Agriculture in Brazil
Overview | April 2010
Section 1
Los Grobo Overview
Los Grobo & Sollus: Unique Integrated Business Platform
Complementary businesses with specific focus allows for higher value creation in both vehicles
Agribusiness Value Chain
Farmland
Production
Services
Partnership
►
Opportunity identification
►
Execution capacity
►
Land conversion
►
Divestiture of developed land
►
+
-
Land appreciation
FARMLAND
SCARCITY
INFRA &
SERVICES
PRODUCTION
LAND
LAND
Ecosystem development
Land Appreciation Play
►
Scale
– Dilution of costs and
investments
►
Complementary revenues
– Recurring cash flow
generation
– Quickly identify business
opportunities
►
Key
Value
Drivers
Execution capacity
– Strong local presence
Production efficiency
– Crop rotation
– Risk/reward analysis
– High technology
►
– Stronger bargaining power
Infrastructure
– Reduced cash flow volatility
– Risk diversification
– Agreements with
infrastructure players
– Better working capital
management
– Capacity to manage sales
according to price fluctuation
– Lower logistic costs
Agriculture Operation Play
3
Los Grobo & Sollus: Solid Sponsorship
Successful agricultural operator, a top financial player and an expert in commodities
Grobocopatel Family
►
More than 90 years of agribusiness
market, since the arrival of the
family in Argentina, from Ukraine
►
In 1984 Adolfo founded Los Grobo
Agropecuária composed by 4
employees and 3k ha and became a
Professional company at the first
half of the 90’s decade
►
►
►
Gustavo, son of Adolfo, joined Los
Grobo in 1984 and was responsible
for the development of its actual
business model
Vinci Partners
Highly recognized financial
player/business developer
Touradji Capital Management is a
New York based commodities
hedge fund manager
►
Investment vehicle of Banco
Pactual´s former partners
The firm currently manages over
US$ 3.5 billion in assets
►
Through its investment activities,
the firm has developed extensive
firsthand knowledge of the
Brazilian agricultural economy and
its producing regions
►
Touradji Capital Management funds
posted positive returns in 2008
despite the market volatility and
abrupt downturn, which indicates
its expertise in risk management
►
The sponsor Paul Touradji has over
14 years experience investing in
commodities and related equities
One of the most successful private
equity funds in Brazil
►
– Pactual was the largest
investment bank in Brazil and
one of the largest Asset
Managers. It was sold to UBS
for US$ 3.1Bn in 2006
►
Under Gustavo´s management, Los
Grobo was the first agro company
in the world to obtain the ISO 9001,
becoming also a Harvard Case
Gustavo Grobocopatel has received
several awards, including the
recent most influent company
Leader in Latin America by
“América Economía”
►
►
►
►
Touradji Capital Management
Vinci is the controlling shareholder
of PDG Realty, second largest real
estate company in Brazil by market
cap, and of Equatorial Energia, a
leading Brazilian energy company
Vinci has also investments on the
ethanol business in Brazil through
CMAA and on the retail /fashion
business through InBrands
4
Los Grobo: Sizeable and Diversified LatAm Player
Los Grobo is the 2nd largest LatAm grain producer, with more than 250k ha of productive land
throughout Brazil, Argentina, Uruguay and Paraguay…
Geographically Diversified Production – 2009/2010
Planted Area (k ha)¹
Brazil:
247
Production Area: 55k ha
Input Sales: US$ 50 mm
Grain Origination: 800 ton
Crushing: 90 ton
Venezuela
Colombia
PI
TO
Brazil
MT
Peru
MS
Chile
PR
MG
64
13%
Uruguay:
Production Area: 90k ha
Input Sales: US$ 15 mm
Grain Origination: 440k ton
81
10%
27%
31%
02 / 03
53%
03 / 04
105
12%
29%
27%
26%
53%
47%
24%
54%
04 / 05
05 / 06
Soybean
23%
118
14%
49%
24%
173
18%
154
13%
43%
GO
Bolivia
Paraguay
BA
Production Area: 90k ha
Input Sales: US$ 25 mm
Grain Origination: 1,000k ton
Crushing: 266 ton
9%
21%
Argentina:
MA
251
51%
06 / 07
Wheat
07 / 08
Corn
08 / 09
62%
09 / 10E
Others
Grain Origination (k tons)¹
Argentina
Paraguay:
Uruguay
2,255
Production Area: 16k ha
Grain Origination: 35k ton
1,763
1,868
1,389
Total:
Production Area: 251k ha
Input Sales: US$ 99 mm
Grain Origination: 2,255k
ton
Crushing: 170k ton
1,030
833
486
02 / 03
594
03 / 04
04 / 05
05 / 06
06 / 07
Clients
07 / 08
08 / 09
09 / 10E
Own
… also servicing over 500k Ha of production through its services business
5
Section 2
Global Agribusiness Outlook
Global Agribusiness Outlook: Increasing and Sustainable Demand
Increasing demand for food and biofuels are the main pillars for bullish commodities outlook…
Urbanization (Million of people)1
4,000
Developing urban population
Migration to urban areas, specially
in the developing countries
1,000
Developed urban population
2,000
2015
2010
2005
2000
1995
1990
1985
1980
1975
1970
1965
1950
►
3,000
1960
Population Growth
Global population will rise by 1.5
billion people over the next 20
years
1955
►
Per Capita Meat Consumption (2009=100)2
130
120
►
Economic and
Income Growth
►
Consistent personal income
growth in developing countries
Income growth increases meat
consumption and food demand
110
100
90
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
B razil
China
EU
Russia
World Biofuels Production (Liters – billions)3
Source:
1.
