Investment opportunities in Agribusiness
Profit from overcoming global inefficiencies in feeding the world
Premium Wealth Management – Vietnam Conference
April 2012
Bill Barbour – Director, Investment Specialist
Asia Pacific and MENA
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1
Our background
 Actively managed Global Agribusiness Fund to capture
inefficiencies and misperceptions of agribusiness.
 Launched first global agribusiness investments and research
in 2005, as of June 2011 over 5 billion USD in assets.
 Carefully cultivated network of global agribusiness experts in
academia, supranationals (invited to roundtable discussion at
the UN).
 Dedicated and seasoned global agribusiness investment team
located in NY with strong focus on bottom-up research.
Embedded in global thematic equity and trend analysis.
 Over six years of in-depth analysis at the farmgate, agri-IP, agriR&D roadmaps.
2
Source: Global Thematic Partners and DWS Investments
The case for Global Agribusiness
Global food prices hit all-time high – Agflation is back
UN Food and Agriculture World Food Price Index
Food prices ???
4
Source: Bloomberg; : 30th September 2011 (Monthly data to 29th February 2012)
Global food prices hit all-time high – Agflation is back
UN Food and Agriculture World Food Price Index
Supply shocks
5
Source: Bloomberg; : 30th September 2011 (Monthly data to 31st August 2011)
Global food prices hit all-time high – Agflation is back
UN Food and Agriculture World Food Price Index
Future prices???
6
Source: Bloomberg; : 30th September 2011 (Monthly data to 31st August 2011)
Corn price – January 2000 to February 2012
USA – No. 2 Yellow Corn in US$ per bushel
7
Source: US Department of Agriculture as at 29th February 2012
Pressure on global supply/demand of grain
According to the Japanese Ministry of Agriculture, the inventory ratio of grain will decrease
to 15% in 2020 and is expected to fall below the safety zone defined by the FAO.
Global Grain Consumption, Production, and Inventory Ratio
【1970～2010】
(Million tons)
（％）
2 ,5 0 0
80
Total Grain inventory as a % of demand (RHS)
期末在庫率（右軸）
2 ,2 5 0
Grain Production
volume (LHS)
生産量(
左軸）
70
2 ,0 0 0
消費量（左軸）
Grain Consumption volume (LHS)
60
1 ,7 5 0
50
1 ,5 0 0
40
1 ,2 5 0
30
1 ,0 0 0
20
FAO Safety Zone
１７～１８％
750
10
500
0
1970
1975
1980
1985
1990
Source：Japan Ministry of Agriculture (As of February 2011)
9
1995
2000
2005
2010
Agribusiness – Inevitability
Global forces or catalysts for change
1. Soaring global population
2. Rising incomes in the developing world
3. Limited agricultural land
4. Bio-fuels
5. Global warming – climate change
These forces appear to be inevitable and unstoppable
Source: Deutsche Asset Management
10
World population growth forecasts
Almost 1 billion more people over the next decade
Billions of people
11
Source: Population Division of the Department of Economic and Social Affairs of the United Nations Secretariat, World
Population Prospects: The 2010 Revision, http://esa.un.org/unpd/wpp/index.htm,Monday, August 15, 2011;
The simple income / Food formula
Rising income = More food and higher protein consumption
INCOME & EXTRA FOOD INTAKE*
(*Incremental protien)
16
Source: UN FAO, IMF.
12
grams/day
Grams per day
8
4
0
1
5
10
15
20
25
30
35
40
Income per capita ($US 000s)
Source: CBA, Commonwealth Research (Updated as at 31 July 2011)
12
45
50
Meat demand and changing diets
Creating unprecedented demand for grain
Income versus meat demand in large consuming countries
Kilos per person per annum
140
120
USA
100
80
Brazil
60
40
20
China
GDP per capita (US$)
0
100
1000
10000
China
Source: USDA, FAO, US Census; Date: 2008.12.31
13
Brazil
USA
100000
Potential for an increase in food consumption
81% of the world population earns less than US $3,466 per annum
2006 Data
Global income distribution in relation to world population
Developing Countries
Low Income
Countries
Lower-middle
Income Countries
Upper-Middle
Income Countries
High Income
Countries
2,785 mn people
43%
2,506 mn people
38%
602 mn people
9%
631 mn people
10%
GNI* < US$ 875 pa
GNI < US$ 3,466 pa GNI < US$ 10,726 pa
* GNI – Gross National Income on a per capita basis per annum
14
Developed
Countries
Sources:
1) Estimated Global Population: CIA, The World Factbook 2006
2) Income Group Classification: World Bank 2006.
