Industry Update

Planting Dollars: The Growing Pace of Global Investment in Agriculture

8-30-16

August 29, 2016

Stable financial returns have become much harder to find after the financial crisis, a fact not helped by geopolitical instability, low interest rates, and lackluster economic growth. That has prompted investment managers to examine less traditional sectors; one of these include agriculture. More and more investors have had a growing interest in two areas: direct investment in farm-level agriculture and venture funding in agricultural technologies.

Direct equity investment in agriculture is beginning to flourish, even if it’s less mature than debt financing. Institutional investors have begun to see that the sector generates stable returns while serving environmental, societal, and governance (ESG) mandates. In 2009, five agricultural or farmland strategy funds collectively raised $500 million; by 2014, 17 funds raised a total of $3.9 billion. In the second major area of investment, agricultural technology companies are attracting the attention of venture capitalists. In 2015, 499 companies received an aggregate $4.6 billion in investments, which is double 2014’s funding level of $2.36 billion.

In many ways, investing in agriculture remains a radical act. As a sector dependent on unpredictable weather, agriculture has long been considered too risky. Yet as the growth potential in other sectors wanes, and as new technologies better predict risk, agriculture is getting a well-deserved second look.

The funding environment for agriculture

Here’s a formula to consider for agricultural investments: income + capital appreciation = investor appetite

An investment in agriculture and forestry is a claim on two streams of returns: the financial return from crop and harvest income and the capital appreciation of land or timber. This combination of income along with the upside of an appreciating asset produces optionality. There are other benefits to this investment, including correlation to inflation (which reduces risk that changes in inflation will negatively affect returns) and diversification (which means that a wide variety of agricultural and forestry investments aren’t necessarily tied to the performance of more mainstream investments).

One institutional investor told Gro Intelligence that agricultural land was among a handful of liquid assets that could be sold to generate cash during the financial crisis. Another institutional investor cited agriculture’s independence from general economic conditions as a differentiating factor that invites investment.

Fundraising around agriculture and farmland has grown significantly since a decade ago. There were an average of 6.8 funds that closed per year in 2006-2010; this figure more than doubled in the next five-year period, 2011-2015, to 14 funds a year.

Correspondingly, the amount of aggregate capital raised over these two five-year periods has jumped by nearly 150 percent, from an average of $1.24 billion per year to an average of $3 billion per year. While insurance companies and commercial banks make up the majority of investment in the space, more and more funds have increased equity investments.

New funds on the block

Certain institutional investors have begun to create portfolios specifically dedicated to agriculture. In August 2015, TIAA, one of the largest US retirement services providers, set up its second global agriculture fund, named TCGA II. The fund’s initial fundraising target of $2.5 billion was exceeded, closing at $3 billion in committed capital. Even some of the largest private equity players, like KKR, are now investing in the space. In 2014, KKR made a $100-million investment in Sundrop Farms, an indoor agriculture company, and recently made another agricultural investment of $77 million in Kwality Ltd., India’s largest dairy company. In fact, the firm’s first ever Africa foray was a $200 million investment in Afriflora, an Ethiopian flower company.

A number of smaller ag-focused investment funds have formed in the past decade. Chess Ag Full Harvest Partners, Ceres Partners, Equilibrium Capital, and Homestead Capital are a few among the many examples. Blue Road Capital, which focuses on production and supply chain investments, recently established its first agriculture fund; it x at $433 million after securing investments from university endowments, pension managers, family offices, and real asset investors. While direct equity investing continues to be a common angle, farmland investing has also emerged as a leading strategy.

How to approach farmland investment

Jim Rogers, who co-founded a hedge fund with George Soros, has declared to Fortune that: “I’m convinced farmland is going to be one of the best investments of our time.” Many other investors have voiced similar sentiments; Jeffrey Conrad, former president of Hancock Agricultural Investment Group and current president of AgIS Capital, has suggested that “Farmland is gold with a cash flow.” Beyond the usual macroeconomic drivers behind an agricultural investment thesis, agricultural investments benefit from a labor consideration—a third of US farmers are approaching retirement age, and investors believe that nearly 50 percent of US farmland will be under new management by 2022.

Gro Intelligence interviewed David Nicola, the founder and CEO of Blackdirt Capital, to understand how young funds are targeting farmland investments. Nicola has a unique investment thesis. He focuses more on mitigating downside risks than on finding the greatest upside potential. Volatility in external factors, such as rainfall and frost patterns, can and often do make the difference between making a return or suffering a loss. When Nicola approaches investments, he carefully examines whether the region receives stable rainfall and whether the land can be cultivated year round.

