Global agribusiness

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Monthly commentary from our Agribusiness experts around the Globe.

March 2015

ContentsRegional views 2

Did you know? 10

Publications 13

Calendar of events 15

Prices 16

Global Agribusiness contacts 24

Regional views

OverviewWith teams around the Globe, this document sets out to give a flavour of what our local agribusiness experts are observing in their territories. Food safety remains a dominant theme globally: in Australia we discuss contamination of certain imports from China and the resultant Hepatitis A concerns. Timely then, that we are helping the Chinese and New Zealand Government set up a food safety centre of excellence (in China) to focus on industry best practice across the agricultural supply chain. Elsewhere, we note the ongoing desire in Nigerian and other oil dependant African economies to increase food security and diversify away from oil based wealth – a topic we cover in depth in the special feature on page 8. Finally, in the US we discuss the ongoing investment in technology for factory farming, hydroponics, telematics, sensory integration, and aquaculture. As a reminder, it’s a snapshot only: do feel free to contact the local experts to discuss their views in more depth.

Mark James

2 | Global Agribusiness | PwC

ArgentinaThe United States Department of Agriculture (USDA) increased its estimates for Argentine wheat, corn and soybean harvests, which are now expected to reach 12.5, 23 and 56 m tons respectively.

The increased estimate follows a worldwide trend of improved production, which has been dragging international prices down. It should nevertheless be positively received by Argentina, as it will open up the possibility of more exports, boosting local currency reserves in a context of reduced trade.

According to the report, the 2014-2015 campaign will see both corn and soybean gain a million tons of production due to the current ‘favourable conditions’, while wheat will produce half a million tons more, opening up more space for sales abroad, especially in the case of soybeans.

Recently, Congress has approved an economic cooperation deal signed with China. The framework agreement establishes a legal basis for increased economic and investments links between both countries, in order to promote ‘commercial links and investment by public and private companies to sustain the economic growth of both countries’.

The deal has raised strong criticism among the political opposition since it doesn t believe it will lead to Argentina selling more added-value products. Rather, the belief is that it may deepen the country’s trade commoditisation. Exports of grains and oilseeds are expected to increase instead of products with more added value. On the other hand China will build giant hydroelectric dams in the southern province of Santa Cruz, in Patagonia.

China is already the second largest destination of Argentine agro-industrial products, with a share of 10.8 % (US$4.5 bn) in total agro-industrial exports in 2014. Agriculture products account for 85 % of total exports to China, reaching US$1.021 bn.

Mariano TomatisGustavo Barrichi

AustraliaOverview Headlines in Australia have been dominated by recent events involving suspected contamination of imported frozen berries from two processing facilities in China. As of 26 February, reports have suggested 18 cases of hepatitis A being contracted from consuming the frozen berries. The ‘hep A’ scare has caused a range of debate on food labelling laws, in particular source and origin labelling, along with biosecurity controls and government testing programs on imported goods.

Foreign Investment In other news the Australian government has announced a new threshold for Foreign Investment Review Board (FIRB) approvals for agricultural land (A$15m) and agribusinesses (A$55m). The new review thresholds would not apply to certain countries that already have free trade agreements, namely the United States. Commentary has been broadly positive about the new thresholds and investors are viewing the new protocols as simply another process to be undertaken. It should be noted since it’s inception, FIRB has not declined a purchase of any agricultural land by foreign investors. These new proposals come along with a review and public consultation process announced to consider strengthening foreign investment protocols including the potential for charging approval fees and a new penalty regime for contraventions.

Craig Heraghty

BrazilFebruary 2015The newly appointed Minister of Agriculture, Livestock and Supply (MAPA), Katia Abreu has shared her action plans:

• to double the size of the rural middle class over the next four years through technical training and access to technology in the field;

• to increase exports;

• to improve logistics infrastructure with the construction of railways and waterways;

• to open up the agricultural frontier in the North and Northeastern regions, especially the MAPITOBA (Maranhão, Piauí, Tocantins and Bahia);

• to be more responsive to the crisis in the sugar-energy industry; and

•and finally to promote a dialogue with the agrarian social movements.

