AgFood Platform – The next 25 years
Transition – Paul Jensz moves from PAC Sell-Side to AgFood Buy-Side
From January 2023, I will move from PAC Research to the AgFood Fund full time with Portfolio Management responsibility. I will stay on as a Director of PAC Partners.
Max Andrews will return from the AgFood Fund to PAC Research, as the Sell-Side Analyst covering the agfood sector and industrial companies alongside Stephen Scott and Caleb Weng.
Under Stephen Scott’s leadership and Craig Stranger’s guidance, PAC Research has grown to seven people across resources, energy, agfood, life science and technology.
The AgFood Fund has many partnership and project opportunities in 2023 as we seek to step up from $15m FUM to $50+m and then to significant scale. My independence from PAC Research may assist perception and execution.
The agfood sector is undergoing a once in 25-year adjustment. The AgFood Fund seeks to be a key player in the pre-IPO to IPO transition, and do in depth analysis of unlisted and global stocks.
The AgFood Fund and PAC will run our joint conference each year, #21 is on Tuesday 30 May 2023 in Sydney. Please “Hold this Date”.
Thank you for allowing me to be a small part of the Australian finance industry since the late 1990’s. The first 25 years have been a great privilege, and I look forward to another 25 years.
The Next 25 Years - Link farmers, life science and customers…sustainably
See detailed report in link - RR_AgFood_Platform_Next 25 Years_230124 with references
SUMMARY
THE PAST
Over the past 25 years the global population rose 35% (+2.1b to 8.0bn). Consumption per person of food intensity rose at 10% with higher living standards in developed world. This combination translated to a 49% increase in the use of food, a solid growth of 1.6%pa.
The author was in financial markets through this change, and learned from leading companies across agriculture (ELD, IPL, NUF, RIC, SHV, WES), life science (CSL, PME, RHC, RMD, SHL) and food brands (BGA, BUB, TGR).
THE CHALLENGE
Over the next 25 years 9.7bn humans – another 23% (1.8bn) more than today. Food intensity is expected to rise at least 20%, so we need at least 48% more “useful” food, and a continuation of 1.6%pa growth.
The “easy” 25year 50% growth may be done. The next 50% appears harder with 20-30% less arable land and depleted traditional energy sources.
SOLUTIONS FOR 50% FOOD INCREASE
Reuse/Recycle – 10% . We waste up to 20% of our food, and the UN aims to reduce this by half. SHV’s almonds are only 30% of the harvested product. It is part way through using the 70% of biomass for energy generation, fertiliser production Sustainability Report. BGA has a Circular Bega Valley initiative, which will be rolled out across Australia.
Consolidation/Efficiency – 10 to 20%. The “natural” market shares in agfood supply chains are the larger two with 30-80%, specialists 20-50% and niche 20-30%. ELD (25% market share) and RIC (21% market share) may be in the sweet spot for stepping up to 30-35% market share with organic growth and bolt-on acquisitions.
Life Science/Technology/Brand – 10 to 30%. A combination of life science and technology with traditional food infrastructure (and good seasons) have boosted Australian agriculture productivity to 3-4%pa for five-year periods in the recent past, but overall productivity improvement 1997 to 2021 was just 0.6%pa.
Australia needs to lift productivity growth to 1-2%pa, and a closer combination of life science, technology and infrastructure appears the likely path. The Australian Bureau of Agricultural and Resource Economics and Sciences estimates that value growth will be 4%pa until 2030, as Australia produces high value food products. The technology and value-add routes mean that Australian agriculture needs to develop better branding so the value can be captured sustainably and returned to farmers, processors, and researchers.
Commercial activation of emerging companies. Emerging companies are an important part of the productivity improvement. We have seen many list too early and blame the agribusiness is too tough and cyclical.
AgFood Opportunities Fund is set up as a way of investing in emerging companies with sustainable 8-10%pa growth areas across: aquaculture (Yumbah), Brands (TFL), Protein (ELD, SHV, WNR) and Technology (Digital Agricultural Services). We are an experienced team focussed on scalable niches, proactive management, and capital preservation.
See www.agfood.com.au for details and invest via agfood application form.
