"Agriculture" is among the greatest investment opportunities for Risk Capital (Venture Capital and Private Equity) & Debt

Why is "Agriculture" among the greatest investment opportunities for Risk Capital (Venture Capital and Private Equity) & Debt starting now and for the coming century?

Agriculture as a primary sector of an economy is where the basics to GDP growth lie and where the whole world depends on people, food and water.

The drivers are fairly straight forward. From Asia to Africa and from the EU to the United States the challenges in agriculture are becoming even more apparent.

1. Environmental diversity - Arid to Semi-arid and from rainfed to irrigated land holdings with agriculture productivity going down with unnecessary use of Fertilizers and GM technologies
2. Fragmentation of land holdings by farmers
3. Lack of IP to enable sustainable agriculture
4. Lack of access to working capital for agriculture
5. Lack of direct access to markets for agricultural produce
6. Lack of access to energy

To begin with I am including a quote from Jim Rogers which I thought was important for all of us to understand the opportunity.

"FUND MANAGERS CAN BECOME FARMERS.........(Please read the ET interview which is included as a file)

http://epaper.timesofindia.com/Daily/skins/ETNEW/navigator.asp?Daily=ETM&showST=true&login=default&AW=1244103559140
What will you tell a confused fund manager who seeks your advice?
Become a farmer. The world has tens of thousands of hotshot fund managers right now. If I am correct, the financial community is not going to be a great place to be in for the next 30 years. We have many periods in history when financial people were in charge, we had many periods when people who produced real goods were in charge — miners, farmers, etc. The world, in my view is changing and is shifting away from the financial types to producers of real goods, and this is going to last for several decades as it always has. This may sound strange but it always happens this way. Ten years from now, it may be farmers who will drive the Lamborghinis and the stock brokers will drive tractors or taxis at best."

http://fellows.rdvp.org/gerard-rego/leveraging-fragmented-renewable-supply-chains-is-the-key-and-jim-rogers-the-future-is-ag

http://fellows.rdvp.org/gerard-rego/africa-ripe-for-an-inclusive-for-profit-social-business-model-for-agriculturesocial-econ

http://fellows.rdvp.org/gerard-rego/agriculture-challenges-in-india-and-the-headlines-speak-for-themselveswhat-a-great-oppor

The opportunity for any of these countries to grow and work to support secondary and tertiary industries would require food, energy and water as commodities to be investe in. Currently there are no real investors in risk or debt capital except for a few exceptions like NABARD in India (who in my opinion should receive a Nobel for their work). This is the real opportunity.

http://fellows.rdvp.org/gerard-rego/why-the-fundamentals-dont-point-to-a-lightning-quick-economic-recovery-and-a-great-platf

1. Farming is a micro economy, fragmented and works on the socio-economics of Production by the Masses, rather than Mass Production.

2. Opportunities from leveraging inventories to assets via workflows

3. Connected to Prosumption Marketplaces (Production:Consumption >=1)

4. Perennial markets

Thus agriculture in my opinion represents probably in this complete new cycle of capitalism which to sustain itself will have to be inclusive in the bottomlines.

Ex India:

* 100m farmers
* $500 average investment per farmer annually ~ $50b opportunity
* ROI that can multiply 2x-5x for the entire Agri value chain
* ROE multiples of NPV and Book Value that cannot be seen in other industries due
to the degree of scope of Productivity increases that can be generated
* Multiplied further when you consider the value chain of between 3x - 5x of $50b
per annum for investments and marketplace commerce
* Derivative incomes from core products that are over 0.5x of agriculture and >2x
for livelihood derivatives
* Need for energy (remember over 19% of India's diesel demand is in agriculture)
“Diesel is the backbone fuel of our economy. Nearly 19% of the diesel
consumption is in the agriculture sector upon which depends the country’s food
security...” www.petroleum.nic.in/speeches/30-09-08.doc, Speech by Minister
P&NG), Oil Industry meeting, September 2008

This is where one of the greatest investment cycles is about to begin with only one major issue. Only a real handful in venture capital, PE or debt financing have an understanding of the 101 of the industry and the business and organization models to capitalize on a cycle that will probably be one of the top 10 industries (others being energy and micro services model based(Housing, BFSI, Healthcare, Telecommunications, Retail, Governance, and Mobility Infrastructure (Transportation & Logistics) in my opinion to see the greatest ROI and ROE in coming century. Now this is a real opportunity!

1. Micro venture capital
2. Micro debt (Working capital & CAPEX,

all prosumption driven.

One will see a new breed of investment models, products, services and entrepreneurs emerging and very few from the current pool in my opinion will even survive to tell the tale in my opinion from investment banks to capital markets, creative destruction will be at its best (Schumpeter).

Look at the stocks of companies in energy, agriculture and derivative industries and their enterprise value and net worth tell their real story (I am not much of a guy for PE multiples and market cap). I like Warren Buffet, Boone Pickens, George Soros for their vision around fundamentals and execution.

“Schumpeter maintained that oscillations of macroeconomic variables are only the "secondary wave" of business cycles, a reflex of more fundamental "primary waves" at the microeconomic level caused by the innovative activity of entrepreneurs. Uniting Schumpeter's concern for innovation with Keynes' concern for uncertainty and expectations formation, this article focuses on the behaviour of entrepreneurs confronting uncertainty caused by innovation. Entrepreneurs' behaviour is reconstructed by modelling the functioning of their cognitive processes when innovations appear. Recognition of the possibilities opened up by a successful innovation generates a state of optimism in the minds of single entrepreneurs, which eventually propagates to the whole economy triggering an investments upswing. Likewise, unsuccessful innovations can trigger a downswing.”
http://portal.acm.org/citation.cfm?id=1080963

“Fisher Clark's Theory of Structural Change
Two economists, Fisher and Clark, put forward the idea that an economy would have three stages of production
Primary production is concerned with the extraction of raw materials through agriculture, mining, fishing, and forestry. Low-income countries are assumed to be predominantly dominated by primary production.
Secondary production concerned with industrial production through manufacturing and construction. Middle income countries are often dominated by their secondary sector.
Tertiary production concerned with the provision of services such as education and tourism. In high-income countries the tertiary sector dominates. Indeed having a large tertiary sector is seen as a sign of economic maturity in the development process.”
http://www.bized.co.uk/virtual/dc/copper/theory/th6.htm

The time is now and which is why we started two years as social entrepreneurs to build a for-profit social business. 