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Alternative Investment Strategies
Investing in Farmland
Amsterdam, April 2015
2
Table of contents
Sections
I What are Real Assets? 3
II The Challenge: How to feed the world? 5
III Investing in Food & Agri 11
IV Why invest in Farmland? 15
V How does farmland gives you Returns? 20
VI What strategy do we follow?
Contact details 25
Appendices
A Investment Case Poland Jazowa 26
B World food consumption
What are Alternative and Real Assets? I
4
The investment spectrum for Food & Agri
Stocks Bonds Alternatives
Real Assets Private Equity
Investment Spectrum
Food & Agri
Hedge funds
Cash
Venture Capital
Other
Our Focus
5
What are Real Assets?
Most financial assets are more liquid than real assets, because they are
easily convertible into cash. For example, whereas it would take just a
matter of hours to sell stocks, the same cannot be said of real
properties, which commonly take months to dispose of.
The valuations of buildings, for example, dip over time due to
depreciation.
Financial and real assets share a number of similarities. For instance, the
valuations of financial and real assets are based on their potential to
generate cash flows.
Both asset classes also exhibit significant degrees of uncertainties when
establishing and predicting cash flow trends.
“Physical or tangible assets that have value, due to their substance and properties.
They are particularly well-suited for inflationary times, because of their tendency to outperform financial assets during such periods.”
Similarities Differences
Metals & Mining
Oil Real Estate Commodities Timber Agriculture Shipping … Clean Energy Infra
6
What do Real Assets bring to investors?
Blend of stable income
Inflation hedge Lower volatility Equity like upside potential
Lower correlation to current traditional
investment products
7
A Trend towards more Real Assets
Source: JP Morgan
Source: JP Morgan
Source: JP Morgan
Source: JP Morgan
Asian SW Fund (USD 200bn)
AUS Pension plan (AUD 17bn)
US Pension plan (USD 152bn)
CAD Pension plan (CAD 105bn)
….
Examples;
The Challenge: How to feed the world?
2
9
The global fundamental drivers; food security
Growth
Growth forecast
7 bln 9.0bln
Income
Increasing wealth is leading to a change in eating habits
People
The world population is rapidly aging and urbanising
Future Estimate
If we continue at today’s rate of consumption, by 2030 we will need the capacity of two
earths to survive
2013 2050
10
Challenging numbers
Source: FAO, 2013
Source: World bank, 2013
Source: IMF , 2013
Source: FAO, 2013
Changing diet Income growth
Demand for food
0
10000
20000
30000
40000
50000
60000
70000
GD
P/ C
ap
ita i
n U
SD
Europe
North America
South and Central America
Asia
Africa
Oceania
World
47
120
170
22
78
136
00
50
100
150
200
250
300
350
1961 2009 2050
Million
ton
nes P
rote
in/ y
ear
Animalproducts
Vegetable
CAGR
Soybeans
Sunflowers
Wheat
Rape and oilseeds
Maize
0
10
20
30
40
50
60
70
80
0
1
2
3
4
5
6
7
8
9
10
Averag
e a
ge i
n y
ears
In
billion
s o
f p
op
ula
tion
Average age of world population
Population and ageing
0
100
200
300
400
500
600
700
800
900
Com
mod
ity u
sag
e in
million
s o
f
ton
nes
Investing in Food & Agri
3
12 14
Opportunities within the Food & Agri Chain
Farming Processing Farm inputs Storage, Handling
and Trading End Users
Transport & Logistics
• Seed
• Fertilizer
• Pesticide
• Herbicide
• Farm Equipment
• Energy
• Growers
• Cooperatives
• Grain Elevators
• Brokers and
Traders
• Ocean
• Barge
• Rail
• Truck
• Primary
Processing
• Food and Feed
Ingredients
• Food
• Fuels
• Biofuels
• Industrial
13
Range of Investment opportunities in the Agriculture Sector
Real Assets Private Equity Venture Capital Liquid Assets
Farmland
Infrastructure Upstream
Downstream
Biotech
Enabling Tech
Public Equity
Supply Chain
Integration / Operations
Processing
Commodities
Why invest in Farmland?
4
15
Why Farmland ?
Global Fundamental Drivers
Invest in Real Value Long-term stable returns and diversifier in
the portfolio
Invest in high-potential region with limited risks
Increase in Earnings Capacity
16
• Farmland investment is an asset that provides a legal claim on
land that gives an investor the opportunity to grow agricultural
produce in that land in perpetuity.
• Like other real assets farmland is protected against inflation,
since a farm is production
• In contrast to Real Estate there is no depreciation in farmland
since the productivity increases over time
Farmland in the context of other real asset classes
Stocks Bonds Private Real E Assets Public Commodities and Real Assets
Russel 3000 Barclays U.S.
