Note: This interview was conducted before the coronavirus pandemic.

A few years back, according to Temasek’s agribusiness managing director Anuj Maheshwari, the Singaporean firm took a comprehensive look at the food value chain. It was left unimpressed by what it saw.

“There are a lot of areas of improvement possible,” Maheshwari said at the start of our phone call, as he set out the big picture outlook of the state-owned firm’s approach to agri-food investments.

“Food has traditionally been looked at through the lens of cost, and probably flavor and taste,” he noted. “But if you apply the health side of it and the increasingly important environmental impact of food; if you look at these four lenses which food can be viewed through – cost, flavor and taste, health benefits and environmental impact – there can be a better of way of producing food.”

Anuj Maheshwari

The former McKinsey & Company business analyst reels off a host of stats to drive home his point – the fact that the global food value chain is responsible for around 25 percent of all greenhouse gas emissions; that it accounts for roughly 70 percent of all water use; the fact that roughly a third of all food produced annually is wasted; and that around half the global population works in food production, while the industry only accounts for roughly 5-7 percent of international GDP.

“There’s always an evolution of things and we believe the evolution in food will come through the use of technology,” he explained. “This big hypothesis is what defines Temasek’s approach in the sector.”

It was in 2011 that Temasek undertook its food value chain analysis exercise, which has gone on to establish agri as a core investment space for the firm, alongside technology, life sciences, non-bank financial services and consumer.

As we discussed the firm’s agri-food strategy, the conversation took in the challenge the most populous continent faces in feeding itself over the course of the new decade, the role Temasek and private equity could play in meeting that challenge, and why Asia needs food tech-hubs that can draw from the region’s venture capital boom.

Asia’s food challenge

In November 2019, Temasek published a piece of research alongside PwC and Rabobank – the Asia Food Challenge report – which contained some stark findings about the challenges and opportunities presented by the continent’s food supply needs over the next 10 years.

Among the headline findings were that Asia’s food expenditure will double to $8 trillion annually by 2030 as the population grows by 250 million and undergoes rapid urbanization. All three of the world’s 30 million-plus population cities will be found in Asia, the report notes, as well as 17 of the 25 largest cities.

Maheshwari places his S$313 billion ($231 billion; €208 billion) firm’s role in responding to this challenge in the same bracket as that which could be played by private equity more widely.

“[They] can help create solutions that can make [smallholder farmers] more efficient. Whether it is better seeds, farm equipment, digital apps that connect buyers with sellers – those are the kinds of things where they can play a bigger role,” he said. Smallholder farmers produce 80 percent of food consumed in Asia, according to the food challenge report.

“Just look at drip irrigation for example,” the agribusiness MD says. “China and India are the biggest markets for that because we don’t have enough water. That’s a very simple innovation that started in Israel 65 years ago. Asia will continue to adopt these kinds of technologies and private equity can play a role in helping these companies to do it faster.”

Temasek was rumored to have been in talks about a $500 million acquisition of Israeli drip irrigation firm Rivulis at the start of 2020. Was there any truth to the reports?  “We don’t comment on market speculation,” comes back the response.

Regardless of whether the reports were accurate or not, given Asia’s water challenges, it is easy to see how such an acquisition would make sense for Temasek, at least on paper. It would satisfy the “technology-enabled investments” mantra Maheshwari returns to on several occasions to describe the firm’s agri-food investment ethos, as well as another key goal he believes Asia needs to strive towards to meet its food challenge: improved self-sufficiency.

“You don’t need to be [completely] self-sufficient, but you can’t be overly dependent [on imports],” he said. “We already saw with the US-China trade war and with swine flu – how do you feed a population when these things happen?”

Asia’s net food imports currently stand at 220 million tons a year, according to the UN Food and Agriculture Organization.

Locked within the problems of the continent’s myriad food production, harvesting and delivery systems is an $800 billion investment opportunity over the course of the decade, the food challenge report concludes. This will have to come from multiple sources, Maheshwari said, including investments by Asian agribusinesses themselves, as well as private equity, public funds, family offices and venture capital.

VC and food-tech hubs  

With regards to the latter, Temasek’s desire to ensure the majority of its investments in the agri-food space are ‘technology enabled’ has naturally led to the firm spending a lot of time and money in the venture capital space. Following its strategy-defining market study in 2011, the firm noted it was within “start-ups and mid-sized companies” that real change and innovation was being driven, explained Maheshwari.

