case of UAV’s it is estimated 80% of the market will be in agriculture. Sophisticated equipment is needed to execute the tailored applications of seed, fertilizer and water, and to track the yield of the harvested crop. The large equipment manufacturers such as John Deere (who have articulated their vision as the ‘farmer of the future’) are deeply engaged, for example through fleet management software, but there are also many smaller specialist companies involved.

Not only is each of the above areas attractive in its own right but there is increasing overlap and synergy between them: this provides a vision of the future for farming and a likely road map for investors in Agritech.