South African SWF teams with black-owned investor group for landmark beef deal

EXEO Capital chief executive Herman Marais tells Agri Investor skills transfer will be key to the success of any effort to bring more black farmers and investors into South Africa’s ag economy.

In a key move amid the country’s most recent drive for social inclusion, South Africa’s Public Investment Corporation teamed with a black-owned investment holding company focused on agriculture to purchase a majority stake in Karan Beef, Africa’s largest cattle company, for 5.2 billion rand ($352 million; €311 million).

Announced on October 23, PIC’s partner in the deal was Pelo Agricultural Ventures, an ag-focused holding company that describes itself as operating in the agriculture sector in South Africa and elsewhere in the region. It comes as South Africa’s President Cyril Ramaphosa, who assumed office in February, has made agriculture a key focus of plans for economic growth and social inclusion in the country of 54.8 million people.

Dr Daniel Matjila, chief executive at the 1.9 trillion rand sovereign wealth fund, said the historic deal would bring new entrants at the ownership level of South African agriculture and help integrate emerging farmers into its beef supply chain.

“We are particularly happy that the Karan family has decided to sell part of this important asset to South Africans, ensuring the ownership remains local and in black control,” said Matjila.

Founded in 1974, Karan Beef has a 2,100-cattle-per-day processing facility and maintains a 2,330-hectare feedlot near the town of Heidelberg that is capable of accommodating 150,000 head of cattle. Headquartered in the City Deep suburb of Johannesburg, Karan has a distribution network throughout South Africa, which is its largest market, and is also licensed for exports to markets including Egypt, the United Arab Emirates and China.

Herman Marais, chief executive of pan-African private equity firm EXEO Capital, told Agri Investor that, given PIC is effectively the largest local investor on the African continent and Karan is its largest beef company, the transaction’s size alone makes it significant. The government’s effort to encourage black ownership within South Africa’s agricultural sector is an evidently positive development, he said, designed to support the country’s long-term development.

“The strategic objective of bringing more people into the mainstream of the agricultural economy is going to happen through these kinds of transactions; where black investors get an opportunity to be supported by funds like PIC to take up ownership,” said Marais. “It’s just as important for the small guys to be supported in more organically developing their ventures in the beef sector, and that’s obviously going to take some time.”

Accordingly, Marais said a key factor will be what steps Karan takes to link its formalized beef operation with the large network of smallholder cattle farmers that still account for the a significant portion of South Africa’s beef cattle production.

Marais explained that many of South Africa’s largest beef cattle operations are located in its central provinces, close to regions providing corn for feed and large tracts of land for grazing. As South African corn yields have declined in recent years and helped lead to a rise in feed costs, Marais explained, the beef sector has come up against a structural constraint that has discouraged international investors from what he described as an otherwise well-run and sustainable sector.

“One tends to see a build-up of these local enterprises to a certain scale,” Marais said. “We certainly haven’t seen much international investment coming into the sector, those might be flowing more to South America and to other large cattle areas on other continents.”

PIC did not supply responses to questions posed by Agri Investor before press time.