2012 Agribusiness Update: Indianapolis
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Transcript of 2012 Agribusiness Update: Indianapolis
2012 Agribusiness Update
December 5, 2012
Agenda10:45 a.m. – 11:00 a.m. Welcome Time & Registration
11:00 a.m. – 11:05 a.m. Sikich LLP• Introduction
11:05 a.m. – 11:45 a.m. Brent Gloy, Director, Center for Commercial Agriculture, Purdue University and Kip Tom, CEO and President, Tom Farms LLC
• Boom or Bust? What Lies Ahead for Production Agriculture?
11:45 a.m. – 12:00 p.m. Break – Box Lunches
12:00 p.m. – 12:40 p.m. Beth Bechdol, Director of Agribusiness Strategies, Ice Miller LLP and President, Agribusiness Council of Indiana
• Post-Election Impacts on Agriculture – Agricultural Policy and The Farm Bill
12:40 p.m. – 1:20 p.m. Jim Schultz, Founder and Managing Partner, Open Prairie Ventures
• Early Stage Investment Opportunities in Food and Agriculture
1:20 p.m. – 1:30 p.m. Q & A
Industry Challenge
Agriculture is being asked to do more today than ever in the history of mankind……and do it with less.
1970 to 2010 world population doubles. From 2010 to 2050 the world's population grows from 6.8 billion people to 9.31 billion people.
Tom Farms Today
Our goal is to leverage each and every asset to maximize our returns.
We educate and empower employees and partners. Management delegation and operational guidelines. We look at out business as a manufacture and
embrace principals such as S.O.P.’s., lean manufacturing, and programs similar to Six Sigma and others.
We place a high value in long term relationships with business partners.
We invest in planning to assure a smooth multi-generational transition in leadership, succession, and asset transfer.
Factoid: 1970 to 2007 Farmers grew 40% more corn and 30% more Soybeans on the same amount of land.
Fundamental Forces Shaping Tom Farms Plans
Global Production Growing and Diversified Global Demand Consumer Expectations New Science and Technology Changes in Ag Business Model Government Policy
New Science and Technology
Simplify/automate processesSeed traitsRobotic or GPS guided machinery.Electronic measuring monitoring and
controls utilizing the internet. Implications
Labor productivityProduction skillsManagerial skills/span of controlBiological manufacturing
CORN SOYBEANS
New Science and Technology Results
Tom Farms Resources per Unit of OutputIndexed to Year 2000 Actual Values
Consequences of Government Policy decisions effecting agriculture production causing an adverse impact to the challenge we face to feed a growing world.
Risk Management in volatile markets. A divided Agriculture industry not working
collaboratively to tell our story or serve as an advocate.
Agriculture Industry image threats from special interest groups using emotion, not science and facts.
Major Threats
1
Thanks!
Kip Tom Tom Farms LLC 8542 North Harper Road Leesburg, IN 46538 574.453.3300 www.tomfarms.com www.cereservinc.com [email protected]
““Hang On! There's Too Much Hang On! There's Too Much At Stake!” At Stake!”
Post-Election Impacts on Post-Election Impacts on Agriculture and the Farm BillAgriculture and the Farm Bill
2012 Agribusiness Update2012 Agribusiness Update
December 5, 2012December 5, 2012
Beth BechdolBeth BechdolDirector of Agribusiness StrategiesDirector of Agribusiness Strategies
Ice Miller LLPIce Miller LLP
OverviewOverview
• The World Around Us
• Post-Election Results – A Recap
• The Lame Duck Session
• The Farm Bill
• Think Bigger…Complex Policy Issues Remain
The World Around Us…The World Around Us…
• Global economic uncertainty – the growing "middle class"
• Currencies and the US dollar
• Market liberalization/trade agreements
• Biofuels production and policies
• Energy and agricultural input prices
• Regulatory climate
• Biotechnology developments
• Weather – climate change
• Politics and policy
Post-Election Results – A Recap…Post-Election Results – A Recap…
President Obama Re-elected62.1 mil. (51.4%) popular votes332 (61.7%) of electoral votes
Democrats Retain Senate MajorityDemocrats gain 2 seats13th Congress: 55 Expected in Democratic Caucus = 53 Democrats + 2 Independents. 45 Republicans.
Republicans Retain House Majority113th Congress: 234-R/201-D112th Congress (2010 Election): 242-R/193-DOver 1/3 of House members will be serving their first and/or second term in the 113th Congress
Urban O (70%) – R (28%)Suburbs R (50%) – O (48%)Rural R (60%) – O (38%)
So…Not Much ChangeSo…Not Much Change
But, Hopefully, Not A “Status Quo” Legislative and Budget Outcome in the Lame Duck.
