Animal Feed Business in Emerging Economies is Attracting Funds

Hardly a single day passes by in Hollywood without testimonials stating how celebrities attend to save the world. If it is to supply the ever increasing world population, to provide a safe future for children or – just to avoid the term ‘global warming’ – to secure our valuable resources. In this scenario agriculture is in the spotlight again. Though this time its role is not as the source of evil but rather as the saviour. That the movie stars and the most beautiful of beauties are now showing us how to feed goats in Romania, how to cultivate carp in a rice field in Thailand or how to drive a tractor on bio-diesel in Tanzania is just the boulevard–version of a development that currently unfolds an enormous financial momentum.

This powerful movement throws very much money into the ag-game and really changes it.  It is lead by the ongoing search for justice and sustainability. The typical investor profile is the ex-hippie who has now after an odyssey through commerce gained experience in finance and is finally finding back to his roots again. The new boom also attracts silent philanthropists, young funds managers, the Gates Foundation or names like Sting, Leonardo DiCaprio and Angelina Jolie.

They don’t just want to cash out and move on. They consciously add ethical guidelines to their money that lie beyond the pure figures of ROI and interest rates. They have observed how traditional donations constantly fail and believe that honest business can achieve more than free supplies. They don’t want to give away money but rather want to plant it and watch it grow. The new strap line “Doing well by doing good” probably describes it best. To achieve this goal lenders offer their money to far cheaper conditions than usually found in the banking world. Whoever wishes to access these funds should run his businessplan through a sort of sustainability filter that covers socio-economic, political and environmental criteria (BOX INSERT 1). Only when the proposed business idea withstands this cascade of criteria money will flow.

The new conscious investors do not wish to support any child labour or suppression of women. They demand caution in the exploitation of natural resources and seek environmentally sound solutions.  To guarantee long term survival and profitability the project is preferably located in an enabling and politically stable environment.

Corporate entities in emerging markets often operate in very challenging business environments. On one hand, being in geographies where there is very little competition, they face tremendous growth opportunities. On the other hand, they operate in places where both resources and information are limited, which makes it difficult to pursue those opportunities. Leaders and managers in emerging markets are full of great ideas on how to grow their businesses, but having to constantly “struggle” with an unforgiving business environment. At the same time emerging market entrepreneurs are highly confident operating in uncertain markets. This makes it very exciting. Most desired are projects that lie off the beaten tracks of Brazil, Russia or China but focus on the ‘second row’ emerging economies such as Vietnam, Rwanda or the smaller countries of Eastern Europe.

Box 1

Sustainability-Filter 

Step 1: Country -Filter

Investors will target emerging market countries where they find safe fundamentals of an enabling environment.

Step 2: Industry-Filter

Investors seek industries that derive some advantage from a complex and not easily imitated cluster of related and supporting firms as it is typically found in animal feed production.

Step 3: Entrepreneur-Filter

Entrepreneurs must not only be capable of executing and managing a business themselves, but must also be respected in the business community and can possibly act as originators for additional deal flow.

Step 4: Strategy-Filter

Target firms must produce a differentiated product for which an attractive customer segment is willing to pay a premium. Pure commodity business often fails here.

Step 5: Sustainability-Filter

Firms must be founded on a basis of continued innovation as opposed to exploiting comparative advantages of low-cost labour or low-cost inputs.

The new development is extremely interesting for Europe’s or North America’s agribusiness firms because a large portion of the available funds flows back into high tech branches. This means it is no longer about donating outdated machinery to the 3rd World but rather about encouraging the development of solutions that fit into modern times. The holistic approach covers all aspects of the business, from the first scribbling of the business plan via plant engineering details, quality assurance and feeding standards to a complete veterinary program or a national consultancy system. Growth is expected to come from competitiveness. This means a meat packing plant in Ivory Coast or a premix mill in Venezuela should not stand behind its pendant in the industrialized world in any aspect of the implementation of modern technical and environmental standards.

While in the 90s several telecommunication networks, hospitals or even soccer teams were financed this way the attention now turns towards agriculture. Again the interaction with industrialized markets is key. Whether it is farming shrimps or bass, producing vitamins or flavours, making cheese or biofuels the investors don’t aim for isolated projects but for solutions building vital trade relationships to secure the long-term profitability. Adding value as close to the project as possible is important. This is the clear rejection of the traditional commodity business simply providing raw materials. It brings animal production to the forefront of attractive investment options. Animal production by its nature is interdisciplinary and involves a complex cluster of technologies.

Box 2

Animal production involves: 

– breeding techniques and  genetics,

– engineering and IT

– horticulture, feed production and biotechnology,

– veterinary sciences and food sciences,

– marketing and communication,

– finance and law,

– transport, trade and supply chain management

Excerpts from FeedStuffs Magazine Sept 17 2007