Aggregate NCREIF Real Estate NCREIF Farmland NCREIF Timberland NAREIT GSCI Agriculture Timber Proxy
Avg Annual Return 8.53% 6.86% 8.02% 11.53% 10.93% 13.40% 2.04% 8.76%
Std Deviation 18.09% 4.28% 9.13% 7.14% 10.69% 22.07% 20.72% 22.28%
Sharpe Ratio 0.29 0.81 0.51 1.14 0.71 0.45 -0.06 0.24
Source: Savills Research 2014
Real Assets have higher risk-adjusted returns (1992-2012)
Annualised Capital Growth of values in USD/ha (2002-2012)
Inflation hedge Real Value impact
investment Diversification
potential Stable risk/return
profile
Source: TIAA CREF 2013
7%
7%
8%
8%
10%
13%
13%
17%
19%
20%
20%
24%
25%
28%
38%
0%
5%
10%
15%
20%
25%
30%
35%
40%
17
“Commodity price development will be the result of the
aggregated effect of macro supply and demand drivers”
“By increasing productivity, income per farm rises, which
creates real value”
Farmland is a real value investment
Dutch Farmland vs Gold and inflation (1952=100)
Farmland indices (1991 = 100)
0
500
1000
1500
2000
2500
3000
3500
4000
4500
Farmland NL - nominal Farmland NL - real Gold
0
100
200
300
400
500
600
NL UK US (Iowa) Gold Wheat
Price
Quantity
*
=
Farm Income
World Grain Prices development
Quantity
Autonomous productivity growth Upgrading potential
GDP growth and changing diets Population growth
2013 2030
Demand
Supply
Productivity growth Substitution effects
Supply
18
Non-EU Europe / Brazil
Work own Assets
Underdeveloped Farms
Working Capital Lines
Dairy / Cattle Farms / Easy Permanent Crops
Africa / South East Asia
Work Leased Assets
Greenfields
Fully Geared
High value Permanent Crops (Olives / Vineyards)
United States / European Union / Australia
Lease out Assets
Top Quality Farms
No Leverage
Annual Row Crops
What Risk-Return Profile do Farmland Investments have?
Owning Assets Using Assets
Plug-in Play Farms Turn-around
Developed Countries Undeveloped Countries
Geared funds Pure Equity
0% 5% 10% 15% 20% 25% 30%
Europe Fund I
Internal Rate of Return
Ris
k
Non-Annual Rotation Annual Rotation
Low Returns / Low Risk High Return / High Risk
19
European Parties investing in farmland*
Institutional investors increase their exposure into farmland investments
* Based on public resources
International Parties investing in farmland*
20
Central and Eastern EU big supplier of global demand for Cereals
Source: Rabobank 2014
*Black Sea Region includes Ukraine and Russia
Source: European Commission 2012, Rabobank estimates 2014
Net export of grains in key regions and countries (average 09-13)
East EU +16.0
Russia +16.3
Ukraine +19.5
Middle East -32.0
North Africa -35.5
France +28.1
South EU -23.5
Germany +3.9
Other EU -12.6
Deficit Regions -103.6 mil T
Surplus Regions 83.6 mil T
Production and net exports of Grains & Oilseeds from East EU
80
85
90
95
100
105
110
0
5
10
15
20
25
30
2010/11-12/13 2013/14 2015/16 2020/21
Pro
du
cti
on
Net
exp
orts
(in
mil
lio
n
ton
nes)
net exports production (RHS)
Source: Eurostat 2014
Wheat Yields in Europe (average 2008 – 2012)
0123456789
10
Port
ugal
Turk
ey
Rom
ania
Spain
Gre
ece
Esto
nia
Latv
ia
Bulg
aria
Fin
land
Italy
Lithuania
Norw
ay
Hungary
Pola
nd
Slo
vakia
Slo
venia
Cro
atia
Austr
ia
Czech R
epublic
Sw
eden
Fra
nce
Denm
ark
Germ
any
United K
ingdom
Irela
nd
Neth
erlands
Belg
ium
How does farmland gives you Returns?
