Coronavirus: Interest in US midstream assets rises as farmland appeal falls – EY

Rob Dongoski says recent weeks’ conversations with clients suggest the pandemic has helped shift focus within ag for both domestic and international investors.

Covid-19 disruption has helped increase domestic US private equity firms’ interest in midstream food and agriculture, while sapping demand for the country’s farmland among foreign investors, said the leader of EY’s agribusiness practice.

Rob Dongoski told Agri Investor that before shutdowns in early March, many conversations with EY’s investor clients focused on particular assets or categories. More recently, he has seen a surge in inquiries from firms that know “almost intuitively” that they want to invest somewhere within food and ag, but need help deciding where to focus within the sector.

“Things seemed to be really focused on new technology, prior [to covid-19],” said Dongoski. “Now, I think it is about trying to find the assets that are on the rise that are in the value chain already. We’re starting to see the aperture open up more in thinking about the whole food system and where private equity can invest.”

Current uncertainty surrounding asset values, he said, is likely to mean it will take at least two months before significant deals start to materialize.

In the meantime, Dongoski said, firms are making adjustments that include hiring staff with agricultural expertise and reorganizing where the sector fits within existing areas of investment focus.

“Some of these are brand new businesses, or at least they were starting to dabble and now they are getting serious; it’s that kind of shift” he said.

“It’s not a specific category – you are seeing it across the board, even some of the very large private equity firms you would know well,” added Dongoski, who declined to identify any by name.

Covid-19 appears to have also helped bring about a shift in focus within agriculture among investors outside of the US, said Dongoski. Across investor types, including private equity, sovereign wealth and other types of vehicles, he said, the past few months have seen EY field fewer inquiries from international clients about US farmland.

“Pre-covid, I was seeing a lot of people asking for US assets, particularly from outside the US. The question would be: ‘what about land?’ I’m not having any of those conversations right now,” he said. “We’re on a run to potentially $2 corn [per bushel] – do you want to have a big land investment in corn right now? Probably not.”

In addition to investors, EY’s client base in agriculture also includes companies that service producers such as Cargill, Bunge and Monsanto.

Dongoski said, in recent weeks, many clients have also inquired with general questions about how covid-19 will influence existing trends, such as the reconfiguration of supply chains in response to consumer demands for increased transparency and personalization.

“Some of the restaurants are now also offering grocery items. Is that just a method for survival through covid or is that going to have a future?” he said, as an example of the kind of questions his firm has recently fielded. “There are things like that that could have a pretty dramatic impact on the reconfiguration.”