investments by institutions in primary agriculture in russia, ukraine and kazakhstan
TRANSCRIPT
Investments by institutions in primary agriculture in Russia,
Ukraine and Kazakhstan
IAN LUYTFinance, Food and Farmland Conference
The Hague, 25 January 2014
International Institute of Social Studies (ISS) & Centre for the Study of Transition and Development (CESTRAD)
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OVERVIEW
1. Context and Estimates
2. Motives & Methods
3. Performance to date
4. Issues & Trends
o Data based on study: “Emerging investment trends in primary agriculture: A review of equity funds and other foreign-led investments in the CEE and CIS region (2013)” www.eastagri.com (download from www.novirost.com)
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Map: www.russiamap.org
Investor focus on Black Earth regions & Northern Kazakhstan
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Russia, Ukraine, Kazakhstan hold 12.6% global arable land & ~70% within CEE/ CIS
Indicator
Russia UkraineKazakhst
anTOTAL
TOTAL LAND 1,709.8 60.4 272.5 2,042.7
AGRICULTURAL LAND 196.3 41.3 90.2 327.8
Agric Land % of Total Land 11.5% 68.4% 33.1% 16.1%
ARABLE LAND 120.7 32.5 24.0 177.2
Arable Land % of Agric Land 62% 79% 27% 54.1%
Data sources: National Statistics Agencies, EastAgri (2013). Global arable land taken as ~1.4 billion hectares (FAOSTAT 2011)
Combined 5.5% of Global Agricultural GDP (2011)
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Indicator Russia UkraineKazakhst
anTOTAL EU
GDP (US$ bln) $1,858 $165 $188 $3,898 $16,566
Agric % of GDP 4.5% 10.5% 5.2% 5.9% 1.8%
Agric GDP (US$ bln) $83.6 $17.4 $9.8 $230.5 $298.2
Sources: World Bank (2011), National Statistics Agencies, Eurostat (2011)Global agricultural GDP taken as US$ 4.194 trillion, or 4% of global GDP ( IMF 2011) (World Bank estimates 2.81% of global GDP (2011))
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CONTEXT TO LAND RIGHTS & TENURE
• Most farmland owned by individuals in small lots
• Most farmland privately owned
• Ownership highly fragmented
• Land title generally defined and documented
• Limits to foreign ownership
COUNTRY Basis of Reform Tenure by foreigners allowed
Russia Land Shares Freehold through local company
Ukraine Land Shares Leasehold through local company
Kazakhstan Land Shares Freehold through local company
Other CEE Restitution EU citizens and local company
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Investment drivers follow global trends
• Two early drivers:– Farmland appreciation– Operating profits– Outcomes significantly different
• Underpinned by super cycle of higher commodities prices:– Growing world population– Growing middle class consumption– Diversion of crops into biofuels
• Other institutional drivers:– Hedge against inflation– Diversification - uncorrelated to broader markets
• Region-specific drivers:– Land consolidation attracts premium– Large farms offer efficiencies of scale– Subsidies and tax concessions limited impact in CIS
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Investments by funds & institutionsEstimated ~$25 bln globally
REGIONNumber of funds
Share of funds
Investment (US$ bln)
Share of total investment
North America/ Latin America/ Australia/ New Zealand
38 64.4% $20.5 bln 82.7%
CEE/ CIS* 17 28.8% $2.9 bln 11.7%
Africa 4 6.8% $1.4 bln 5.6%
TOTAL 59 100% $24.8bln 100%
Data source: EBRD/ FAO study 2013 (updated). * Breakdown: CIS: ~$2.0bln; CEE:~$900mln
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Foreign-led investments in CEE & CIS since 2006
REGIONEstimated
investment(US$ bln)
Land under
control(mln ha)
% of agri land
% of arable
land
CIS * ~$5.0 3.2 0.9% 1.8%
CEE ** ~$3.0 1.0 1.3% 1.9%
TOTAL ~$8.0 4.2 1.0% 1.8%
* CIS group comprises Russia, Ukraine, Belarus, Kazakhstan Agricultural land: 336.7 million hectares Arable land: 182.7 million hectares
** CEE group comprises Poland, Romania, Bulgaria, Croatia, Serbia, Turkey Agricultural land: 79.9 million hectares Arable land: 50.4 million hectares
Source: EBRD/ FAO study 2013. Data includes investments by private equity funds and other private and institutional investors
Estimated ~$8.0 bln invested in ~4.2 mln ha