GNI > US$ 10,726 pa
Potential for an increase in food consumption
Around half of the world population still earns less than ~ US $4,000 per annum
2011 Data
Global income distribution in relation to world population
Developing Countries
Low Income
Countries
Lower-middle
Income Countries
Upper-Middle
Income Countries
High Income
Countries
828 mn people
12%
2,499 mn people
36%
2,484 mn people
36%
1,101 mn people
16%
GNI* < US$ 1,005 pa GNI < US$ 3,975 pa GNI < US$ 12,275 pa
* GNI – Gross National Income on a per capita basis per annum
15
Developed
Countries
Sources:
1) Estimated Global Population: CIA, The World Factbook, estimation as of July 2011
2) World Bank economies classification as of 18th July 2011
GNI > US$ 12,276 pa
Farmland per person is declining
Rising demand requires higher yield from agricultural land
World Population
(Billions)
Farmland
(Billions of Hectares)
Farmland per
person
(Hectares)
1950
2.5
1.3
0.50
1975
4.0
1.4
0.40
2000
6.1
1.5
0.25
2020
7.8
1.5
0.19
16
Source: Population Division of the Department of Economic and Social Affairs of the United Nations Secretariat, World
Population Prospects: The 2010 Revision, http://esa.un.org/unpd/wpp/index.htm,Monday, August 15, 2011; (utilising
high variant data), Lehman Brothers and Global Thematic Partners
Biofuels are competing for farmland
17
Rapid depletion of US Corn inventories
Millions of tons
Source :Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES), Agricultural Commodities, September quarter 2011.
18
World biodiesel usage
Source :Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES), Agricultural Commodities, March quarter 2012.
19
World oilseed indicator price
US$ per ton
Source: Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES), Agricultural Commodities, September quarter 2011.
20
Climate change
Increase in global extreme weather over the last century
Global observations per annum
25
0
35
30
200
Droughts
25
Floods
20
150
15
10
0
10
5
0
5
0
0
1900
1920
1940
1960
1980
1920
1940
1960
1980
2000
1980
2000
16
0
140
35
30
120
Extreme
Temperatures
25
20
Storms
10
0
80
80
15
60
10
40
5
20
40
0
0
1940
1950
Source: Scotia Capital - 2011
21
1900
2000
1960
1970 1980
1990
2000 2010
1900
1920
1940
1960
Scarcity: Potential 150 million hectares shortage of farmland
Long-term supply not sufficient
Estimated Acreage Increase by 2015 (mm ha)
56
 Fragmented substance farmers in
Africa, China, India, Eastern Europe
require new incentive structures
-144
70
171
153
Food
Feed
Bio-Fuels
Source: Radar, USA – August 2009
22
Yield gains
 Many zoning restrictions in Brazil
and Africa limit farmland expansion
Total Demand
 Land ownership unclear in many
developing agri regions
 Undervalued price of water and lack
of infrastructure need to be
considered when solving the land
shortage formula
Food consumption on the rise
Forecast extra developing world demand - 2010 to 2015
Source: Societe General Cross Asset Research , January 2010
23
What is Global Agribusiness?
“Everything from agricultural commodities to consumer products"
Exchanges
By products
Chicago Board of Trade
AWB
SEEDS & FERTILISER
Storage
LAND/PLANTATION
Processing
Product
Marketing
Logistics
Distribution
WATER
MACHINERY
Meat
Farm
Aqua
Grain
Animals
Fish
FARMERS
Grain
Credit
Land Arbitrage
Bio-fuels
Source: Deutsche Asset Management
24
From dirt to dinner table –
Allocation along the value-chain
UPSTREAM
DOWNSTREAM
Resource Owners
Facilitators
Value Adders
Collectors/Distributors
 Land
 Agri. products
 Packag. Food
 Retailer
 Plantation
 Machinery
 Meat & Bev.
 Logistics
 Fertilizer
 Irrigation
 Aquaculture
 Distribution
 Seeds
 Infrastructure
 Forestry
 Services
For illustrative purpose only. The above companies are not a securities recommendation.
