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Tuesday
Sep092014

the need for foreign investment in Australian agriculture

This article was published on the Future Directions International website on Monday 8th September 2014.  It was written by Jack Di Nunzio, FDI Research Analyst, Global Food and Water Crises Research Programme

 

Unlocking our potential - the need for foreign investment in Australian agriculture

 

Key Points

Available statistics and recent reports suggest Australian agriculture is experiencing an increase in foreign investment.

Foreign investors, in particular State-owned enterprises (SOEs), are looking to Australia for long-term, low risk agricultural assets and as a channel to supply their growing populations with high quality produce.   

Such investment is essential for Australian agriculture in the absence of domestic capital sources and government support.

Foreign capital brings improved access to overseas markets, needed to meet export growth targets, and can build Australia’s food processing capabilities to ensure domestic food security.

Government policy should focus on balancing the sector’s need for substantial foreign investment while improving the transparency of foreign involvement in key industries.

 

Summary

Foreign investment has reemerged as a prominent issue in Australian agriculture. In line with rising global investment trends, SOEs and foreign multinationals have shown greater interest in Australian agricultural assets. This has led to calls for improved transparency and possible restriction of foreign capital. The greater agricultural community and economists alike, however, champion this influx as an essential tool for the sector’s development in the absence of domestic capital.

Foreign investment - in its many forms -will shape the future sustainability of the sector, which is dealing with issues of high debt and high labour costs. Australian agriculture requires long-term strategies to address these issues, while contending with current sector challenges of high labour rates and under-developed processing facilities. By providing long-term, well-funded and environmentally sustainable investments, foreign agribusinesses and SOEs can be hugely beneficial to the sector.

The presence and operation of such agribusinesses must be monitored, however, in consideration of maintaining domestic food security. The role of Australia’s Foreign Investment Review Board (FIRB) in this cannot be understated; it plays a significant role in ensuring investments are made according to the national interest. Clear government policy measures must be taken to alleviate public concerns of foreign investment, while delivering more avenues for the production of healthy, ready-to-consume food products for Australians.

- See more at: http://www.futuredirections.org.au/publications/food-and-water-crises/1926-unlocking-our-potential-the-need-for-foreign-investment-in-australian-agriculture.html#_ftn3

 

 

 

Friday
Apr052013

Wealthy Chinese entrepreneurs identify food as their "next big thing"

The following is an extract from the most recent McKinsey Report  How might China surprise us in 2013? 

It contains ten predictions from Gordon Orr, a McKinsey director based in Shanghai

 

8. Investment in overseas agriculture is the “next big thing”

In China, a trend that starts as a trickle often becomes an overnight flood. Outbound investment in commodities and premium agricultural products, for instance, will reach a tipping point in 2013: China has shifted rapidly from a trade balance on agricultural goods to a deficit that’s currently around $40 billion and growing at 50 percent a year. This transformation reflects increased demand in China for basic cereals to feed its expanding livestock populations and a slow-to-restructure domestic industry that can’t supply the need. China is now the second-largest importer of rice and barley and a top-ten buyer of corn.

Chinese companies lease hundreds of thousands of hectares from Argentina to Kazakhstan to grow soybeans.Outbound investors also eye a growing opportunity for premium fruits and vegetables of the kind sorely lacking in China. I don’t mean only state-owned enterprises spending their spare cash. Many private Chinese entrepreneurs, who have been wildly successful in areas from real estate to technology, have identified the food chain as their next big thing.

Investing outside rather than inside China is attractive not only for the reasons already mentioned but also to diversify assets geographically and to avoid the high prices paid recently for assets in the domestic food chain. In the last few months, for example, the Shanghai Zhongfu Group diversified from real estate in Shanghai by investing around $728 million in a sugar-cane project in Western Australia. And at a major conference in Beijing in December, Chinese private-equity firms met with senior executives of US food companies and representatives of US state agricultural bureaus to discuss ways of increasing China’s investment in US agriculture.

 

Wednesday
Mar202013

The Case For Investing In Aquaculture 

Seafood is the most globally traded protein commodity by volume and value, and the global seafood trade is larger than the trade in all other animal proteins combined.  Aquaculture currently provides nearly half (46.5%) of all fish consumed by humans and by 2030 aquaculture will be 50% of TOTAL fish supply (human consumption and F&FO - Fishmeal and Fish Oil.

