It is now recognised that the world must produce more food in the next 40 years than during the entire course of human history to date. Food security in the long term and rising food prices, as the Narendra Modi government is now battling, are critical challenges, especially for emerging economies.
As India endeavours to claw back to high growth figures achieved in the past, the food and agri-business sector is expected to come under focus like never before. The correlation between GDP growth and demand for processed foods is only expected to get starker. It is also estimated that for everyRs100 increase in GDP, food expenditure increase byRs41.
Importantly, this burgeoning demand has to be met with the numerous constraints on land, water and other resources. Extreme weather conditions only add to the problem. The challenge therefore is of growing more with less. Increased activity in agri-business and agriculture technology investing are inevitable under the circumstances.
Data released at the recently held Global AgInvesting Conference in New York indicates that agri investments are expected to outperform bonds and equities in the US by up to 8 percentage points over the next decade. Bonds and equities are expected to return 3per cent and 5 per cent, respectively; returns from farmlands, 11 per cent.
Data released by i3, a global market intelligence platform, for the first quarter of 2014 reveal food and agriculture asset investments, including agri-tech, attracted $203 million, a fiveyear peak for the asset class.
The newfound enthusiasm among the investing community for agri-business is beginning to show in India too. New specialist domestic firms in agri-technology like Omnivore Partners are taking to the fields even as traditional players like SEAF and Rabo Equity expand their sweep. The triumvirate form an agri-specialist investing continuum of sorts: Omnivore has an early-stage focus, SEAF sticks to the middle level of Rs 10 crore toRs 30 crore investments, and Rabo is engaged in investments aboveRs 50 crore.
Specialists And Generalists
A plethora of generalist impact funds, with a sprinkling of investments in agri-businesses, also exist. However, they are usually swayed by transient investing trends and are averse to getting into untested areas. They lack the knowledge, the fount of experience and also the networks of specialist investors, though some generalist investors insist business basics are universal and that it is not necessary to possess deep domain expertise.
SEAF's Hemendra Mathur disagrees and maintains that the generalists ofoften struggle to demonstrate the value they bring to the table, other than capital. There is also a question of aptitude and attitude.
Many of the impact investors —with Harvard, Stanford and investment banking backgrounds — are stymied by cultural issues and an elitism, which manifests in their worldview. These are the ones who say rural India is bereft of entrepreneurial talent, innovative business models and investment-worthy enterprises.
Mark Kahn and Jinesh Shah of Omnivore deride this lament. Shah says all one has to do is look for talent and recalls being overwhelmed by a problem of plenty in Rajkot recently. He had to sift through scores of farm mechanisation companies before his firm invested in Khedut Agro Engineering.
The specialists argue that if generalist impact investors are keen on agribusinesses, they will have to step out of the comfort of their South Mumbai and South Delhi offices and acquire a sun tan. The entrepreneurs are out there, and all they need is a bit of polishing and handholding.
Dairy specialists speak in the same vein and are engaged in addressing an Indian dairying paradox. Trevor Tomkins, former CEO of Milk Specialities Global of the US and founder of the newly-minted Venture Dairy, an impact investing firm focused on emerging economies, says India, the largest producer of milk in the world with a global share of over 17per cent, is still in its 'infancy' in dairying. And that's an opportunity to create value — and make enormous impact.