25
Source: Global Thematic Partners, 2011
Opportunities
High farm income good news for capital expenditure
Farm income and capital spending (Diffusion Index)
27
Source: Kansas City Federal Reserve as of 28th February 2011
High farm income good news for capital expenditure
Rising farm incomes spur spending on tractors
(% change from prior year)
28
SourceUSDA, Association of Equipment Manufacturers; Note: 2011 Ag Equipment Sales are YTD through March
Opportunity: Ag-Biotech
Enhancing farm and land productivity through science
 Food production will have to increase 70% over the next 40 years*
 The population growth necessitates the use of transgenic crops.
These are plants which have artificially introduced genetic material.
 Scientists develop these crops to obtain better quality, higher yield, pest control
and resistance to weather volatility.
 Company examples include:
– Monsanto (USA)
– Syngenta (Switzerland)
– Vilmorin & Cie (France)
– KWS Saat AG (Germany)
*Food and Agriculture Organisation, October 2009,
The above companies are not a securities recommendation and are provided for information purposes only.
29
Global growth in genetically modified (GM) crops
A huge investment opportunity - Essential to feed the word
30
31
Ag-Biotech example
Monsanto’s “SmartStax” seed technology
 Monsanto has introduced seed
technology breakthroughs for corn and
cotton
 Seeds include herbicide tolerance and
insect-protection genes for 8 different
above and below ground insects
 This is forecast to enhance crop yields
by 7% to 8%
Source: Monsanto.com; 2009 and 2011
Wheat crop threat
UG99: A potential future driver of famine
 A new Puccinia graminis fungus originated in Uganda
and was discovered in 1999 (UG99). The fungus
causes stem rust that eventually distract plant nutrients
relevant for growth. Roughly 90% of the world wheat
production has no protection against the virus.
 40 million acres in US are currently susceptible to
UG99 stem rust, placing annual production of over 2
billion bushels, worth $9 billion, at great risk.
 Wheat rust has spread 5,000 miles in the last decade.
In June of last year scientists announced the discovery
of two new strains in South Africa, the most important
food producer yet infected.
 Directly impacts wheat growers, grain handlers,
exporters, the US milling and baking industry, and
consumers through lower crop yields, reduced grain
supplies, poorer grain quality, and higher commodity
prices.
Global wheat crop could be severly threatened as scientists are
concerned that UG 99 might spread as far as Russia and India.
Source: The Economist: July 1, 2010
32
33
Opportunity: Aquaculture
Substitution and increased consumption of protein
 Global fish demand forecast to increase by 26% to >50% by 2030*
 Current per capita consumption p.a. of 17 kgs = 26% demand increase by 2030
 An increase to only18 kgs per capita p.a. = 50.9% demand increase by 2030
 Most of this increase must come from Aquaculture, with largest growth in Asia
Share of fish production 1997
Forecast share of fish production 2030
69%
37%
31%
31%
Capture
69%
63%
Aquaculture
Stable Demand
Capture
Increase to 18 kgs per capita
Aquaculture
* Source: DeAM and United Nations & FAO: World Review of Fisheries and Aquaculture 2010, 2008 and 2006, and FAO Committee on
Fisheries , Sub-committee on Aquaculture, Fourth Session, Puerto Varas, Chile 6-10 October 2008.
Performance comparison:
DAX Global Agribusiness Index vs MSCI World Index (in USD)
DAX Global
Agribusiness Index
+117.73%
MSCI World
Index
-3.15%
34
Source: Bloomberg as of 29th March 2012 Note: Commencement date 15th September 2006=100
Performance in USD. Past performance is not necessarily indicative of future performance.
Performance comparison from global market bottom*
DAX Global Agribusiness Index vs MSCI World Index (in USD)
DAX Global
Agribusiness Index
+117.79%
+90.59%
MSCI World
Index
35
Source: Bloomberg as of 29th March 2012 Note: * The MSCI World Index bottomed on 9th March 2009 =100
Performance in USD. Past performance is not necessarily indicative of future performance.