The 112th Congress: “The Least Productive Body In a Generation”
“The 112th Congress is set to enter the Congressional record books as the least productive body in a generation, passing a mere 173
public laws as of last month. That was well below the 906 enacted from January 1947 through December 1948 by the body President Harry S. Truman referred to as the “do-nothing” Congress, and far
fewer than even a single session of many prior Congresses.”
- Jennifer Steinhauer - New York Times. September 18, 2012 -
Will They Ever Rise Above "It"?Will They Ever Rise Above "It"?
"There is nothing which I dread so much as a division
of the republic into two great parties, each
arranged under its leader, and concerting measures in opposition to each other.
This, in my humble apprehension, is to be
dreaded as the greatest political evil under our
Constitution."
JOHN ADAMS - 1789
Lame Duck Session - Budget and Farm Lame Duck Session - Budget and Farm Bill?Bill?
An exhausting "to do" list•Sequestration•Tax cuts•AMT patch•Unemployment measures•Tax extenders•Debt ceiling•Farm Bill
Let's Look at the Unfinished Business…Let's Look at the Unfinished Business…
Sequestration cuts – begin Jan. 2, 2013•$110 bil cut in non-exempt programs for FY 2013 - half from Defense.
Bush Tax Cuts - expire Dec. 31, 2012•Income Tax Rates - increase from 10% - 35% to 15% - 39.6%•Capital Gains Rate - increase from 15% to 20%•Estate Tax - exemption decreases from $5 million to $1 million. Top rate increases from 35% to 55%. (Pre-2001 levels.)•Dividends - increase from 15% for most to top income tax rate•Other expiring provisions: Child tax credit (halved and no longer refundable), Marriage penalty relief, various tax benefits for education, retirement savings, and low-income individuals.
Let's Look at the Unfinished Business…Let's Look at the Unfinished Business…
Alternative Minimum Tax (AMT) annual patch – expired Dec. 31, 2011•Exemptions fall – without retroactive 2012 patch, 30 mil. will pay AMT--up from 4 mil.
Job / Unemployment Measures - expire Dec. 31, 2012•Payroll taxes rise from 4.2% to 6.2% on first $110,000 in income•Number of weeks of unemployment benefits reduced
Tax Extenders - expired Dec. 31, 2011
U.S. Debt Ceiling - will reach at end of 2012
Farm Bill - a number of provisions ALREADY expired Sep 30, 2012•Full Farm Bill as Budget Offset for Fiscal Cliff Costs?•If Extension only, how much deficit reduction will be required?
What About Spending?What About Spending?
• GOP Controls – net gain of 63 seats
• New approach in House– Committee chairs have more power
– House will go first on most issues
– Unlike last time GOP controlled House…GOP leaders in House and Senate work well together
• House Agriculture Committee – chaired by Frank Lucas (R-OK) – 23 new members
Where Do We Make the Cuts?Where Do We Make the Cuts?
Net Interest12%
Social Security21%
Medicare - Medicaid
24%
Defense18%
Discretionary and Other Spending
25%
Source: Congressional Budget Office – Aug. 2012
Federal Budget Outlays
• Still few specific plans on reductions to defense, Medicare & Medicaid, social security – nearly 2/3 of the budget
Agriculture is 4.5% of $3.6 trill budget ($162 bil)
78% goes to food/nutrition spending ($126 bil)
2012 Farm Bill Status
• S. 3240 – Agriculture Reform, Food
and Jobs Act of 2012
– Passed Senate June 21, 2012 by 64-35 vote
• H.R. 6083 – Federal Agriculture Reform and Risk Management (FARRM) Act
– Passed House Ag Committee July 11, 2012
by 35-11 vote
A Full Chronology of U.S. Farm BillsA Full Chronology of U.S. Farm Bills
• 2008 Food, Conservation and Energy Act
• 2002 Farm Security and Rural Investment Act
• 1996 Federal Agriculture Improvement and Reform Act
• 1990 Food, Agriculture, Conservation and Trade Act
• 1985 Food Security Act• 1981 Agriculture and Food
Act• 1977 Food and Agriculture
Act
• 1973 Agricultural and Consumer Protection Act
• 1970 Agricultural Act• 1965 Food and Agricultural
Act• 1956 Agriculture Act• 1954 Agriculture Act• 1949 Agriculture Act• 1948 Agriculture Act• 1938 Agricultural Adjustment
Act• 1933 Agricultural Adjustment
Act
Senate Bill Sets the Tone• Direct, counter-cyclical and ACRE payments eliminated –
Average Risk Coverage revenue program created – regional concerns
• Tinkering with crop insurance– Conservation compliance and income limits
• Consolidation of conservation and rural development programs
• Gradual scaling back of CRP acreage – 25 mil acres by 2017• Reduces SNAP benefits by $4.5 billion
TOTAL BUDGET SAVINGS - $24 billion
House Committee Offers Different Version
• Eliminates direct payments – increases target prices• Cuts nutrition programs more ($16 bil over 10 yrs from
$800 bil baseline)• CRP acreage cap reduced to 25 mil acres• No mandatory funding for energy programs• Eliminates unnecessary pesticide permit requirements –
opens up regulatory reform debate• Biotech expedited USDA approvals
TOTAL BUDGET SAVINGS - $35 billion
Two Must-Do's in the Lame Duck Session
The 2008 Farm Bill has expired…•Reauthorize the funding for programs that expired on September 30
– If not – they lose baseline funding. Most are trade and conservation programs.