While many farmland investors have flocked to the West Coast of the United States, Blackdirt focuses on the East Coast, where there is comparatively less risk of drought. Nicola expects that areas with greater water availability will appreciate more quickly as US farming systems shift; organic foods are one example of a market that he expects will undergo production shifts, because there is unmet demand with limited domestic supply. As for whether additional farmland investment funds may open, Nicola does not anticipate a rush into the business, as farmland investment requires a great deal of capital upfront and significant product knowledge to generate a return.

Venturing into agtech

Agriculture technologies have seen a great deal of investment and innovation. While early agtech primarily consisted of seed genetic and biofuel companies, the landscape has evolved to offer a variety of sub-sectors, including soil and crop technology, drones and robotics, alternative proteins, and others.

Agtech investment in 2015 was one for the record books. The $4.6 billion that was raised nearly doubled the $2.36 billion raised in 2014, and this 95 percent growth rate was more than twice the year-over-year growth of global venture capital in 2015 (44 percent). Still, agtech funding in the scope of agriculture’s economic significance remains small. Agriculture makes up nearly 7 percent of global GDP, but agtech investment made up less than 3.5 percent of total venture funding in 2015. Other sectors, such as healthcare, had investment proportions that were more in-line to their representation in GDP.

While both 2014 and 2015 showed growth, 2016 is off to a slower start. The number of deals in the first half of 2016 (1H2016) has gained 7 percent on that of 2015, but the $1.8 billion raised during this period represents a 20 percent decline from 2015 levels. The decline in investment is roughly in line with a 14 percent decline across global venture capital markets compared with the 1H15, and the uptick in deal activity bucks the trend, as most sectors experienced a cooling in deal volume.

A greater number of venture capital funds are getting involved. Traditional mega-venture funds, like Kleiner Perkins, Sequoia Capital and Bessemer Venture Partners have invested in agtech, and a number of corporate venture arms have become increasingly active in the space. Both Monsanto and Syngenta operate venture arms, and some say Monsanto’s near-$1 billion acquisition of The Climate Corporation in 2013 ignited the spark for a flurry of corporate agtech investments. Even non-ag corporates, such as Verizon Ventures, have invested in multiple agtech deals.

Another interesting theme of 2016 agtech investment is the distribution of funding among the various subsectors of agtech. Since 2013, food ecommerce has taken the lion’s share of venture dollars, making up nearly a third of agtech investment in the 1H2016. However, food ecommerce investment in 1H16 lost substantial ground compared to 1H15, declining 22 percent—second to only drones and robotics which fell 32 percent in the same period. Existing food ecommerce companies have also taken a hit; in July 2016, Farmigo, a farm-to-consumer delivery platform closed its delivery business after five years of operations, citing logistics costs as a reason for the decision. Soil and crop technology, on the other hand, have enjoyed an increase in relative market share among subsectors.

Gro Intelligence spoke with Annie Hazlehurst, the founder of a venture capital fund Faridan, to gain more insight on the current funding landscape. (Full disclosure: Hazlehurst sits on Gro’s Board of Directors.) She noted that after the financial crisis, venture capitalists became primarily interested in consumer, enterprise, or data companies, and many of the recently funded agtech ventures have been data companies.

Hazlehurst has seen a shift in interest from primary innovation (such as biofuels and water purification) to secondary innovations (such as drones and robotics) that rely on non-sector specific technology. Innovations in hardware and software that improve data collection and interpretation will continue to play a central role. Computational technology has already achieved this in robotics and drone technology and is expected to do so with satellite and sensor technology.

On future potential large acquisitions in agtech, such as Monsanto’s acquisition of The Climate Corporation, Hazlehurst warned that the venture arena is far less established for agtech than for other sectors. Biotechnology and pharmaceuticals have been acquiring start-ups for years and have set sector precedence for the acquisition and integration process; on the other hand, agtech is still quite young, and so there is limited knowledge on acquisition patterns.

Conclusion

Ag sector investments have traditionally been limited because of inherent risks, such as weather and pathogens, that aren’t a factor in sectors like construction, energy, and pharmaceuticals. But two things have changed: Better data tools have become available to limit these inherent risks; and low returns in other sectors have pushed investors to look at agriculture.

Neither of these factors have gone away, and therefore we should expect that investments in agriculture still have room to grow. Certainly the sector faces challenges, which include lack of venture capital familiarity with the agriculture market, and the ever present weather and climate risks. There are nonetheless improvements possible along every step of the agricultural value chain, from optimizing soil conditions for growth and using drones on cropland, and improving data collection so that farmers and traders better understand risks.