In respect of budget cuts for the ministry, Minister Abreu said she had expected a reduction in the budget and that the year ahead is likely to be approached with caution by both producers and market observers.

On expectations for 2015, the National Society of Agriculture (SNA) expects that the contribution of agribusiness in Brazil’s towards trade balance should fall around 3%. One reason is the decrease in average prices of exports. Another challenge for the year is the water crisis, which could affect various cultures, such as sugarcane, orange, coffee, wheat, and other vegetables and fruit.

InputsExpectations are that the resources from both, the Harvest Plan and the National Program for Strengthening Family Agriculture (Pronaf), will be maintained for the season 2015/16. Rural credit was also helped by a new regulation which now allows foreign banks to accept rural properties in border areas as a financing guarantee.

Elsewhere, other encouraging news is that agricultural insurance funds of approximately US$ 100m, that should have been paid by the government in 2014, should be released in the short term, according to Minister Abreu.

In terms of other forms of financing, agribusiness securities on the BMF & Bovespa grew 20% yoy in 2014 to US$38 bn, of which about 96% represents Agribusiness Credit Bills (LCAs). However, the government is studying rates to tax LCAs (currently tax free).

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Animal protein: 2014 in reviewBeefBeef prices are expected to remain high in 2015, due to the low supply of cattle, enhanced by drought, entrance into the Chinese market, possible opening of the US market for fresh beef and reduction of herds in competitor countries. Also expected in 2015 is a rise in the number of confined animals, due to the combination of high price of beef and low grain prices.

PoultryRabobank forecasts a favorable year for the Brazilian poultry industry in 2015, with opportunities to consolidate its presence in largely unexplored markets such as Mexico, and increase trade with Russia. The prices of chicken meat are likely to remain high vs. last year due to greater balance between supply and demand. An increase in beef prices may also contribute to increased consumption of chicken meat in the domestic market. However, in the international market, competition with the United States could become intensify due to increased US poultry production.

DairyAccording to Rabobank, the concentration of the dairy market in Brazil is low compared to other Latin American countries. In the future, the market is likely to consolidate, creating opportunities for mergers and acquisitions. Currently, dairy prices are declining, given high stock levels and lower demand (mainly due to the school holidays), according to the Cepea.

SugarAlthough exports remain weak, according to the Ministry of Development, Industry and Foreign Trade (MDIC), experts predict a recovery trend in international sugar prices in the second half of the year, mainly due to lower production in Brazil and Thailand, which should generate a deficit of 2.8 m tonnes on the world market.

EthanolEthanol prices have already shown signs of recovery and may increase further. The main factors contributing to this increase are an increase in the Social Integration Program (PIS) and in the Contribution to Social Security Financing (COFINS) – two taxes on petrol and diesel prices. These will be maintained until May 2015, when the Intervention Contribution on the Economic Domain (Cide), which was zeroed since 2012, will return. The collection of Cide should occur in a ‘piecemeal’ fashion in order to not spark inflation, but may be raised to $ 0.28 per litre. Separately, also on the agenda is the increase in the percentage of ethanol blended into gasoline which should increase from 25% to 27%. The increase has already been approved but still needs the approval of Dilma Rousseff.

Grains and other cropsGrain production in Brazil in the 2015/16 season is likely to hit a new high of c. 200 m tons, according to the National Supply Company (Conab). Soy is the dominant grain, with expected production of between 94 and 96 m tons. As for wheat production, one of the cereals most

impacted by climate, Conab expects a reduction of around one million tons and nearly 14% drop in productivity. Prices are also low given high inventories. As for coffee, the drought in the Southeast region of Brazil, especially Sao Paulo and Minas Gerais, damaged the coffee plantations. Although the product had rising prices due to the weather, farmers are not optimistic about the 2015 harvest, and 2015 results may be similar to 2014.

Ana Malvestio

GhanaAfrican Union report suggests Ghana’s cocoa sector lost almost US$1bn a year in illicit financial flowsGhana’s cocoa sector is the world’s second largest producer after Cote D’Ivoire. An African Union (AU) Panel report on the industry – the Mbeki High Level report – has estimated that illicit financial flows via trade mispricing cost US$8.1 billion in the decade 2001-2010 in illicit financial flows. It is thought that Ghana accounts for 26.4% of all illicit financial flows from the cocoa sector.