AgFood Fund Investments
Leaders – 10% of AgFood Opportunities Fund
Elders – We estimate that ELD has 25% market share on average across farm inputs, rural services and ag product trading and real estate, and less than 10% financial services. ELD may be in the sweet spot for stepping up to 30-35% market share with organic growth and bolt-on acquisitions. Its search for a new MD gives it an opportunity to investigate partnerships and joint ventures. The Dec’22 purchase of 10% of NZ’s PGG Wrightson appears to be a defensive move, with many options to explore after the next stage of lower risk growth in Australia.
Select Harvests SHV produces 15% of the global almonds outside of California. Only 23% of the harvested product is the almond (or inshell sold almond) Sustainability Report. SHV produces 130,000t of biomass from its 9,300 hectares, and is the most efficient converter of water to 10000t of inshell almond sales, 20000t of almond kernel, 60000 stockfeed, 10000 biomass feed to on-site energy and 30000t compost to orchards. There is a substantial opportunity to improve by-product sale value, which will lower cost base and push SHV down the cost curve.
Ridley – We estimate that RIC has 21% market share of processed animal feed and has opportunities to step up to 30% market share with organic growth and bolt-on acquisitions. RIC has a tangible FY23-25 growth plan to row EBIT at 5-10% per annum across packaged, ingredient segments and bulk. RIC’s Novacq prawn fee is an example of investing in late-stage R&D and it should make a commercial return this year, and allow RIC to explore in-house and partnership growth options
Bega Cheese BGA has the leading dairy, spreads, yogurt and juice brands under its “Great Australian Food Company” banner and will make 80% of EBITDA from highly differentiated products and brands from FY’23F. BGA has a Circular Economy initiative, which will be rolled out across Australia. This improves BGA’s licence to operate in regional Australia, and improves engagement with dairy suppliers and brand value with customers. The improved financial returns from combining circular economy and systems changes across BGA’s cold and ambient supply chains should see a significant improvement for all participants and a lower cost base.
Emerging Companies – 40% of AgFood Opportunities Fund
Yumbah Aquaculture (unlisted)
Yumbah Aquaculture is vertically integrated from its feed and nursery to processing, distribution and brand with abalone, oysters and mussels. Yumbah’s operations are evenly spread across the Southern Ocean in South Australia, Victoria and Tasmania. It won the Australian Stewardship Council Best Responsible Seafood Producer Award in 2022.
Yumbah has led many aquaculture M&A opportunities with purchase of South Australian abalone farms on 2003/12/16 and Tasmania in 2010. Tasmanian Cameron Oysters was added in 2021 after a five-year hatchery JV in Sth Australia. Seafarms mussels was also purchased in 2021. Yumbah has many initiatives underway to re-use seawater and infrastructure and by-products (like abalone shell for tiles). Yumbah’s farming systems, automation, genetics and cold chain value is captured with “Yumbah”, “AusAb”, “Cameron” and other brands.
TasFoods (TFL)
TFL has three premium Tassie brands in dairy and poultry with “Pyengana”, “Meander Valley”, “Nichols”, and a consistent annual group revenue of $70m with control over its Tasmanian cold supply chain and distribution relationships into the mainland.
A new executive team under Scott Handley established its points of difference in 2022, and increased prices to protect brand value. TFL is improving its systems/distribution to lower its cost base and improve service to retailers. The success with its own brands and proven supply chain should enable TFL to assist other artesian producers in Tasmania and around Australia.
Wingara (WNR)
Wingara used the 2021 challenges to improve safety and operational efficiency in its Victorian hay export business under the guidance of James Whiteside (ex Incitec Pivot Fertiliser GM). James also ensured the sale of non-core Austco Polar (beef cold storage) in December 2022
WNR’s service levels enabled the retention of one of only three oaten hay export licences to China for a 40% boost to volumes, and develop relationships with the key 25 suppliers and 25 end customers. James handed on the CEO role to previous Wingara CFO Marcello Diamante in November 2022. Marcello is very familiar with the base hay export business and has the relationships to explore M&A and expansion opportunities from WNR’s 10% market share.