By Sara Menker
Founder and CEO at Gro Intelligence

Health Benefits of Moringa Too Great to Ignore

June 6, 2016

For those not familiar with it, it sounds too good to be true. For those who are familiar with Moringa, however, the multi-faceted plant lives up to the hype… and more. That’s why the Moringa product market is expected to grow from $4 billion now to $7 billion by 2020, largely fueled by a foray into the U.S market.

New Global Energy (NGEY) is proudly positioned to lead that charge.

Moringa — Moringa Oleifera, to be specific — is a fast-growing tree that produces leaves packed with nutrition. A mere 100 grams of Moringa leaves, or 3.5 grams, provides more than the daily recommended amount of vitamin A and vitamin C, seven grams of protein, and much more. It’s also loaded with antioxidants like quercetin and chlorogenic acids, which are key health boosters not terribly common in most diets. All told, Moringa offers 36 anti-inflammatory compounds, 46 antioxidants, and 20 types of amino-acids. And, it’s full of vitamins as well as minerals like iron and calcium.

It’s not just the leaves of the tree demonstrating a health benefit though. The seed pods growing on its stems can also be eaten, as can its roots. Indeed, there aren’t too many parts of the Moringa Oleifera tree that can’t be used.

Moringa users aren’t just enjoying better general health, however. Each part of the tree has its own unique medicinal properties. Moringa has been observed to lower blood sugar levels, making it a potential all-natural treatment for diabetics. Moringa has also been linked to cholesterol reduction and inflammation control.  It’s even been shown to create anti-cancer and anti-viral activity.

And that’s just the beginning. It has rightfully earned its nickname as “The Miracle Tree” since it is effective at treating 300 different medical conditions.

Equally impressive is the sheer number of ways Moringa can be utilized. Fresh Moringa leaves can be eaten raw or cooked. Or, the leaves can be dried and turned into a powder.  It can also be turned into tea, or an extract, or put in a capsule form for easy ingestion.

It wouldn’t be hyperbole to say if the world could only utilize one plant as a source of nutrition, Moringa Oleifera would be it. That’s why New Global Energy — through our newly formed subsidiary Moringa Reserve LLC — is taking aim at a growing the underserved U.S. market, which has only just started to embrace the plant and all of its benefits.

Our soon-to-be-launched Moringa UP™ protein bars will fully capitalize on the protein packed into the plant. It’s a product we’re increasingly excited about, as the protein bar market is worth nearly $6 billion per year. MoringaUP represents the first convergence of the protein bar and Moringa markets.

We’re equally excited about the upcoming debut of our Moringa capsules, which will bring an easy-to-use solution to consumers who want to tap into all the health benefits of the Moringa but don’t have the time or desire to prepare the plant’s leaves. These capsules will also make it easy to place our product on the shelves of popular health supplement stores and into important distribution chains that rely on bottle-based packaging.  The health supplement market is worth nearly $40 billion per year in the U.S. alone, which is why it is just one more massive market we’re excited about serving.

Of course, the sky is the limit with how we can put this superfood in the hands of health-minded consumers.

We’re not just interested in bringing great Moringa-based products to consumers, however — we’re picky about ensuring our Moringa supply is of the upmost quality. That’s why we grow our own Moringa, and partner with farms we can work closely with to produce a top-notch supply. We’ve got 6000 Moringa trees planted in Thermal, California plus another 10,000 trees at our Mecca, California farm. We’re also proud to partner with the world’s largest Moringa  Oleifera farm…  a 180-acre site in Leon, Nicaragua, where the conditions for growing Moringa are ideal, and the farm’s owners are just as serious about producing high-quality Moringa leaves as we are.

Moringa, as a health-building food and supplement, is still in its infancy in the United States. However, this is rapidly changing, as more and more individuals are learning about its benefits. Consumers are expressing falling cholesterol levels. They’re feeling more energetic. Colds and flus are being sidestepped. Weight is being lost. Blood pressure is being controlled.

It sounds too good to be true, yet these are very real potential benefits users of Moringa are enjoying. And, it’s why we’re so thrilled to be a part of this nationwide awakening.


Foreign Seafood Issues Provide Aqua Farming Tech
Win-Win Scenario

March 31, 2016

The healthy eating movement in the United States is nothing new. Indeed, it has been underway for so long, it’s primed for a radical rethinking of what healthy eating is and can be, which represents a paradigm shift. The next evolution in healthy diets will be one that puts plenty of protein back the mix, and the easiest way to make that happen — the right way — is through fish-farming, and tilapia breeding in particular.

Although it makes for delicious seafood that’s high in protein and cost-effective, imported tilapia has been the proverbial poster-child of flawed fish. Too often containing high levels of toxins and harmful chemicals, tilapia has developed a reputation for being something of a less-than-great source of sustenance.