In 2008 the total global aquaculture production amounted to 68.3 million tonnes with a first-sale value of US$106 billion.  The retail value is approximately 6x the first sale value.

Aquaculture is world’s fastest growing food production sector.  In the last three decades (1980–2010), world food fish production of aquaculture has expanded by almost 12 times, at an average annual rate of 8.8 percent, and it continues to outpace population growth. Aquaculture is expected to continue to grow at 5-7% per year up to 2015.

Over 75% of the world’s fisheries are considered fully- or over-exploited.  Global per-capita seafood consumption is increasing, and Aquaculture output is expected to rise 33 percent over the next decade, to reach to 79 million tonnes.  This is in stark comparison to the projected 3 percent growth of capture fisheries.


 Governments around the world are focusing on food security issues, and at consumer level, there is growing interest in food safety and sustainability credentials, and the health benefits from seafood.

We are nearing the end of the Green Revolution, with yield improvements reaching a growth plateau and limited new land available that is viable as farmland. We are, however, at the start of the Blue Revolution.  Recent improvements in hatchery techniques and grow-out systems provide new platforms for growth in Aquaculture, and new feed solutions and husbandry protocols will drive further productivity gains.

Traditional investors in the Agriculture sector are looking for opportunities to invest in aquaculture, and the doors are open for aquapreneurs to present well-developed Aquaculture business investment proposals. We've experienced this first-hand at agribusiness investment conferences and during one-on-one discussions with fund managers.

 

"At Aquanue, we’re working at the front end of the Blue Revolution.  From land-based systems that use very little water during operations, to site configurations that produce zero net discharge, to the development of species-specific aquaculture feed products that use reclaimed fish processing waste – Aquanue is helping drive the Blue Revolution in new ways."

-- Ends --

 

 

Sunday
Mar112012

Investing in aquaculture

Over the past 12 months I’ve been talking to investment bankers, fund managers, high-net-worth individuals and private investment firms about aquaculture.  The majority of them are becoming increasingly aware of the rising global demand for food, raw goods and other agricultural products, and many already see that the growth in potential for greater returns has improved the investment case for agribusiness investments. 

Most can see that the increasing world population and urbanization coupled with increasing affluence in developing countries presents a platform for the opportunistic.  It’s pretty simple – a gap between supply and demand presents an opportunity, and when that gap is becoming bigger through outward pressure at both sides, the opportunity comes with magnified growth capacity.

It is disappointing though, and concerning, that a few have such a negative perception about aquaculture.

A FEW years before his death in 2005, US management guru Peter Drucker said that fish farming, and not the internet, would be the 21st century's most promising investment opportunity.  

But, for some investors, the term ‘aquaculture’ is a dirty word. 

Schemes and failures

Too many people have lost money on failed agribusiness schemes like alpacas, olive trees, timber plantations and others, many of these have been just that – schemes.  Increasingly the proof is in the failed pudding – agribusiness ventures that rely on creating tax-related benefits for investors while leaving the operations exposed to insufficiently mitigated risk are not the way to go.

Tens of thousands of investors have lost billions of dollars in Australia alone, triggering numerous Australian parliamentary committee inquiries into the MIS industry.

In the aquaculture space, failed Queensland aquaculture venture, Seafood Online.com Ltd (Seafood Online), was placed into external administration only a year after listing on the Australian Stock Exchange and two directors were charged and released on bail.  Clean Seas accidentally killed eighty tonnes of kingfish by bathing them in too strong a solution of hydrogen peroxide, a process designed to kill sea lice but one that causes increased stress in the fish – regardless of how strong or weak the bathing solution is.  Stressed fish usually die.  This same company has recently announced further mass mortalities. 

There's no denying that in days gone by, some investors HAVE lost money on aquaculture 'schemes'.  Now accounting for nearly 50% of global supply, Aquaculture outgrown the backyard and get-rich-quick scheme environment, and there are many operators with the capacity and commitment to deliver genuine growth and returns.

Risks

Of course, aquaculture, like most farming enterprises, is highly risky.  In addition to the usual risks such as labour shortages, currency fluctuations, industrial action and competition, traditional aquaculture has even more to contend with.  Aquaculture is a capital-intensive enterprise that requires a large initial investment, and returns to an investment will not occur for several years due to the time required for the production of a marketable crop.  This form of agribusiness is more of the Amazon long-term-gains approach than the Dot-com get-rich-quick bubble.

