Investments in the agriculture and food sector
Creative Crisis Solutions in Asia
The agriculture and food sector is hugely important in Asia, and not just for food security. It contributes significantly to the GDP of Asian economies and is an important source of jobs, especially in rural and poorer areas. The sector is undergoing dramatic change. A growing domestic population, with nearly 1.2 billion people expected to join the middle class by 2030, is driving not only an increase in demand but also a shift to healthier, sustainable food.
Investors can participate in the growth of this sector through private equity investments in companies that finance the agricultural value chain and in local food processing companies. These investments not only finance local businesses, but can also help make food production and processing more sustainable.
When Covid-19 came along and the lock downs began, a combination of creativity and support was critical. Governments in Asia did their part: in India, the government put together one of the largest aid packages in the world, amounting to about 10% of GDP. The package included credit support for small and medium-sized enterprises and targeted support for the food industry. These included a higher allocation of fertilizer subsidies, concessionary loans for landholders, a credit facility for street vendors and investment in infrastructure.
Despite this support, companies faced problems that were essentially the same as in Europe: restaurants were closed, which left suppliers with no customers to sell to; companies offering financing solutions for the agricultural sector had to put normal business on hold as a government moratorium on repayments was imposed; supplier companies had to support their employees, who could no longer use public transport.
Rapid investment in private transport was therefore crucial, as was the creation of on-site sleeping facilities. These facilities were separated by production line and included extensive disinfection measures, such as UV tunnels and strict protocol.
The advice and support provided by private equity investors, in their capacity as company directors, was also crucial in guiding the portfolio companies through the crisis. The support included realigning sales channels, adapting the business model and online expansion, and focusing on maintaining liquidity and reducing costs. In addition, these investors helped to overcome logistical hurdles by using their networks or carrying out acquisitions.
Growth in the crisis
Despite this immense stress test, the sales and profits of such companies in the Asian food sector grew by 50% in 2020. This is testimony not only to the enormous potential of the sector in the region, but also to its resilience in the face of crisis.
Private equity has also played a significant role in the resilience of the sector. These injections of capital have driven important changes, from supply chain adaptation, to waste reduction, to advising and educating smallholder farmers on sustainable farming, to implementing an ESG leadership approach with a commitment to always comply with the international best practices of the International Finance Corporation (IFC).
The robust nature of the sustainable food industry in Asia became evident during this pandemic. Investments in this sector therefore provide much-needed diversification from public equity markets, especially in volatile times, but also offer interesting growth and therefore return opportunities for investors. At the same time, these investments are driving the shift to sustainable production in the food industry, which is essential for a healthy population and a healthy planet.
Source: "Policy Responses to Covid-19 (imf.org)
Head of Sustainable Food Equity Investments