From commodities to crops: Ospraie Management’s battle plans

Founder Dwight Anderson tells Agri Investor why the firm is coming back to farming after betting on mining and how it intends to use its new ag incubator, Ospraie Ag Science.

For Dwight Anderson, two companies are better than one.

Speaking to Agri Investor soon after Ospraie Management led a $75 million recapitalization for biospesticide provider Marrone Bio Innovations, the firm’s founder said the sector was being buoyed by “a phenomenal tailwind” that justified the creation of another structure.

Earlier this year, Ospraie registered a new company called Ospraie Ag Science. The unit will be used to make investments related to biopesticides that are deemed too large or risky for MBI to pursue, Anderson said. He likened the vehicle to a “greenhouse” where earlier-stage companies in the sector will be given the opportunity to develop.

“Very few segments of agriculture have had the same distress that metals and mining had back then”

The firm is attracted to biopesticides, Anderson explained, because these stand to benefit from both the future growth of organic farming and the adoption of biopesticides among conventional farmers. The latter are increasingly keen to use the products as part of an integrated pest management system that also relies on synthetic chemicals.

“They desperately want more products in the biopesticide market and the constraint is the products, not the actual customer demand or appetite,” said Anderson, echoing a sentiment expressed to Agri Investor by Agriculture Capital’s Atish Babu earlier this week.

From the farm and back again

Ospraie’s agricultural investments began in 2002, when the firm invested in what would eventually become Adecoagro, now a NYSE-listed farming company with operations across three countries. Along with partners, it then built an equally large farming company in the US, Anderson said, which ultimately became Indiana-headquartered farmland manager Teays River Investments.

Ospraie’s subsequent investments included seed producer Pioneer Hi-Bred, later to be acquired by DuPont, and Gavilon, a Nebraska-headquartered commodity management firm. Ospraie helped restructure the company before it was sold to Japanese trading house Marubeni for $3.6 billion in 2012.

In addition to agriculture, Ospraie also invests in energy, metals and mining. Anderson said that about two years ago, cyclical forces, interest rates and investor appetite all favored a focus on metals and mining that helps explain a lull in the firm’s ag investments.

“Very few segments of agriculture have had the same distress that metals and mining had back then. You haven’t had that capitulation and balance sheet pressure and distressed asset pricing that we had in that segment.”

Because Ospraie is not currently fundraising – it generally invests a combination of its own capital and that of partnerships with specific institutions – Anderson said he does not have a highly detailed sense of current investor demand for agricultural investments.

“Agriculture probably remains the market where there are some phenomenal large institutions willing to invest, and more are comfortable investing in farmland than were a decade ago,” he said, adding that Osparie could consider new farmland investments in the future. “But once you start getting a little more complicated than that, the universe of people who have mandates, are willing to listen to the story and are comfortable, it becomes the smallest of those three large sets.”

Pent-up demand

While overall food demand grows at an annual rate of about 0.6 percent and traditional pesticides report demand growth of about 2 percent each year, Anderson said that 17 percent annual growth for biopesticides demonstrates the pent-up demand in the market his firm looks to meet.

Part of what made investing in MBI an attractive way to enter the subsector, Anderson explained, was that unlike many of its earlier-stage peers focused on just one product, the company already had a suite of six biopesticides and one biostimulent. Derived from micro organisms within flowers, insects, soil and compost, he said the company’s products and pipeline position MBI well to support growing demand from farmers, organic and otherwise.

“Agriculture probably remains the market where there are some phenomenal large institutions willing to invest”

“Farmers these days are actually relatively quantitative. You need multi-growing season test plots in different conditions to get them to believe that they should adopt,” Anderson explained.

In seeking to deepen its presence within the subsector, Anderson said that Ospraie would be open to acquiring companies offering both complementary products and more efficient production methods.

“If there is someone that is willing to partner with us who has a better product for a specific market than us, we would be completely open.”