It doesn’t have to be that way though. In fact, concerned consumers can take comfort knowing we here at New Global Energy have found the ideal way to ensure a safe, healthy supply of seafood like tilapia.

To be fair, tilapia’s tainted reputation isn’t entirely undeserved.

There was a point in time not that long ago when finding dangerous levels of mercury and other toxins in seafood wasn’t surprising. For instance, in 2013, a study performed by North Carolina State University found detectable levels of formaldehyde in imported seafood being sold at grocery stores. In 2016, the Environmental Working Group discovered 30% of women had more mercury in their bodies than the EPA says is safe for pregnant women. The most likely cause of those high mercury levels was tainted seafood. In early 2015, Consumer Reports found that in a sample of 58 packages of cooked, ready-to-eat shrimp, 16% of them still contained some form of bacteria.

It’s alarming, but there’s a curious common thread among all this tainted seafood… it’s imported from overseas suppliers that are poorly regulated, if effectively regulated at all. Without regulatory enforcement, it’s easy and economical for fish breeders to feed their fish (among other things) feces, keep them in tainted water, and administer dangerous levels of antibiotics just to keep them alive in the filthy environment.

To its credit, the Food & Drug Administration is doing what it can. In 2015, the FDA rejected more than 400 shipments of shrimp sent into the country due to the dangerous presence of antibiotics or veterinary drugs. That was eight times the number of refusals from 2013.

But, the effort only scratches the surface. The FDA still doesn’t inspect most shipments; less than 2% of all seafood imports are tested for dangerous chemicals or bacteria. With more than 85% of the seafood and shellfish being imported and the vast majority of it not being closely examined, the odds of eating tainted seafood are uncomfortably high.

No company understands this concern better than we do. And, no company we’re aware of has a better handle on the solution — breeding seafood right here in the United States for U.S. consumers, where regulators can monitor it.

The NOAA explains of U.S. aquafarming:

“The U.S. laws governing the harvest and processing of seafood for human consumption are among the most stringent in the world. The responsibilities of monitoring and controlling seafood safety are divided among various agencies of the federal government and individual states. The primary federal agencies involved with seafood safety include: Food and Drug Administration, National Oceanic and Atmospheric Administration, U.S. Department of Agriculture, Environmental Protection Agency.”

That’s a lot of oversight, and we couldn’t be happier about it. In fact, it’s why New Global Energy owns and operates Coachella Valley’s (California) fish farming facility Aqua Farming Tech, where consumers and regulators can see the operation in action.

Aqua Farming Tech could be considered the prototypical fish-breeding facility of the future. The site has the scale it needs to remain a sustainable business, and its entire operation is one that focuses on safety and health. Not only does it feed its tilapia actual fish food, it grows its own moringa trees to use as the basis for that food. Moringa is packed full of nutrients, and isn’t packed with the toxins and chemicals overseas farm-bred fish are often fed.

It’s not just what Aqua Farming Tech’s fish are eating that makes its tilapia a safer choice for consumers, however. The water they live and grow in is also cleaner. The water in the massive holding tanks where our fish are bred is re-circulated through ponds that clean the water with plants… the same way nature does it. Moreover, that water is even used to irrigate our moringa crops.

It’s the ideal picture of sustainability, not just on the environmental front, but on the fiscal front. The result is the potential production of 2 million healthy, safe-to-eat fish in 2016, with growth in the cards; New Global Energy has room to expand with our Aqua Farming Tech operation.

The kicker: our tilapia is also non-GMO, organic fish, which commands a premium price in the growing marketplace for healthier alternatives.

Meeting U.S. consumer demand for safe, healthy farm-bred fish is easier said than done. Americans eat approximately 5 billion pounds of seafood per year – roughly 16 pounds per person – and the nation’s current aquafarm production capacity is simply nowhere near that level. Even with a highly aggressive effort, it could take years for U.S. farm-bred seafood to make a respectable dent in the market.

We think it’s certainly worth the effort, however… not just for consumers, but as a business opportunity as well. Aside from the assurance that home-grown fish are being bred in a clean, healthy environment and are eating the right kind of fish feed, U.S.-bred fish don’t need to be shipped overseas, avoiding costly shipping expenses that are ultimately passed along to consumers.

As for individuals looking to tap into the trend, at this time, no other dedicated fish-farming company is publicly-traded, and in our opinion the ones that aren’t publicly-traded still lack the scale Aqua Farming Tech has. We’ve worked diligently to provide start-to-finish assurance of safety that consumers now demand, and we believe we are in a great position to take a big bite out of the United States’ $16 billion seafood market.

 

Perry D. West
Chairman & CEO
New Global Energy