5
22
The Farm’s P&L is the basis for our fund model
Hectares
Yield per ha
Harvest tonnes
Price/ tonne
Revenues
Seeds per ha
Fertilisers
Chemicals
Lime
Working capital financing
Total input costs
Gross margin
Labour / contract costs
Drying and storage
Other costs
Total overheads
Subsidies
EBITR Rental payments
Net farm income
P&L for total farm
Poland
Romania
The “EBITR” Earnings before interest, taxes and rent
Fixed rate lease
Output lease
Contract farming
Contract Farming Agreement based
on farming income (EBITR)
Based on fixed amount of wheat
and a floating price
Based on fixed amount of cash
Productivity
Convergence
Based on discounting cash flows (EBITR)
Based on assumed increase
in land prices
Direct returns Indirect returns
23
The fundaments of our real value creation
Land
Convergence of European land prices
Increase earnings capacity of land
Converging European Union
Commoditisation of products
Common subsidy policies
Diminishing barriers to trade Tap into higher profit margin crops
Increase yield / ha
Lower costs of production
Less production volatility
What strategy do we follow?
6
25
A strategy that make sense; Closing the yield-gap and limiting volatility
How we see our sustainable contribution in increasing the Earnings Capacity
time
yie
ld
Consolidation
Infrastructure
Water
Soil fertility
Stabilize production Increase productivity
De-risking assets by
reducing volatility in the
production process
Closing the yield gap;
producing more with less
26
How do our investments look like?
7
Ca Mg K Na
3
10
18
6
12
8
11
16
17
1
15
11
14
11
7
15
6
12
13
8
10 1
14
11
Consolidation Infrastructure
Crop plan diversification
Bio diversity on edges
Reforesting Grain Storage
Refurbishment of old transformers
Removal of old oil tanks
Refurbishment of farm bases
Construction of farm bases
18
16
17
Water
Irrigation systems
Drainage Piping
Ditch digging and cleaning
Consolidation
Construction of windmills
legend
Execution
Facilitate
Advise / cooperation
Bio diversity
4
3
Soil
Liming and mineral applications
Monitoring and measurement 4
9 Bird sanctuaries
9
13
Bring unused land in production 5
5
2 Reshaping of plots
2
27
Contact Details
This document is issued by Rabo Farm, a trade name of Bouwfonds Investment Management
B.V., a business of Rabobank Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A.
(Rabobank), part of Rabo Real Estate Group.
This document is intended to present general information in respect of Rabo Farm and does
not constitute, and may not be used for the purposes of, an offer or an invitation to
subscribe for any interests by any person in any jurisdiction (i) in which such offer or
invitation is not authorised or (ii) in which the person making such offer or invitation is not
qualified to do so or (iii) to any person to whom it is unlawful to make such offer.
This document may be distributed in other jurisdictions subject to the relevant laws as may
be applicable and recipients of this document should inform themselves about, and observe
any such applicable restrictions. The information in this document and the presentation does
not constitute or form part of any offer or invitation to sell, or any solicitation of any offer to
purchase in the USA, its territories, possessions or protectorates under its jurisdiction or any
other jurisdiction, nor to nationals, citizens or residents in any of those areas.
For avoidance of doubt, this document is not intended to be investment research, nor does it
purport to be an impartial assessment of the value or prospects of its subject matter. No
reliance may be placed by a recipient on any representations or statements outside this
document (oral or written) by any person which state or imply (or may be reasonably viewed
as stating or implying) any such impartiality.
The information and opinions contained in this document have been compiled or arrived at
from sources believed to be reliable, but no representation or warranty, express or implied,
is made as to their accuracy, completeness or correctness. This document is for information
purposes only and is not, and should not be construed as, an offer or a commitment by any
Rabobank entity or any of its affiliates to enter into a transaction. The information contained
in this document is not to be relied upon by the recipient as authoritative or taken in
substitution for the exercise of judgement by any recipient. All opinions expressed in this
document are subject to change without notice from time to time.
To the extent permitted by law, we exclude any liability howsoever arising for the contents of
this document or for the consequences of any actions taken in reliance on this document or
the information contained herein.
This presentation and this disclaimer statement shall be governed by and construed in
accordance with the laws of the Netherlands. All disputes arising out of or in connection with
this presentation and this disclaimer & confidentiality statement shall be submitted to the
exclusive jurisdiction of the courts of the Netherlands.
Daan Meijners
Business Manager
Telephone +31 (0)20 206 6765
Mobile +31 (0)6 12 10 92 35
E-mail Daan.Meijners@rabofarm.com
Investment Case Poland Jazowa
Appendix
A
29
POL 001 – Jazowa
Liming After farm base refurbishment Before farm base refurbishment
Drainage After farm base refurbishment Farm base refurbishment
30
Soil
Case Study 2 Regaining farmland and liming
Rabo Farm holds the land where
the farmer leases. In order to
improve the yield on the farm
Rabo Farm and the farmer start a
liming program where Rabo Farm
provides the lime and the lease
for the farmer will gradually
increase.