Unusually among African nations, Ghana has an agricultural trade surplus. In 2011, total agricultural exports amounted to US$3bn while imports amounted to US$1.8bn. Cocoa exports are the principal reason for this relatively strong position in contrast to its peers across the continent.

Richard Ferguson

4 | Global Agribusiness | PwC

potentially lead to greater demand for the unique fibre in the growing US base-layer clothing and specialty outdoor clothing market.

The US is likely to become NZ’s leading wine destination this year, supplanting the UK in volume and Australia in value. For the year ended November 2014, NZ exports were NZ$348m (50.7m litres) to the US, NZ$360m (51m litres) to Australia and NZ$332m (53.9m litres) to the UK. Growth in sales to the US market is expected to continue, partly thanks to the falling NZ dollar. Marlborough Sauvignon Blanc sales in particular are strong with Californian marketing brands bringing in bulk wine and bottling it.

Delegat’s Wine Estate expects its underlying profit will rise due to stronger wine sales, but that falls in asset values will hurt its bottom line, which it forecast would slump 45% on a fall in the value of its derivative instruments. Sales rose by 4% to 1,129,000 cases of wine in the second half of 2014, and full year expectations are for continued sales growth and for operating profit to grow 9% yoy to NZ$34m.

Livestock Improvement Corporation (LIC) recorded a 17.7% yoy lift in revenue in the first half of the 2015 financial year, achieving revenue of NZ$159m. According to the company, the result was driven by farmers continuing to invest in solutions that improve their productivity. Particularly high demand was shown for short gestation genetics, while demand for

IndiaIndia recently entered into agreement with Sri Lanka for cooperation across multiple sectors, including agriculture. Both countries signed a MoU towards bilateral cooperation in agro processing, agriculture extension, horticulture, agricultural machinery, training in farm mechanisation, livestock diseases etc. This will be facilitated through relevant institutes from both the countries.

In addition to this, last month saw the build up to the union budget for the Indian Economy. The agriculture and food processing sector was prior to the main budget. Expectations centred on measures to improve export competitiveness, productivity enhancement, improvement of rural household and livelihood, better market and research facilities and many other such improvements. The government’s strong commitment towards improvement of the agriculture sector was reflected in the finance minister’s budget speech. Steps towards the improvement of soil health, irrigation schemes (USD 900m), rural infrastructure development, greater disbursement of farm credit through banks (USD 1.4 trillion) highlighted the various agriculture sector reforms.

Further, the government also took a very innovative step towards improvement of the agricultural sector by the introduction of unified National Agriculture Market for facilitation of country wide agriculture market trade, level of intermediation, price stability and better realisation for the farmers.

Estimates for the winter (Rabi) crop stands have been revised to 95.8m tons of Wheat. This estimate is almost at par with the last years production levels. With a good rabi season India is looking at maintaining a strong food grain production in the year 2015.

Ajay Kakra

New ZealandThe Global Dairy Trade (GDT) index continued to recover in February, increasing by 20% in the two auctions during the month, driven by whole milk powder and anhydrous milk fat. The GDT index is now up 29.0% since the December 2014 low adding weight to the view that prices may have bottomed after falling by around 50% in 2014.

Dry conditions on the east coast of the South Island have been declared a ‘medium-scale adverse event’, triggering Government support for farmers in parts of Otago, Canterbury and Marlborough. While most farmers have managed by destocking and using feed supplies, Primary Industries Minister Nathan Guy expects that conditions will get tougher as the seasons change.