•Continue suspensions of permanent law provisions for the 1938 and 1949 acts for dairy and other commodity programs.
– If not we are back to acreage allotments and marketing quotes – totally untenable in today's global markets
No Consensus on Outcome…
• Option #1 – pass a five-year bill during the lame duck – take the budget savings and wrap a Farm Bill into a larger "fiscal cliff" package – only 5 weeks left!– Two issues remain: cuts to nutrition spending (how big?)
and can target price supports be maintained in some form
• Option #2a - pass a short-term extension during the lame duck– 6 months– 1 year
• Option #2b – will need to start over with the new Congress on a multi-year bill – need to pass a new Senate and House version and then conference
Other Things to Watch…
• The Players – small change of change – but there's always speculation– Lucas/Petersen stay in House and Stabenow in Senate– Rumored challenge of Roberts by Cochran– Villsack to stay? Kent Conrad (ND), Blanche Lincoln (AR) in
the wings
• Is this the last "Farm Bill"?– Some political leaders view it as a "Food Bill"– Agriculture would have a tough time "going it alone"
though
Future Policy/Regulatory Challenges to Agriculture – More Diverse and Complex
• Regulatory issues – EPA, OSHA, DOL, DOT, FDA • Climate Policy • Energy Policy • Trade – FTAs, China, Cuba • Immigration Reform• Food Safety Policy• Infrastructure Policy• Financial Services Regulation• Anti-trust Review and Oversight• Tax Policy
Should We Just Give Up Now?Should We Just Give Up Now?
No…Hang On! There's Too Much at No…Hang On! There's Too Much at Stake!Stake!
Focus on our long-term competitiveness critical
Remember the world around us…big challenges require big solutions•Feeding the world
•Human health and nutrition
•Natural resource constraints
•Public understanding and perceptions
The next generation of agricultural leadership is inspiring and up to the task!
3434
Early-Stage Investment
Opportunities in Food and Agriculture
OpenPrairie.com
December 5, 2012
35
“By 2050, the global population will surpass 9 billion people and agricultural systems will be
increasingly challenged by water scarcity, climate change and volatility, raising the risk of
production shortfalls”
The Economist ConferenceFebruary 2012
Opening Thoughts…
36
About Open Prairie Ventures
• Midwest-based venture capital firm
• Team of entrepreneurs, operators, and
investors
• Brand with National Recognition
• Partnership that values our Midwest roots
37
J.M. “Jim” Schultz
• 5th Generation Agricultural
Entrepreneur
• International Farmland
Developer
• Founder, Open Prairie Ventures
• Kellogg MBA, DePaul JD
38
Open Prairie Investment Philosophy
• Efficient Innovation Model
• Proprietary Deal Flow
• Global Potential
• Platform Technologies with Multi-Channel
Distribution
• Syndicate Development for Optimal Growth
39
Where We Live…
40
Disruptive Agricultural Technologies
Pres
ent
1990
’s
1960
’s –
1970
’s
1930
’s
Early
1900
’s Late
1800
’s
Mechanization
GMOPlant Protectio
n Chemical
s
Synthetic Fertilizer
s
Hybrid Seeds Biological
s
41
Agriculture Drivers
• Population
• Technology
• Globalization
42
“100 - 30 - 70 - 32”
70% of this increase will be fulfilled with new agriculture related technologies;
Global food demand will increase 100% over the next 30 years;
Using 1/32nd of the world’s land mass (currently 1/20th).
