Where farmer meets pharma

It was Mark Twain who said you should buy land, because they’re not making it anymore. These days, the shortage of land isn’t just an issue for the property developer, it’s also creating challenges for agricultural businesses, and some interesting opportunities for those who invest in them.

There are powerful factors at play here: population growth is driving the demand for food, and demographic change is changing the nature of that demand, as the new middle classes opt for more Western-style diets. With the worldwide demand for protein set to rise by up to 70% by 2050, major agribusinesses are looking at new ways to produce that protein on ever-diminishing stocks of agricultural land. Shifting from meat to fish is one answer, which is why we’ve seen a spate of strategic deals in that area: Cargill, for example, is diversifying away from meat and grain with acquisitions like the US$1.5bn EWOS salmon feed business (which made the top ten this quarter), and their earlier US$30m joint venture with an Ecuadorean shrimp feed facility. And only just announced, Permira have sold Pharmac, a pharma company supplying aquaculture industry to Zoetis Inc. after the business recorded 44% EBITDA growth in the first half of 2015.

Another answer to land shortages is to make better use of the land you have. Technology is the common denominator here: what’s now being called ‘precision farming’ is leading to better pesticides and fertilisers, more diseaseresistant crops, more advanced machinery, and more sophisticated animal feeds and medicines. All these segments offer attractive possibilities, as both corporates and financial investors look for potential further up the value chain, in both mature and emerging economies. The most advanced developments are often the result of biotech research, some of it spun out of the big pharma companies. PE houses, in particular, have traditionally looked for either a leading brand or a unique technology, which is why these spin-offs are so attractive: they’re small businesses with big ideas, which the PE sector can help to grow and expand internationally. The big corporate players are also active – for example, the Eli Lilly subsidiary Elanco bought Lohmann Animal Health in 2014, and Novartis Animal Health this year.

Another intriguing development is the shift from products to services in food production. Monsanto, for example, has invested in weather monitoring and soil surveying, which means it can now advise farmers what and when to plant and which products to fertilise it with, based on precise data about their farm’s specific location. What businesses like Monsanto are selling now is solutions, and unlike land, there’s never been a shortage of those.

To learn more about some of the key deals that took place in Q3 2015, read our new publication, 'the Consumer' here.

How do you see the rest of 2015 playing out? Share your thoughts below or schedule a meeting to discuss your situation in confidence.

Thomas Sengbusch |  Director, Strategy
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