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FINANCING STRUCTURES
• Predominant structure is private investment company
• Growth funded through public listings
• Few investments through private equity funds
• Other investment structures
– Open-end private equity funds
– Real estate investment trusts (REITs)• IFIs recent entrant (both equity & debt)
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INVESTOR PROFILES
• Predominance of European institutions
• Largest private equity investor is US-based
• Most are financial investors
• Few global strategic & commodity trading houses– Vertical integration: Sucden (sugar), Olam (milk), Poldanor (pigs)
– However, recent investment by Cargill in Ukrlandfarming
• Sovereign investors– Recent acquisition of CFG
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Most large farmland firms are local
Rank Company CountryHectares
under control
1 Ivolga Kazakhstan/ Russia ~1.3 mln
2 Alibi-Agro Kazakhstan ~1.0 mln
3 Kazastykexport Kazakhstan ~1.0 mln
4 NCH Ukraine/ Russia 762,000
5 Ukrlandfarming Ukraine 670,000
6 Prodimex Russia 570,000
7 Vamin Russia 468,000
8 AK Bars Russia 466,000
9 Rosagro Russia 450,000
10 Razgulay Russia 412,000
15 Black Earth Farming Russia 308,000
Source: Novirost research/ company data where available
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Performance insights7 listed ‘pure-play’ farmland companies reviewed
COMPANY Location Listing DateListed
Land Bank (hectares)
Market Cap(US$ mln)
Share price performance
since IPO
AGROGENERATION Ukraine Paris May 2010 50,000 $73.5 -10%
AGROTON Ukraine Frankfurt Nov 2010 171,000 $63.1 -65%
ALPCOT AGRORussia
UkraineStockholm Oct 2009 281,300 $101.7 -63%
BLACK EARTH FARMING
Russia Stockholm Dec 2007 318,000 $286.5 -76%
CONTINENTAL FARMING GROUP
UkrainePoland
London & Dublin
June 2011 23,700 $64.7 +4%
INDUSTRIAL MILK COMPANY
Ukraine Warsaw May 2011 82,700 $159.1 +9%
TRIGON AGRIRussia Ukraine
Stockholm May 2007 172,000 $100.8 -50%
TOTAL 1,098,700 $849.4
Sources: Bloomberg; London Stock Exchange. Market capitalization as at 22 December 2012Share price analysis: Foyil Securities (share prices as at 19 November 2012)
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Underperformance as asset class – but a few stars
Sources: Foyil Securities (data analysis), Bloomberg. Share prices as at November 9, 2012.
At Nov 2012, only 2 shares
above index level
Share prices indexed at June 2011- date of latest IPO (CFG)
Key lesson: Strategic management as critical as operational management
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CIS farmland companies have alsounderperformed global benchmarks
Data source: Foyil Securities - Share prices as at 31 December 2012
+ CIS Farmland Index tracks the share price performance of 10 listed farmland companies in CEE and the CIS+ Rogers International Commodities Index - Agriculture Sub-Index is based on 22 commodity futures contracts+ DAX Global Agribusiness Index tracks the performance of 40 leading agricultural companies + S&P GSCI Agriculture & Livestock Index tracks soft commodities price movements
Share prices indexed to value 1000 at July
2007
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FACTORS IMPACTING FUTURE INVESTMENTS
• Country risk perceptions• Ability to manage volatility/ risks
– Climatic (crop insurance)– Market (hedging options)– Skills development
• Malcolm Gladwell’s ‘10,000 hours’?
– R&D (private/ state roles)
• Availability of investable opportunities– Lack of ‘institutional quality managers’
• Performance to date unconvincing– Large scale model must be shown as consistently profitable
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INVESTMENT TRENDS
• Existing investors: consolidation/ optimization• Only 3 funds set up since ‘08 crisis• Limited appetite for farmland?
– Aquila survey: only “11.4% to increase exposure over next 5 years”
• New classes of investors – new dynamic?– Sovereign Investors – Saudi acquisition of CFG (March 2013)– Global Traders - Cargill investment in Ukrlandfarming (Dec 2013)– IFIs – EBRD in Kazexportastyk; IFC (maybe) in IMC
• Investments more niche-focused– VTB’s irrigated farming in Russia
• CIS holds most institutional-scale potential