Given the yield improvement the
farmer as Rabo Farm will benefit
from the lime program
Explanation
Inputs , Crops, Output
Operations and Management
Yield Management
Farmer
Rabo Farm
- Yearly lime application costs
+ Higher Yields
Farmer
Rabo Farm
+ Higher Profits
- Initial liming costs
+ Higher leases
+ Higher Profits
- Higher Rent
Increase Soil Fertility
1
Optimise Input Use
2
Optimise Outputs
3
Adding Real Value by Financial application
31
Case Study 2 Regaining Farmland and Liming
Liming Application to optimise Ph-value Reclaiming Farmland
Natura 2000 Bird program 35 ha
Reclaiming fallow cropland 60 ha
Application of 6tn/ha
Application of 4tn/ha
Farmland Improvements
32
Soil
Case Study 3 Drainage and land reshaping project
Rabo Farm holds the land where
the farmer leases. In order to
improve the yield on the farm
Rabo Farm implements a
drainage system on the land.
Good water management on the
field improves sustainable yield
of which the farmer benefits.
Given the yield improvement the
Farmer as Rabo Farm will benefit
from the drainage
Explanation
Inputs , Crops, Output
Operations and Management
Yield Management
Farmer
Rabo Farm
- Higher Rents
+ Higher Yields
Rabo Farm
+ Higher Profits
- Drainage project
+ Higher leases
+ Higher Profits
Farmer
Financial application
Increase Soil Fertility
1
Optimise Input Use
2
Optimise Outputs
3
Efficient Operations
4
Adding Real Value by
33
• 170 km of drain pipes
• Increase of areal Old Situation New Situation
Number of Field 20 4
Average Field size 5.6 ha 27.8 ha
Case Study 2 Reshaping and draining 111ha
Reshaping and Draining of Land Drainage System
Old Situation / New Situation
Preserved 10 hectares of forest that serves as wind curtain
and may be used as nature compensation
34
Old Situation New Situation
Number of Field 132 20
Average Field size 3.37 ha 22.3 ha
Case Study 3 Drainage Project
Reshaping of Land 445 Hectares
Old Situation / New Situation
World food consumption
B
36
Population growth and life expactancy
Source: FAO Stat 2013
Source: United Nations Data 2013
Source: FAO Stat
Population growth
Life expectancy of World
70.0
81.8
0
10
20
30
40
50
60
70
80
90
In
years
Source: FAO Stat, United Nations Data 2013
Continental differences
Europe Asia Africa North
America
South and Central America
Oceania
Population 740,878 4,292,817 1,094,735 353,620 609,683 38,279
Population 2050 719,258 5,142,223 2,191,597 446,864 750,954 55,235
Growth 2013 - 2050 -2.9% 19.8% 100.2% 26.4% 23.2% 44.3%
Life expactancy 2013 76.1 71.4 58.2 79.1 74.7 77.6
Life Expactancy 2100 87.9 83.0 77.1 89.0 87.9 86.6
Growth 2013 -2050 15.5% 16.2% 32.4% 12.5% 17.7% 11.6%
15%
5%
9%
60%
10%
1%
23%
5%
8% 55%
8%
1%
Africa
North America
South and Central
AmericaAsia
Europe
Oceania
2013 7,130,012
2050 9,306,131
World composition
0
1
2
3
4
5
6
7
8
9
10
In
billion
s o
f p
op
ula
tion
World
Africa
North America
South and
Central
AmericaAsia
Europe
Oceania
37
Income and income growth
Source IMF
Source: Worldbank
Source: IMF
Continental differences
Indexed forcasted GDP/Capita growth
95
100
105
110
115
120
125
130
135
140Africa
North America
South and Central
America
Asia
Europe
Oceania
GDP/Capita in USD
0
10000
20000
30000
40000
50000
60000
70000Africa
North America
South and
Central America
Asia
Europe
Oceania
Europe Asia Africa North
America
South and Central America
Oceania
GDP / Capita 2013 (USD) 31,522 5,992 2,158 52,742 9,695 47,496
GDP / Capita 2018 (USD) 38,810 8,069 2,742 64,789 11,793 51,151
GDP growth 2013 - 2018 23% 35% 27% 23% 22% 8%
GDP Total 2012 (USD bln) 18,183 26,493 1,481 18,071 5,793 1,722