Global food consumption and economic crisis
Grain demand uncorrelated to GDP
Scatter chart of world GDP growth and grain demand
5.0%
4.5%
4.0%
World
GDP
growth
3.5%
3.0%
R Squared = 0.0021
2.5%
2.0%
1.5%
1.0%
0.5%
0%
-2.0%
-1.0%
0%
1.0%
2.0%
3.0%
Grain demand
36
Source: Citi Investment research and US Government sources (1980 to 2009)
4.0%
5.0%
6.0%
Continuous growth in global demand for Grain and Oilseeds
1960 to 2011 (Recessions shown with red bars)
Million Tonnes
World grain and oilseed use
37
Source: US Department of Agriculture 2011 and Global Thematic Partners
World stock of Grain and Oilseeds near historic lows
Million Tonnes
38
Source: US Department of Agriculture 2011 and Global Thematic Partners.
Stock to use ratio
Grain prices
Common based at 100 from 1st January 2010 to 31st August 2011
39
Source: Bloomberg as of 6th October 2011 (Active contracts from Chicago Board of Trade, Source data in UD Dollars)
Past performance is not necessarily indicative of future performance.
Grain prices
Common based at 100 from 1st January 2010 to 6th October 2011
1st September 2011
40
Source: Bloomberg as of 6th October 2011 (Active contracts from Chicago Board of Trade, Source data in UD Dollars)
Past performance is not necessarily indicative of future performance.
CF Industries Holdings Inc. – US fertiliser company
Share price in USD from 1st of July 2010
-36%
41
Source: Bloomberg as of 6th October 2011 This is not an investment recommendation and is for information purposes only.
Past performance is not necessarily indicative of future performance.
CF Industries Holdings Inc. – US fertiliser company
Share price in USD from 1st of July 2010
2012 P/E = 8.95
2012 P/E = 5.70
42
Source: Bloomberg as of 6th October 2011 This is not an investment recommendation and is for information purposes only.
Past performance is not necessarily indicative of future performance.
CF Industries Holdings Inc. – US fertiliser company
Share price in USD from 1st of July 2010
2012 P/E = 8.95
2012 P/E
= 7.92
2012 P/E = 5.70
43
Source: Bloomberg as of 29th March 2012 This is not an investment recommendation and is for information purposes only.
Past performance is not necessarily indicative of future performance.
An interesting insight – correlations over time
Two years daily correlation with Fund*
MSCI World
Market Vectors Agribusiness
S&P GSCI Index
Thomson Reuters / Jefferies CRB Commodity
Index
Dow Jones - UBS Commodities Index
0.68
0.49
0.47
0.46
0.44
0.00 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80
Source: Bloomberg as of August 2011; Correlation data in USD. *DWS Global Agribusiness* is a US mutual fund and has not been registered in Australia with
ASIC and is shown for information purposes only. Past performance is not necessarily indicative of future performance.
44
Australia - Agribusiness opportunities
Sector contribution to total Australian GDP 2010-11
Source: Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES), Agricultural Commodities, September quarter 2011.
45
Australia - Agribusiness exports
Exports in billions of AUD
Sector
=
2011 imports
exceed exports
46
Source :Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES), Agricultural Commodities, September quarter 2011.
Listed Australian Agribusiness companies
A small and limited opportunity set
 Company examples include:
Market capitalisation
– Australian Agricultural Company Limited
$419 million
– Elders Ltd
$126 million
– GrainCorp Ltd
$1,477 million
– Incitec Pivot Ltd
$5,489 million
– Nufarm Limited
$1,139 million
– Ridley Corporation Ltd
$326 million
– Ruralco Holdings Ltd
$171 million
 Recent takeovers:
– ABB Grain Ltd (Acquired by Viterra Inc – Canada)
– AWB Ltd (Acquired by Agrium Inc -USA)
47
Source: Bloomberg and Deutsche Asset Management Market capitalisation data at close of business 7 th of October 2011 in AUD.
The above companies are not a securities recommendation and are provided for information purposes only.
Global Agribusiness
An inevitable investment opportunity
Rising prices for
Agriculture & Food
related products and
investments
Growing
Global Population
» Strongest Population
Growth in Asia
» Urbanization
» Increase in life
expectancy
» Bio-fuels
» Slowing Yield Gains
Rising Incomes
» Changing Weather
Increasing Pollution
» Land & Water
Scarcity
Limited
Resources
Source: Deutsche Asset Management
48
» Increasing demand
for High-Protein food …
» … and
“healthy” quality
food (Organic)