PGG Wrightson Wool announced a multimillion-dollar contract to supply 22.5 micron merino wool from New Zealand growers to point 6, a United States-based sock manufacturer. The contract will see PGG Wrightson Wool source 150 tonnes per year of 22.5 micron wool from New Zealand growers. PGG Wrightson Wool’s Business Development Manager, Craig Smith said the deal could

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DNA parentage testing and information and automation technology systems remained strong. In addition, LIC announced a new strategic partnership with SCR (Engineers) Ltd that includes a distribution agreement where SCR, recently acquired by Allflex Group, will distribute the co-operative’s Dairy Automation Limited milking sensors internationally and LIC will become a NZ distributor for SCR’s cow reproduction and health monitoring system, Heatime. CEO Wayne McNee said the partnership was part of the co-operative’s strategy to grow the business overseas.

Separately, New Zealand apple production could drop by 6% this year because of a cool start to spring, despite the belief that a warm summer has improved the crop’s quality according to Pipfruit NZ (a New Zealand pipfruit industry representative organisation). Pipfruit NZ expects high export demand for this year’s crop with about 297,000 tonnes, which will arrive in 70 export markets within the next few weeks. Demand, particularly in Asia, has continued to grow and total plantings have consequently increased by 2% this year. While the European market (which takes about 25% of the export crop), remains flat for commodity type varieties (affected by Russian food import bans), NZ has the advantage of supplying premium varieties such as Royal Gala and Braeburn.

Craig Armitage

NigeriaKwara state governor outlines agricultural plans; diversify from oil, increase food securityGovernor Abdulfatah Ahmed of Kwara state, in a recent session organised by the Nigerian Labour Congress and the Trades Union Congress reinforced the country’s need to increase its own food security as well as diversify from oil-based wealth.

This could now be viewed as conventional wisdom across many oil-producing nations in Africa. What marks a departure is the fact that the governor not only discussed import substitution but also the possibility of the nation becoming a net food exporter. Nigeria’s current agricultural deficit is in

excess of US$5bn. We discussed the oil price decline and its impact on the agribusiness sector across Africa in detail in the January edition of this document.

The governor recognised that training and education were crucial to these ambitions. Kwara State pioneered the use of overseas farmers to develop the local skills base notably through Shonga Farms, which brought displaced Zimbabwean farmers to Kwara State to develop dairy and poultry assets.

Dr. Akinwumi Adesina, confirmed as presidential candidate for African Development BankDr. Adeshina, Nigeria’s Honourable Minister of Agriculture has been confirmed as one of seven shortlisted candidates for the presidency of the African Development Bank. Dr. Adesina, previously a Purdue-educated agricultural economist with the Rockefeller Foundation, became Minister of Agriculture in 20101 His most notable reform was the implementation of the country’s Agricultural Transformation Agenda (ATA) in 2011.

The aim of the ATA is to ‘achieve a hunger-free Nigeria through an agricultural sector that drives income growth, accelerates achievement of food and nutritional security, generates employment and transforms Nigeria into a leading player in global food markets to grow wealth for millions of farmers’.

Specifically, between 2012 and 2015, the plan intends to:

• Increase production of cassava by 17mnt, rice by 2mnt and sorghum by 1mn tonnes.

•Create 3.5mn jobs within the five value chains of rice, cassava, sorghum, cocoa and cotton.

• Increase farmers’ incomes by US$2bn.

The vision for Nigeria’s sector was captured by its view on what it would no longer do. First among these was the termination of viewing agriculture as a development project. This has become a hallmark of much development across Africa and ought to be seen in a positive manner. The second was to ensure that

isolated projects would have no place unless they were part of an overall strategic focus with clear and identifiable aims. Finally, it was deemed essential to prevent the public sector crowding out the private sector. In other words, private-sector development and a market-led approach were crucial to the success of the ATA.

A key plank of the ATA is to ensure farmers can access better agricultural inputs, notably seeds and fertilisers. The decades-long system of government-mandated procurement and distribution of fertilisers became wholly corrupted to the detriment of both private-sector providers and local farmers. In the inauguration of the Earth Institute at Columbia University in September 2013, Dr. Adesina, noted how only some 11% of farmers managed to receive government-distributed fertilisers.

The initial measures to combat this fraudulence have been successful. The launch of the Growth Enhancement Scheme (GES) provided subsidised inputs to farmers. The scheme’s success has largely been helped by another development, which has transformed African business landscapes in the last decade – the expansion, extension and entrenchment of mobile phone networks across the continent. Thus, to ensure that the GES succeeded, it was supported by another – wholly original – initiative, the Electronic Wallet System. This allows farmers to receive subsidised vouchers for seeds and fertilisers on their mobile phones.