Culturing fish in open water cages or pond systems poses numerous biological and environmental threats and exposes the operator, and therefore the investor, to unacceptable levels of commercial risk. Yes, steps are taken by prudent operators to minimize these risks, but fish are very sensitive creatures, and in the open air, in an open body of water, you can’t control the environment.  An uncontrolled environment means an uncontrolled investment.

Changes in water conditions such as temperature fluctuations, water or airborne pollution, excessive build up of waste, diseases from passing fish or birds, and chemicals from the run-off of waste-water from nearby land can all bring about a major mortality event.

In addition, the impact of pollution on the local environment can take a huge toll on the local coastline.  Sea cages produce large volumes of wastes and pollution – including faeces and excreted ammonia, and excess aquatic feed not taken up by the animals.  This can have a drastic effect on the nearby sea floor, marine life, and the marine food chain.  Fish farm wastes havethe potential to tip the ecological balance to such an extent that algal blooms become toxic, and this has happened in more than half a dozen countries. 

The WWF estimated that the 115,000 tonnes of Scottish salmon produced in 1999 dumped the phosphorus and nitrogen sewage waste equivalent of 9.4 million and 3.2 million people respectively – and Scotland's population is only 5.2 million!  Toxic algal blooms can poison local shellfish, which can pose a direct threat to humans who consume the flesh.  Given that a very small percentage of seafood is tedted (no more than 1% of the 84% of imported seafood consumed in the US is tested) it is easy for farmed fish to end up poisoning people through wild-caught species. 

Mussels collected from salmon cages in Loch Seaforth in Scotland that were affected by Diarrhetic Shellfish Posioning (DSP) led to 49 people in two London restaurants being treated for nausea, vomiting, diarrhoea, and abdominal pain. And in Canada, in 1987, 107 people became ill, primarily with gastroenteritis after eating mussels harvested from Prince Edward Island.

Consumers are becoming increasingly demanding in regard to the environmental impact of the products they buy, and smart investors are aware that “green and clean adds value”.

I can understand why some investors are cautious, to say the least, when it comes to aquaculture.

As we know, things change. New technologies emerge. And smart investors are learning that not aquaculture systems are equal.

Today’s approach

Fortunately, the new breed of aquaculture technology provides a solution to the many problems associated with open water fish production. 

Closed recirculating aquaculture systems overcome the constraints imposed by temperate climates and other environmental factors by providing a controlled, predictable and bio-secure environment for the culture species.

In closed recirculating aquaculture systems, all of the inputs are strictly managed, and the risk of ‘unexpected’ setbacks is all but completely eliminated. 

A closed system is just that – closed – so it prevents exposure to natural predators, weather peculiarities, and the possibility of acquiring diseases from external sources.  Pesticides and fertilizers cannot enter the system from adjacent farming activities, and antibiotics are not required.  Water is passed through advanced filtration systems to remove toxins, uneaten food and faecal waste, and is then re-used.  Water consumption can be as low as 1% per day.

Second generation closed systems delivers even greater ecosystem management capabilities, achieving superior growth rates and far lower mortality rates than first generation tank systems.  By managing the aquaculture environment in the same way that a microprocessor plant is managed, fish, lobsters, prawn/shrimp and abalone can be stocked at much higher densities, and they can be kept healthier.  

The two biggest cost centres in closed recirculating aquaculture are energy consumption, and feed.  In Aquanue’s second generation closed aquaculture system, energy use is significantly reduced through advanced fluid dynamic principles and reduced pumping requirements being incorporated into the system design, and less food is required because less is wasted.  Fluid dynamic principles are also used to regulate current flows in sections of the water column, which keeps the fish active or resting as needed, and reduces stress.  In the case of some prawn/shrimp species, if they are not provided with the right water currents they get bored, become aggressive, and start to attack each other.

Some species grow faster fast in second generation systems than they do in the wild, and up to twice as fast than they do in sea cages or ponds, because they are given perfect conditions, ideal temperatures, they are protected from predators and pathogens, and they are fed exactly what they need when they need it.  It’s like a fish utopia.

In addition to these advantages, closed recirculating systems allow the operator to stagger harvests and sizes to produce whatever the current market demands on a year-round basis.

Healthy fish grow faster.  Healthy fish are happy fish – and much tastier as well!  Fish suffer stress when they are unhealthy, which not only decreases their ability to recover, but results in poorer quality product.  This is why some consumers believe that ‘farmed’ fish are inferior to wild caught fish.  You’d taste pretty poor too if you were raised in dirty, murky water that contained urine, faeces and decaying leftover food.