OECD
2.
FAPRI
3.
MB Agro
80
40
2012
2011
2010
2009
2008
2007
2006
2005
0
2004
Fuel crops are crowding out food
crops, constraining food supply
Biodiesel
2003
►
Increase in blending of biofuels
with gasoline
Ethanol
120
2002
►
160
2001
Development of
Global Biofuels
Development of viable and
environmental friendly fuels
globally
2000
►
7
South America: The Natural Supplier
… and South America is likely to consolidate its position as the global preeminent farming
region…
Leading Producer of Major Products
(% of Global Production)1
Long Term Competitive Advantages
►
Highly favorable geographic and climate conditions
►
All-year-round crops
►
Favorable regulatory environment
►
Competitive production costs
1st
55%
Orange Juice
47%
1st
Coffee
25%
22%
47%
2nd
3rd
Soybean
Land Availability (k ha)2
1st
22%
Sugar
800
Potential Arable Land
Actual Arable Land
3rd
16%
600
Poultry
400
17%
2nd
5% 22%
5th
Beef
200
20%
8%
10%
3rd
6th
Corn
Series1
Source:
1.
USDA 2008/2009 Estimates
2.
FAO
Series2
0
So uth and
Central
A merica
SubSaaharan
A frica
No rth
A merica
Euro pe
A sia and
P acific
No rth A sia,
East Urals
No rth
A frica and
Near East
... due to its competitive advantages and abundant resources
8
South America: Upside Potential
Despite the bullish scenario for agribusiness, land prices are still lower when compared to other
main productive areas…
Average Agricultural Farmland Price (US$ / ha)
Farmland Price Dynamics and Appreciation Estimates
STAGE
1,400
1
2,300
Scarce
Land
3,500
6
5
3,500
1
►
Several infrastructure developments
expected
►
Further development of exports and
logistics facilities
2
4
►
Highly developed infrastructure for
exports and logistics
►
Concentration of high yield products
(+)
4
4,000
( - ) Development Stages
5,900
6,000
Infra &
Services
Production
5
►
►
Significant soybeans and sugarcane
crops expansion
3
►
►
Long cattle tradition
►
Northern provinces: best promises in
acreage increase
Limited infrastructural integration
6
Paraguay is growing its agricultural
acreage steadily
Source: FNP, Iowa State University and Sollus
Successful prior crops
►
Well developed region
►
Ribeirão Preto – SP
►
Lack of available
properties nearby
►
US$ 7.5k / ha
►
Developed crops
►
Rio Verde – GO
►
Availability of services /
infrastructure
►
US$ 4.0k / ha
►
Crop is implemented
►
Luis Eduardo – BA
►
Lack of services /
infrastructure
►
US$ 3.0k / ha
►
Agriculture potential
►
No agricultural utilization
►
Balsas – MA
►
Lack of services /
infrastructure
►
US$ 1.1k / ha
5,300
3,000
USA
11,000
►
2
3
APPRECIATION
ESTIMATES¹
CONDITIONS
►
Traditional producing area
►
Arbitrage opportunities rising
Raw Land
… and are likely to appreciate as farmland becomes more scarce
9
The Soybean in the World
Soybean Production
Exports
Outros
8%
Outros
10%
Outros
12%
EUA
32%
China
7%
Argentina
15%
EUA
14%
EUA
40%
Brasil
22%
Argentina
49%
Argentina
21%
Índia
7%
Brasil
35%
Brasil
28%
Soybeans
Soymeal
Imports
Soybeans Crushing
Outros
16%
Outros
24%
EUA
25%
UE
7%
Argentina
18%
Japão
6%
Méximo
5%
Brasil
15%
China
19%
Índia
10%
UE
20%
China
28%
Outros
62%
China
45%
Soybeans
SoyOil
Historical Soybeans Yield
Linear trend grow in Soybeans Yield
Historical Soybeans Yield (tons/ha) vs. Modeled (LS)
Argentina
Uruguay