In 2012 some 1.5mn smallholder farmers received their vouchers via their mobile phones. By September 2013, this figure had increased to some 3.5mn smallholders. Overall, some 20m people most likely felt the social impact of this innovation. The GES system has now been extended to fisheries, livestock and mechanisation services.

Richard Ferguson

6 | Global Agribusiness | PwC

South AfricaProposed land ownership billIn his State of the Nation Address on Thursday 12 February, President Jacob Zuma made far reaching announcements, stating that in future, foreigners would not be able to own land, but would have to lease it. This ban is only aimed at agricultural land and is included in the Land Holdings Bill, a new proposed law that is expected to be enacted in 2015. If the bill is passed, foreign nationals will be allowed a long-term lease of agricultural land of between 30 to 50 years. It won’t apply to land that is already owned by foreigners at the time the bill is enacted.

The proposed bill, furthermore, sets a ceiling on land ownership that restricts the amount of land that any individual, regardless of nationality, can own to 12,000 hectares. Should an individual own land in excess of that amount, government will purchase and redistribute the land.

As expected, organised agriculture responded heavily against the proposed amendments, stating that it will negatively impact on investments and development in the sector. There is still a great deal of uncertainty on whether the bill will be passed or not.

Budget 2015Meanwhile, the 2015 Budget was tabled in Parliament on 25 February 2015. It was encouraging to note that agriculture was identified as one of government’s ‘strategic priorities’ in a bid to speed up economic growth and employment creation. However, the budget was vague on what is meant by its support of agriculture. It was indicated that there will be a focus on the revitalisation of the Land Bank, definitely a good step forward for the agricultural economy. However, the impact of other aspects announced in the budget speech, such as the review (and possible drop) in the diesel rebate, the increase in fuel levy and the increase in electricity prices will have a bigger negative effect on agriculture.

Frans Weilbach

USABans on U.S. Poultry ImportsMultiple countries have temporarily banned U.S. poultry imports due to an outbreak of bird flu on non-commercial U.S. farms. China was the most recent country to ban U.S. poultry, poultry products, and eggs on January 8, 2015. A strain of the H5N8 influenza was found in Oregon, California and Washington. The American Farm Bureau and the U.S. Department of Agriculture have both called out the decision maintaining exported poultry is still safe. There are no commercial birds affected by avian flu outbreaks anywhere in the U.S. according to USDA’s Animal and Plant Health Inspection Service.

Ag TechnologyUS agribusinesses are continuing to invest in technology for factory farming, hydroponics, telematics, sensory integration, and aquaculture.

•In January 2015, DuPont Pioneer announced the expansion of Encirca services to help growers maximise plant stands and yield potential. The new service is Yield Stand, which joins the Encirca Yield Nitrogen Management Service as a cutting-edge input management offering for growers.

•In January 2015, Meridian information technology company ArmgaSys acquired agricultural technology software Envio as well as the development staff that made the software. The Envio acquisition expands ArmgaSys’ agribusiness technology offerings.

•In February 2015, Wilbur-Ellis Co. reached an agreement with Planet Labs to bring satellite imagery to the AgVerdict software platform, Wilbur-Ellis’ technology in agricultural data usage. This enhancement will significantly improve the delivery of satellite imagery to a grower, making the data available in a matter of minutes rather than days. This new feature will benefit Wilbur-Ellis customers by providing imagery using ‘ultra-compact’ satellites that will soon scan the planet every twenty-four hours.

Tom Johnson

PwC | Global Agribusiness | 7

The power of two

Oil and its impact on African agriculture – special feature

The collapse in oil prices in recent months has significant implications for the agriculture sector across many African nations. Much of the ‘Africa rising’ narrative can be attributed to a strong demand for natural resources and the corresponding capital flows that have swollen government coffers or flooded into the consumer expenditure patterns of a burgeoning middle class.