So the fish benefit, the consumers benefit, the operators benefit, and the investors benefit.

The new breed of second generation recirculating systems deliver faster growth, reduced inputs and lower wastage/stock loss, which all leads to a higher return on investment, faster cash flows, and much lower risk.

And isn’t lower risk one of the big issues for investors?

As an investor, if you’ve been burned in the past by aquaculture, or have heard about people who have, please take a second look when someone presents you with an opportunity based on a closed recirculating system.

Not all aquaculture systems are equal, and second generation closed recirculating systems have an unfair advantage.

 

Author Gareth Lott is the Founder and CEO of Aquanue

Thursday
Nov102011

The benefits of an independent feasibility study

Continuing with our discussions on the investability of aquaculture, I’ve had an article on feasibility studies contributed by Donald Safranek, President, Wert-Berater, Inc.

Having an independent analysis and report prepared on the commercial feasibility if prudent in the case of ANY commercial venture.  Given the knowledge gap between aquapreneurs and investors – having someone independent conduct a feasibility study on a proposed aquaculture project seems to me to be a no-brainer. 

Donald’s firm has plenty of experience in undertaking studies in the aquaculture space, as his article shows.

Donald writes:

“In my 20 plus years of working as a professional economist and growing a company that provides feasibility studies for all types of projects on a global basis, I have yet to listen to a project owner/developer who told me their project would not work.

However, my firm has produced thousands of studies over the years and hundreds of those projects would not work and thus were not feasible for different reasons.

What I have learned is that experience and intuition is not enough.  Prime example is Las Vegas, Nevada and the housing boom that took place from 2004 to 2006.  Over this period of time the word “feasibility study” was never even uttered in the halls of real estate developer land.

Projects were being sold out before the developer could turn the key on his new Bentley.  For many of those same developers that Bentley was long ago repossessed.  So many of those money makers lost their bets.

In the world of the fast changing and growing demand for aquaculture there are many of the same principles at play.  I speak to developers of would be shrimp farms, mollusk farms and fish farms all citing the same facts about demand and how each country must become independent for its food sources if not for balance of trade issues, then for security.

Many of these developers I speak to are well trained and gifted scientists who speak so far over my head about their new project is that my eyes glaze over as their voice projects how successful their project will be because their survival rate, disease mitigation and systems are the best that man has ever dreamed.

Not often these project developers ever mention who they will sell their products to or how they will market them, or how the product will be delivered to market or if their operation is wholesale to Cisco or retail to white table cloth restaurants.  Rarely do they mention if there is a supply of labour in terms of local scientists who are willing to work in such a risky start up, or if the site they have chosen allows for such development from a legally permissible or physically possible aspect.

Often when a pro forma is presented, it is what I like to call “horizontal” presenting the gross revenues, minus the expenses and nothing but riches at the bottom of the page.  There is rarely a linear analysis that shows start time and cost, or month to month seasonality, or even a Monte Carlo Simulation that helps us to understand the probability of that large projected net operating income if supply chains are disrupted or if prices change or even if there is a malfunction in a technical system at the new plant.

Risk is often overlooked.  The developers often present a low, medium and high in their analysis, yet not much else is presented in terms of risk.   Most shun the idea that an unbiased third party should be paid such a high fee to tell them how great their project is and how dare anyone question the viability of the project.

The questions to ask are many in the proper feasibility study.  I was told by a developer of a $20 million project that they found someone to provide a feasibility study for $1,000 in about 2 weeks’ time.  I hung up the phone thinking of the last words spoken by Marlon Brando in Apocalypse Now "The horror ... the horror”

Contributed by Donald Safranek, President, Wert-Berater, Inc.

Wert-Berater, Inc. is a diversified consulting firm providing services to its clients on a global basis, operating from 18 offices in five countries with a staff of over 1,000 professionals. The company acts as a consortium for its alliance partners to provide economic, market, financial, management, and technical studies such as feasibility studies, technical assistance, highest and best use studies, and market studies.

Through its alliance membership, Wert-Berater, Inc. is able to provide studies, technical assistance and third party consulting services with a vast number sectors and project types including agriculture, aquaculture, aquatics, aviation, energy, hydroculture, medical facility development, infrastructure, real estate, recreation, and transportation globally.