Paraguay
Brazil
11
Production Costs - SOYBEAN
Production Cost Breakdown
SOYBEANS
BRAZIL
ARGENTINA
URUGUAY
PARAGUAY
7%
15%
22%
19%
6%
22%
9%
10%
9%
5%
45%
11%
10%
10%
11%
10%
17%
32%
5%
14%
11%
9%
12%
16%
28%
9%
15%
11%
Cost per Ha
Seeds
Chemicals
Fertilizer
Land Lease
G&A
Labor/Machinery
Harvest
100%
90%
80%
Harvest
70%
Labor/Machinery
60%
G&A
50%
Land Lease
40%
Fertilizer
30%
Chemicals
20%
Seeds
10%
0%
BRAZIL
ARGENTINA
URUGUAY
PARAGUAY
Section 3
Grain Production in Brazil
GRAIN PRODUCTION VALUE CHAIN
Inputs
($14,5Bn)
• 80% Own
• 20% Leased
• Largest Owner
below 1Mn Ha
Farmland
• Chemicals
($6,5Bn)
•25% Direct Sales
•25% cooperatives
•50% Retailers
• Fertilizers ($8Bn)
•Consolidating Mkt
Grain
Handling/Export
• 40Mn Há Farmed
• Largest Bz
Producer –
350,000 Há
Production
• ABCD
• Mid-Large
Traders
• Local Traders
GRAIN PRODUCTION AREA IN BRAZIL
Wheat Planted Area ('000 ha)
Soybean Planted Area ('000 ha)
5.000
25.000,0
4.000
MS
SC
SP
MG
GO
BA
MT
BA
Corn Planted Area ('000 ha)
MT
MS
GO
MG
SP
PR
SC
RS
Cotton Planted Area ('000 ha)
BA
MT
MS
GO
MG
SP
PR
SC
RS
2009/10
2007/08
2005/06
2003/04
2001/02
1999/00
1997/98
1995/96
1993/94
1991/92
1989/90
1987/88
1985/86
1983/84
1981/8/2
1979/80
1.600
1.400
1.200
1.000
800
600
400
200
1977/78
14.000,0
12.000,0
10.000,0
8.000,0
6.000,0
4.000,0
2.000,0
-
BA
MT
MS
GO
MG
SP
PR
SC
RS
2009/10
2007/08
2005/06
2003/04
2001/02
1999/00
1997/98
1995/96
1993/94
1991/92
1989/90
1987/88
-
1985/86
5.000,0
1983/84
1.000
1981/8/2
10.000,0
1977/78
15.000,0
2.000
1979/80
20.000,0
3.000
Soybeans in Brazil
Brazil – Consuming Market- 1990 x 2007
Brazilian Market Overview
43%
Exports
Exportação
Exportação
22%
72%
Soja em
Grão
Soybean
53%
Exports
Exportação
Exportação
43%
Farelo
SoyMeal
47%
18%
Crushing
Moagem
34%
InternalInterno
Mkt
Mercado
Interno
57%
Exports
Exportação
SoyOil
Óleo
57%
66%
Interno
78%
InternalInterno
Mkt
Mercado
10%
Seeds
Perdaand
e
Losses
Sementes
Brazil – Export Markets – 1990 x 2007
Producing Regions
Sudeste Norte
Nordeste 0.70% 2.50%
7.90%
Outros
17%
Holanda
36%
Alemanha
5%
Bélgica
6%
Sul
36.90%
Centro
Oeste
52%
Itália
6%
Outros
29%
China
42%
Itália
5%
Espanha
12%
Japão
18%
Espanha
10%
Holanda
14%
Brazilian States Risk Reward Analisys
Different Risk and Risk x Reward relationships
Historical Data
Good Risk x Reward
10Y Yield Volatility
35%
RS
30%
25%
20%
MS
15%
PR
10%
MA
5%
GO
MT
0%
0%
5%
10%
15%
20%
25%
30%
Gross Margin
Best Risk x Reward
Good Risk x Reward
Hard to Scale Up
Too
Risky
10Y Worst Gross Margin
Lowest Risk
and Margin
10%
0%
-10%
GO
MS
MT
PR
RS
MA
-20%
-30%
-40%
-50%
-60%
-70%
17
Los Grobo: LatAm Agribusiness Preeminent Agriculture Company
… leading to a highly synergistic business to maximize value creation throughout the
Agribusiness Value Chain
Contacts
Sizeable and Diversified LatAm Player
+
Antonio Oliva Neto
CFO
antonio.neto@losgrobo.com.br
+55 62 3018-2700
One-Stop-Shop
+
Network Model
+
Gustavo Barbeito
CIO
gustavo.barbeito@losgrobo.com.br
+55 21 2554-1300
Superior Productivity and Efficiency
+
Proven Track Record with Strength Financials
+
Sponsors & Fully Aligned Management Team With Strong
Execution Capacity
Structured and scalable growth platform with secured
access to relevant grain production/origination
18