Asia and ag: What’s your play?

“If you asked me one sector which private equity has ignored substantially, it’s food and agri across the region.”

So said Srini Nagarajan, head of South Asia at CDC Group, when speaking to Agri Investor earlier this month about the UK development finance institution’s investment plans in Asia.

“In Asia, private equity funds have played around the edges but have not been able to create more commercially sustainable businesses over a period of time,” Nagarajan added.

It’s a fair assessment of private equity’s relationship with Asia’s agricultural sector. The highly fragmented nature of the continent’s food production systems, and concerns around a lack of infrastructure in certain countries have often persuaded investors to steer clear.

Despite the risks, there is an undeniable food and ag investment opportunity on offer. After all, it’s the most populous continent on Earth; its net food imports stood at 220 million tonnes in 2018, meaning it is in need of increased domestic supply; and its expenditure on food is expected to surpass $8 trillion per annum by 2030.

What’s more, a joint report by PwC, Rabobank and Temasek has estimated the Asia agri-food prize to be worth as much as $800 billion across the next decade.

So how can investors gain exposure to this market, without, in turn, exposing themselves to an unacceptable level of risk?

One of the most recent fund launches that specifically targets the region’s food sector comes from a trio of Investcorp, Chinese conglomerate China Resources and Fung Strategic Holdings, a member of Fung Investments.

The partners launched a $500 million private equity fund earlier this month targeting businesses that produce pre-packed foods, sauces and condiments. Roughly half the fund will be deployed in Chinese businesses, with the remaining capital targeting businesses in South East Asia, Japan and Korea.

Investcorp co-CEO Hazem Ben-Gacem described the involvement of China Resources as a “coup” for Investcorp and said it played a role in the decision to pursue the fund.

“The important thing here is having the right local strategic partner alongside you,” he told Agri Investor.

“That’s not just through a distribution agreement, but with their own capital and their own people. That’s what we’ve been able to accomplish. That’s why we believe that with this set up, we can unlock that opportunity where others have found it difficult. This is the absolute anchor part of why we believe this is going to be a successful partnership.”

Clearly, the local partner element was a big factor in persuading Investcorp to enter the Asian market – all three parties have also anchored the fund with financial commitments.

China Resources and Fung Strategic Holdings have committed a combined $150 million towards the fund, with Investcorp backing it with $150 million of its own. Although the fund is yet to deploy capital, Ben-Gacem said its pipeline of upcoming investments includes “premium soy sauce businesses out of Japan and two condiment brands in China.”

If PwC, Rabobank and Temasek’s $800 billion estimate is even roughly accurate, similarly creative partnerships, government incentives and innovative strategies will be needed to unlock the investment potential, as is set out in the report.

CDC Group, meanwhile, has identified “the distribution chain, farm-to-fork and logistics” as areas where it will deploy capital to increase its exposure to the continent’s ag sector, according to Nagarajan.

As we move into the next decade, it would come as no surprise at all if more and more global investors and asset managers begin asking themselves: why don’t we have an Asia agri-food strategy?

Write to the author at binyamin.a@peimedia.com