SWF ag priorities guided by food security and co-operation

Vehicles backed by GCC countries and Singapore have been the main drivers of a doubling of SWF participation in food and ag deals over the past five years, says IE University’s Javier Capapé.

The focus on domestic food supply and partnership among developing nations helps explain state-linked funds’ deepening involvement with global agriculture, according to a research director from IE University’s Sovereign Wealth Research Institute.

Twenty-four sovereign wealth funds from 18 countries have participated in 233 food and ag deals of various types, with an aggregate value of $40.5 billion since 2006, according to the institute’s 2021 annual report. Ag food deals with SWF participation have doubled over the past five years, according to the report, published by the Spanish university’s Center for the Governance of Change.

It highlighted investments such as Temasek’s 2014 acquisition of a stake in Olam International, China Investment Corporation’s deployment into Russian potash exporter Uralkali in 2012 and ADQ’s 2020 acquisition of a stake in Louis Dreyfus Company. The report said this reflected how SWFs have become “extremely sophisticated and increasingly relevant” global ag investors, with an especially strong focus on trading and novel foods.

The total annual volume of food and ag investments by SWFs has grown 16x since 2006, from a single deal valued at $584 million to 44 deals worth a combined $9.4 billion last year, according to IE University. The report’s authors described SWFs as taking a “multipronged investment approach” aimed at creating “domestic champions to help secure and guarantee local food supply.”

“Some of these companies have become a force to be reckoned with, and their impact and role in the space are likely to become more relevant in the years to come,” they wrote.

Sovereign Wealth Research Institute director Javier Capapé told Agri Investor that a recent conference in Morocco demonstrated sovereign wealth investors’ interest in ag had become even more acute since the beginning of the Ukraine war, in comparison with when the university decided to research the sector following covid-19.

A growing focus on South/South co-operation among developing countries, and competition for influence among countries with well-developed sovereign funds, he said, are likely to continue fueling investment into global agriculture by new and established sovereign wealth funds.

“We will see more partnerships, particularly given that some of the routes are now complicated and some of the traditional partners – like Ukraine – are under bigger stress. Diversification will make investment reasonable in countries like Ethiopia and others that can be important agri and food producers,” said Capapé.

“All of these countries have established sovereign wealth funds particularly to attract other sovereign wealth funds, so it’s not going to be surprising to see them doing big agriculture projects, big infrastructure projects and even real estate developments.”

Eleven funds managing capital for the Gulf Cooperation Council – which includes Saudi Arabia, the United Arab Emirates, Qatar, Oman, Kuwait and Bahrain – and Singapore are together responsible for the majority of agriculture deals analyzed by IE University. The GCC countries in particular, Capapé said, have invested throughout the agricultural supply chain, with particular units’ expertise varying between global supply chains and domestic development.

“Almost all of the GCC countries have established operating companies in the agriculture sector, which is not the case in the other industrial sectors. They don’t establish construction companies,” he said. “There is an agreement that that hands-on approach is a particular focus.”

In a chapter entitled From Cows to Codes, IE University drew on a database of public and private SWF deals that includes participation in more than 100 agtech venture capital rounds since 2015 to demonstrate growing interest in food-related technology over farmland.

Biotechnology is the subsector that has attracted the most SWF capital, according to the report, which highlighted SWF participation in financing rounds for companies including California dairy replacement provider Perfect Day; Pivot Bio, which provides biological fertilizers; and pest control start-up Provivi.

The report also mentioned capital deployed by state-linked funds into a company focused on vertical farms, others developing plant growth monitoring automation systems, robots for viticulture, and more. Capapé said growing participation in VC rounds for novel food systems reflect SWFs concerns about future supply and general investment savvy.

“Sometimes you have sovereign wealth funds simply playing the returns game,” he said. “In the case of food, there is an important hype for investors on this new food technologies, so it’s not surprising to see sophisticated sovereign wealth funds who follow trends very closely and cautiously, deploying capital.”

As with all SWF investment, Capapè said, some combination of financial and strategic objectives motivate recent state-linked investments in food and ag. Historically, he said, funds that have focused too much on strategic objectives at the expense of financial returns have tended to disappear.

Returns remain a key goal for all SWFs, he added, but recently, there is an increasing focus – demonstrated by countries including Djibouti, Egypt, India and Indonesia – on establishing SWFs with an eye towards helping address structural barriers to domestic development.

“There is a shift towards more strategy, rather than savings, in the sovereign wealth fund community,” he said. “Long-term investors are positioned for long-term issues. Water, food – they know these are going to be problems.”