“We jumped on that bandwagon and started investing in companies as a means of increasing productivity, efficiencies, [producing] better food and [improving] the value chain.”

Temasek has invested some $5 billion dollars over the last five years in agri-food companies, according to data provided by the firm, which is in line with a wider venture capital explosion across Singapore and Asia.

According to data from the government agency Enterprise Singapore – an arm of the state’s ministry of trade and industry – Singaporean start-ups secured $14 billion in financing deals in 2018 alone; a near 1,200 percent increase on the figure of $800 million recorded six years previously in 2012.

And across the continent, a 2019 joint report by Preqin and Vertex Venture Holdings, a VC investment holding company backed by Temasek, found the gap in AUM held by US-focused VC funds (the global leader) and Asia-focused VC funds to be rapidly narrowing.

In 2007, US VC funds held $241 billion in AUM, which was more than triple the size of that held by Asia’s at $72 billion. By December 2018, the gap had closed to just $74 billion, with the two regions’ VC funds holding $397 billion and $323 billion, respectively.

While the numbers are certainly moving in the right direction, as far as the agri-food sub-sector within Asia’s VC investment boom is concerned, there is too little finding its way to start-ups that are innovating in food production. China ($3.2 billion) and India ($1.3 billion) led the way in the region’s leader board for agri-food VC raised in 2019, according to AgFunder data, but “the bulk of the investment … was directed at the food delivery and retail spaces,” the report said.

Although Agri Investor spoke to the Temasek MD before the AgFunder data was released, he seemed to already be aware of the issue. Maheshwari believed that if the continent is to meet its food challenge, it will need a regional spread of food-tech hubs where innovation can be driven.

“If we can develop these ecosystems and hubs where people are innovating, whether it’s in Singapore, Hong Kong, Shanghai, Bangalore, Mumbai or Ho Chi Minh, we can have a food secure future,” he said. “Otherwise we will be dependent, for our berries, avocados and almonds, to the West. Our import bills will keep increasing, so we need that innovation.”

Delivering Food on Bicycle In City
Food delivery has attracted a large portion of VC investment in Asia.

Leading from the front

Temasek’s direct investment play in the VC agri-food space has led to the firm establishing a broad portfolio that encompasses alternative protein and vertical farming start-ups, through to synthetic biological pesticide manufacturers and biotechnology feed producers, among others.

Despite investments into food producing companies, Maheshwari is quick to clarify that the firm’s strategy doesn’t seek out food producers per se. If the ‘technology-enabled’ innovator into which Temasek is going to invest happens to produce food, then so be it. But the sticking point is whether that innovator is advancing food production methods.

“For example, Impossible Foods,” Maheshwari said, drawing out one of the jewels in Temasek’s agri-food crown. “They produce a burger. But the inherent technology is how can we use ‘heme’ [the compound], which they produced and patented, with plant-based sources to give you the flavor that a beef burger gives you?”

“There is a technology solution to using more sustainable material. It’s the same nutritional profile but with a much lower environmental impact,” he explained.

Other early-stage agri-food businesses into which the firm has invested in this vain include the vertical farming start-up Bowery Farming, participating in its $90 million 2018 funding round, as well as its $50 million Series B in November 2019.

Temasek has so far also led all of the series funding rounds for animal-free dairy start-up Perfect Day, which has raised just shy of $200 million since its $24.7 million Series A in February 2018.

Despite Temasek’s ambition to use its balance sheet to support an evolution in the agri-food space, the firm is in no danger of losing sight of its primary objective when measuring success.

“The first goal we look at is very simple and that’s the return we make on our investments. We are not doing this for any other reason – we’re a commercial entity and our shareholders expect us to make good, strong returns,” Maheshwari said.

Although he declines to go into the returns produced by any specific investments, Temasek’s marketing data shows it has delivered a 9 percent return to shareholders over the last 10 years, and a 15 percent return since inception in 1974.

As the conversation drew to a close, the topic returned to Asia’s need for food tech-hubs spread across the region, which will be required if the continent is to change its food production fortunes over the next 10 years.

“Singapore is doing a remarkable job. We have capital here, some good entrepreneurs, we have good technology, and the government is playing a good role,” Maheshwari said.

“But Singapore alone is not going to feed Asia. Hopefully, China, India and Vietnam will step up to what I think is a very exciting industry. It has a lot of impact, people care about what they eat and what they produce. Hopefully in five years if we can start seeing that coming from different parts of Asia, that would be a big win.”