Pricing Agribusiness Risk

Our expertise and experience in pricing risk in agribusiness enterprises is central to our ability to advise on capital markets funding strategies.

Category: Archive

Global Palm Sector Review February 2013

This review of the $94bn listed palm oil sector, details valuations, efficiencies & trends across an increasingly global sector. We detail companies with operations across Asia & West Africa and with listings on European, Asian, African & North American exchanges. Readers will note big variations in per hectare enterprise valuations depending on country & region: Malaysian assets command premium valuations with the EV/ha range $10,000 – $44,000, but with valuations typically clustering in a tighter range of $14, 000 – $23,000; Indonesian values are lower clustering in a range of $8,000 – $17,000 EV/ha, and with the exception of Wilmar, this is also true for the Singaporean listings which have largely Indonesian operations. African values are lower again, ranging from $7,000 to $16,000, but concentrating mostly in the range $7,000-$10,000 EV/ha.

Click to download: Global Palm Sector Review

Jatropha – Plant With A Future

The Jatropha related research & development initiatives being pursued by the crop science entities detailed in this report hold out the hope that Jatropha might surpass all other major crops, with the exception of oil palm, in $ revenue yield per ha. The ‘Plant With A Bad Name’ will not be redeemed immediately, while the 2020s are likely to be its decade of recognition, we expect that new ventures and
professional farmers will begin to plant the crop progressively during the second half of this decade. The investment of more than US$100m to date in its development is beginning to reveal the potential for this plant to play an important role in the global agricultural economy.

It is not an overstatement that some of the most distinguished scientists in molecular biology & genetics, and some of the most experienced crop scientists in the world, are now united in researching and developing Jatropha curcas. The development of the crop is still in its early stages. The plant’s biology and genetic profile have been subjected to intense scrutiny as molecular & genetic scientists collaborate with agronomists to breed & develop Jatropha cultivars suitable for large scale mechanised farming.

Evidence is mounting in support of Jatropha’s potential to become an important agricultural crop with the capacity to compete with Sorghum, Maize & Cotton for perhaps more than 11 million hectares of arable land across a belt of the Earth between the oil palm belt and 20° of the Equator.

The organisations driving the science & development of commercial Jatropha cultivars are potentially valuable entities in themselves. Not only are the leading entities described herein developing important new commercial planting material, they are also developing enabling technologies with application to a wider range of horticultural species. Some are creating valuable proprietary technologies & processes, of which a number are the subject of patent filings. The most successful will likely attract the attention of the global crop science companies, but they may also be able to contemplate a longer term future built on royalty income and profit share in commercial Jatropha projects.

Click to download: Jatropha – Plant With A Future

World Agriculture Report – A Growth Story For Africa

West Africa has some 8 million hectares already planted in oil palm and another 1 million hectares have been identified for development; the region has the potential to once again become a globally important producer region for the commodity, just as it was in the early first half of the 20th Century, if only it can be replanted with suitable high yielding cultivars of the palm adapted to remain healthy and productive in a West African setting.

We have identified at least $6bn of pledged investment for West African oil palm assets, with Asian palm operators amongst the most significant foreign investors. This development is strongly supported by local administrations, but the region has a turbulent history characterised by recent bloody civil wars in several countries; sovereign risk is high. GDP growth in Sub-Saharan Africa has run at some 4%-5% pa for the past 5 years fuelling rapid growth of the Continent’s middle classes. Not surprisingly African consumption of the commodity is also on the rise, both as a food product and as a biofuels feedstock.

For regional capital markets, as for regional economies, a developing oil palm sector has the potential to provide a cornerstone for growth. Already finance has been provided by investors in London, India, Toronto, Paris, Belgium and Singapore; as the oil palm industry comes home to West Africa. Investors and lenders are being presented with opportunities to arbitrage institutional and corporate capital against West African risk; on offer is the opportunity to participate in the development of a second great oil palm producing region supported by a rapidly growing domestic market and relatively cheap transit costs to the markets of Europe which consume 15% of the commodity annually.

Click to download: World Agriculture Report – A Growth Story For Africa

Jatropha – Plant With A Bad Name

While geneticists, agronomists and plantation managers are still learning about Jatropha’s potential to provide abundant sustainable feedstock for biofuels, the investment community has instead been witnessing value destruction. Since listing, 4 out of the 5 Jatropha focused businesses have sustained declines in capital value. But in two cases the primary cause of value destruction has not been investment in the production of Jatropha, but investment in biofuels refinery capacity. Both D1 Oils and Mission NewEnergy have sustained losses on running biofuel refineries, their Jatropha related activities have not been the primary cause of disappointment. Other Jatropha related business models, where plantations have been in unfavourable locations, have also disappointed, of which GEM Biofuels is perhaps an example. Coincidentally with the poor reputation of the crop with investors, there has been very little plantation investment in the crop by professional plantation businesses. One of the few known investments, by ESV Group Plc, appears to have sold after 4 years of development to an affiliate of a European fuel supplier, without appearing to incur capital losses. Professional planters, working with Jatropha crop scientists are now developing commercially sized and scalable plantations in suitable growing locations. These ventures have the potential to prove the commercial case for Jatropha as a biofuels feedstock.

Click to download: Jatropha – Plant With A Bad Name