Thus 2015 might represent a major inflection point for a number of African oil and gas-producing nations such as Nigeria, Ghana, Angola and Mozambique. In short, are the exceptional growth rates which has characterised many resource-rich sub-Saharan economies in the last two decades durable in an environment where oil prices are low and may remain low for the foreseeable future?

‘Dutch Disease’ is a straightforward economic concept. In a two-sector economy there is one booming sector – almost invariably a natural resource – and a lagging sector. The former shifts the exchange rate, and pushes up costs and lowers returns in the latter. Thus a high oil price makes the lagging sector – usually manufacturing or agriculture – less competitive. The effects were first observed in the Dutch manufacturing sector in the aftermath of a large discovery of offshore natural gas in 1959, hence the name.

This became a common theme: in the 1980s the UK, with its huge discoveries of North Sea oil and gas, delivered an exchange rate that was disastrous for an already moribund manufacturing sector. The relative success of the service-based economy of London in recent years suggests a variant of this model as the ‘crowding out’ effect appeared in many

commentators’ eyes detrimental to the rest of the country. In short, does a London-centric exchange rate work for the North of England and the Celtic nations?

This dual-sector model is particularly relevant to many emerging economies. In the absence of highly developed manufacturing sectors, ‘Dutch Disease’ worked against many agricultural sectors. Consider the impact of the ‘resource curse’ – perhaps a more common refrain than ‘Dutch Disease’ these days – on the economic growth trajectory of Ghana in the 1990s and 2000s. Annual growth rates averaged almost 5% during this period and this was achieved while the manufacturing component of GDP declined by almost 4% pa.

The Ghana example indicates the strength of agriculture GDP growth in both terms of output and productivity. However, the discovery of oil in Ghana in recent years does the country’s other sectors including agriculture no favours at all. Likewise Nigeria: ask any Nigerian over a certain age how relatively advanced the country’s agriculture sector was in the 1960s in the early flushes of independence. However, the discovery of oil in the Delta region – along with other political and economic factors – helped to kill off industries such as palm oil and rice production. The former industry is now dominated by Malaysian and Indonesian groups while Nigeria imports over 3mn tonnes of rice per annum.

The collapse of oil prices and the concomitant effect on the exchange rates of these nations suggests a unique opportunity for agriculture to redress some of these imbalances. Africa has a US$35bn agriculture deficit and Nigeria alone accounts for some 15% of that deficit.

Exchange-rate devaluations obviously push up the cost of food to domestic consumers but, equally, they can also boost the returns of domestic producers and create opportunities for exporters. One of the factors which drove Brazilian and Argentine agriculture exports was the 1999 and 2001 exchange-rate devaluations in both countries.

This structural adjustment makes for an interesting discussion, for sure. However, what gives this dual-sector model added impetus is that, among certain oil and gas-producing nations, it is taking place at the same time another dual-sector model is taking effect: the Lewis Dual-Sector model.

The Lewis Dual-Sector model is named after its founder Arthur Lewis, a Nobel Prize winning economist from Trinidad. The model postulates that as a developing economy urbanises, the cost of goods – produced in cities – is held constant while there is a continuous pool of cheap rural labour migrating to cities and towns. Eventually this cost advantage is terminated when the cheap source of labour is no longer available. This process was evident in Japan in the 1960s and China may have reached what is commonly referred to as the ‘Lewis Turning Point’ in recent years.

The key point of this model is that when this inflection point is reached a labour-intensive economy must become a capital-intensive one if growth is to continue. Equally, it also means that the rural economy – and, by definition, its agricultural sector – needs to make the shift from labour to capital. Again, this is what happened to the UK and Germany in the latter half of the 19th century.

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It would be folly to assume that Africa’s agriculture sector has reached anything resembling its ‘Lewis Turning Point’. Also the model glosses over the obvious imbalances that can occur where a readily available pool of labour remains ‘available’ but cannot add to productivity or output and essentially is economically disengaged from the workings of the model (i.e. horribly exposed to brutal economic realities that few of us can imagine).

However, we might be witnessing something unique: the confluence of the two models where newly competitive economies with a pressing need to diversify their economies and find new sources of income do so with a cheap source of labour which is on the point of becoming more capital intensive.