GDP deviation of total World GDP
25.2%
25.3%
8.1%
36.9%
2.1% 2.4%
North Amercia
Europe
South and Middle America
Asia
Africa
Oceania
Source: Worldbank
38 5
A changing diet demands different demands
Source: FAO stat, 2013 Source: FAO stat, 2013
Source: FAO stat, 2013
Source: FAO Stat, 2013 and extrapolated guess
Total protein consumption
Diet changes
-5%
0%
5%
10%
15%
20%
25%
30%
35%
CA
GR
19
61
- 2
00
9
Brazil
China
India
Russia
World
Food consumption
1500
2000
2500
3000
3500
4000
Kcal
/ d
ay
Africa
North America
South and
Central America
Asia
Europe
Oceania
Consumption Patterns 1961 vs 2009 (Kcal/Capita/Day)
Europe Asia Africa North
America
South and Central America
Oceania
1961 2009 1961 2009 1961 2009 1961 2009 1961 2009 1961 2009
Vegetal products 2287 2437 1680 2277 1836 2353 1859 2658 1891 2286 1839 2265
Cereals 1228 1002 1103 1421 1056 1283 627 831 842 972 806 792
Milk 263 308 39 88 55 75 380 360 125 206 315 251
Meat 230 346 31 212 68 84 331 432 202 345 486 438
Total 3052 3362 1789 2706 1997 2560 2875 3659 2306 2951 3021 3211
Percentage change 10.2% 51.3% 28.2% 27.3% 28.0% 6.3%
47
120
170
22
78
136
00
50
100
150
200
250
300
350
1961 2009 2050
Millt
ion
Ton
ees P
rote
in /
year
Meat
Vegetable
69
197
305
CAGR
39
Meat Consumption
Source: Tolkamp, et al. 2010, BC Salmon Facts, FAO Stat, 2013
Feed conversion ratio’s
Source: FAO stat, 2013
Income and meat consumption correlation in the United States
Meat consumption growth in BRIC countries (indexed)
80
100
120
140
160
180
200
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Brazil
China
India
Russia
North America
Europe
R² = 0.9302
0
2000
4000
6000
8000
10000
12000
25 30 35 40 45
Meat Consumption Patterns 1961 vs 2009 (Kcal/Capita/Day)
Europe Asia Africa North
America
South and Central America
Oceania
1961 2009 1961 2009 1961 2009 1961 2009 1961 2009 1961 2009
Bovine 69 68 6 21 37 33 124 108 142 144 124 108
Poultry 17 78 4 36 5 20 64 188 9 124 17 144
Mutton & Goat 19 13 5 11 14 14 14 4 13 4 288 86
Pig 119 181 15 143 6 13 126 131 36 69 55 96
Total meat 230 346 31 212 68 84 331 432 202 345 486 438
Percentage change 50% 584% 24% 31% 71% -10%
Feed Conversion Ratio
World Consumption (Million Tonnes)
Feed demand (Tonnes) (Based of FCR)
1961 2009 CAGR 1961 2009 %
Fresh water fish 1.2 4.6 40.4 4.6% 6 48 774%
Chicken 1.7 8.8 90.7 5.0% 15 153 934%
Eggs 2.4 13.9 59.3 3.1% 33 140 327%
Pork 3.0 24.4 105.5 3.1% 73 315 332%
Mutton & Goat 10.4 5.8 12.8 1.7% 60 133 121%
Bovine 10.4 28.4 63.8 1.7% 295 664 125%
Total Meat n.a. 70.1 278.9 2.9% n.a. n.a. n.a.
40 6
Changing use of foodcrops
Source: FAO stat, 2013
Source: FAO Stat, IMF
Population growth and changing diet on commodity demand growth
Commodity usage for feed (million Tons)
0
1
2
3
4
5
6
7
8
9
10
0
500
1000
1500
2000
2500
1961
1965
1969
1973
1977
1981
1985
1989
1993
1997
2001
2005
2009
2013
2017
2021
2025
2029
2033
2037
2041
2045
2049
Pop
ula
tion
grow
th in
billion
s
Million
of
Ton
nes o
f su
pp
ly
Meat Supply
Grand Total
cereal use
Total cereal
use for food
Total cereal
use for feed
Population
growth
0
100
200
300
400
500
600
700
800
Soybeans
Wheat
Maize
Source: World Ethanol and Biofuels Report from F.O. Licht 2012
Source: World Ethanol and Biofuels Report from F.O. Licht 2012
Energy conversion ratio´s
World Biofuel production over years
0
5000
10000
15000
20000
25000
30000
In
million
Gallon
s
Biodiesel
Ethanol
1.2 -1.8 1.2 - 2.2
1.2 - 4.2
2.2 - 8.4
1.2 - 3.6 1.4 - 3.4
8.6 - 9.6
0
2
4
6
8
10
12
Corn Sugar Beet Wheat Sugarcane Rapeseed Soybean Oil Palm
Net
en
erg
y r
etr
un