Source: Steinfoeld et al
43
Value-Added Food Consumption
As the Developing World Becomes More Affluent Food Demand Will Grow Dramatically
Germany 375.39 Euros or $500.07/week
Mongolia 41,985.85 togrogs
or $40.02/week
Source: MacroGain Partners, Steinfoeld et al
44
Agriculture Today
• World Bank puts the food and agriculture sector at 10% of global GDP or $4.8 trillion
• World food prices are at all time highs and experts predict they may double again by 2030
• The underlying cause of soaring food prices is the lack of investment in agricultural and food productionSource: FAO Food Price Index; www.forbes.com; UN Secretary General Ban Ki-Moon, June 4, 2008
45
Global Population Projections
1999: 6B people 2011: 7B people 2030: 9B people
Pop
ula
tion
(m
illi
on
s)
Africa Asia Latin America
Oceania North America
Europe
Source: UN Report – World Population to 2030
46
The Dilemma
Can we feed the world without destroying it?
47
Where Will Food Be Produced…
Arable land per capita: .08
Chinese Farmland U.S. Farmland
Source: The World Bank (figures in hectares)
Arable land per capita: .53
48
Global Prospects for Future Food Production
49
U.S. Farms – Timeline and Consolidation
50
Farm Bifurcation
51
U.S. Target Yield Projections
Source: Monsanto’s Yield Targets 3/10
52
Midwest Region is Breadbasket of Innovation
• Home to World-Class Universities in
Agriculture
• Vibrant Research Environment
• Global Headquarters for Premier Ag
Companies
53
Ag Productivity Convergence
Crop Nutrition
Crop Protection
Equipment and Cultural Practices
Seeds & Biotechnolog
y
Integrated
Agricultural
Productivity
Precision
Mechanics
Micronutrition
Microfarming
IPM
Precision Decisions
(DDM)
Seed Treatmen
t
Cloud Computing
Data Convergence
54
Keys to Success in Early-Stage Investments
People Strong Management Team
ProductDisruptive, Proprietary Technology
Production
Scalable and Executable Go-to-Market Strategy
Pricing Value Proposition to End Users
Promotion
Multi-Channels of Distribution
55
Midwest Value Proposition
Top Venture Markets
Midwest
VC Dollars Invested per Company (million)
$15.7 $9.8
Average Acquisition Value (million) $134.9 $125.4
Multiple: Acquisition Value / VC Invested
8.6x 12.8x
• Convergence of science, capital, infrastructure and talent Strong agricultural presence and output C-level talent and management teams Thriving deal flow pipeline
• Capital efficiency is the Midwest’s competitive advantage to deliver superior venture returns
Source: VentureXpert; 2007-2011; Seed, Early, Growth and Later Stage. Top Venture Markets: CA, MA, NY, TX. Midwest: IL, IN, MI, OH, WI
56
Case Study for Disruptive Ag Technologies
Industry: Ag Biotechnology Vestaron is developing a new generation of insecticides derived from peptides produced by spiders. These peptides are potent insecticides, yet are environmentally benign, making them ideally suited for the environmentally conscious, twenty-first century
Stage: Early (pre-revenue)
Market Size: $21 billion
People ProductProductio
nPricing
Promotion
• Expert team with strong advisory board
• Disruptive technology with broad IP
• Demonstrated scale-up from bench to pilot scale
• Less use of toxic insecticides
• Increased grower flexibility
• Four market channels exceeding $20 billion
57
Case Study for Disruptive Ag Technologies
Industry: Ag Biotechnology Patented product that uses PPPMs (Pink Pigmented Facultative Methylotrophs) to improve plant health and crop yield.
Stage: Early (pre-revenue)
Market Size: $5 billion
People ProductProductio
nPricing Promotion
• Highly qualified team
• Patented bacterial seed and leaf inoculant
• Scalable manufacturing process
• Increased yields
• Ease of adoption
• Applicable to multiple crops
• Low regulatory requirements
58
Open Prairie “In the Field” Strategy
• Agriculture Sector is Expanding Globally
• Midwest Region is Epicenter of Agriculture Innovation
• Increasing Deal Flow and Exit Opportunities as Global Ag Companies Look to Enhance their Research and Development Pipelines
59
OpenPrairie.com
J.M. “Jim” SchultzManaging Partner
Direct:217.347.1017
Mobile:217.821.9000
Office:217.347.1000
“Harvesting Efficient Innovation in The
Field”
Questions?