Of course, this is a 20-year, once-in-a-generation economic shift. Africa becoming a more central component of the global agriculture sector is happening and it might be a surprisingly rapid shift. On the eves of their respective independences in 1957 and 1960, Ghana and Nigeria were considered the economic peers of South Korea and better placed than the latter to grow. Yet, within a generation South Korea had become the world’s 14th biggest economy.

For sure, there will be some countries who understand the underlying shifts taking place within their economies and can harness the dynamic benefits of these two dual-sector models while eliminating the costs associated with both. Some countries will emerge as spectacular winners while

others will be left wondering what might have been. Agriculture as a strategic pillar of economic growth and development? In an age of capital and technology? Well, if you read academic and multilateral descriptions of South Korea’s economic prospects from the 1960s, they sound not unlike North Korea now.

Richard Ferguson Agribusiness Consultant

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An extensive global network•We’re a network of firms in 158

countries with close to 169,000 people who are committed to delivering quality in assurance, tax and advisory services.

A dedicated agribusiness service centre in Brazil•Based for almost 40 years in the

northwest region of São Paulo, PwC Brazil is well known for its expertise in serving the agribusiness sector. For this reason, and believing in the growth of Agribusiness in Brazil, PwC has expanded its activities in this industry, creating a dedicated PwC Agribusiness Excellence Centre in 2007.

•Through this centre, Agribusiness clients in this industry throughout Brazil are served in the areas of audit, tax consulting and business consultancy by a team of professionals trained and updated on major issues and industry trends. We have hired dedicated agribusiness professionals, such as agronomists, foresters, veterinarians, agro-economists, environmental managers and others, to add value and help in the understanding of the real needs of our customers.

•We have also created an Agribusiness Research and Knowledge Centre, in order to keep our staff and clients updated on the main issues and trends. With a method specially developed by PwC, analysts study the technical management of the main crops in Brazil, perform environmental, industry and competitiveness analysis, and also studies about the main players operating in each agro-industrial system analysed. The Agribusiness Research and Knowledge Centre is also able to provide market intelligence services and support our professionals in evaluating investment options in the agribusiness industry.

An Agribusiness Service Centre in Argentina•Located in Rosario, at the heart of the

Pampas region, PwC Argentina has opened an Agribusiness Service Centre to provide professional services to the agribusiness community. Argentina is a major player among food producing countries and agribusiness is an important strategic contributor to the economy.

•We believe there is extraordinary growth potential in the long term for further developing agricultural activities. The Agribusiness Service Centre provides value added services to our clients combining strong technical skills with an in-depth industry insights:

•Regional agribusiness clients are better served by coordinating activities with the Agribusiness Centre in Ribeirao Preto, Brazil.

•A Research and Knowledge Centre has also been developed to keep our technical staff and clients updated on main agricultural issues. Specific sub-industry reports have already been developed as well as quarterly agricultural situation reports.

Dedicated agribusiness practice in MENA •PwC has the only dedicated

agribusiness practice in the MENA region among major consultancies. We offer a full range of advisory services to food companies, investors and government agencies. We provide advice on investment and partnership strategies, technical and financial feasibility studies, agricultural and food security policies, corporate transformation initiatives, and supply chain optimisation. We cover a range of crops and animal food production, and we can help companies with market expansion, product portfolio diversification, and positioning along the value chain.

Extensive Agribusiness team in India•We have a 13 member team based at

New Delhi, Mumbai and Pune. Apart from working in India, the team members have experience of working in Nepal, Bhutan, Bangladesh, Tanzania, Ghana and Ethiopia. The team brings vast experience and knowledge of the Agricultural subsectors such as agri-retail, food processing, agri-marketing, farm inputs, farm machinery, warehousing and cold chain infrastructure, agri banking etc.

•Over a period of time the team has been engaged with various private, public and multilateral agencies, advising on supply chain management, project management, value chain assessment, monitoring and evaluation, business plan and growth strategy development, investor/partner search, policy planning and implementation support, technical due diligence, and transaction advisory.

Extensive food security expertise•PwC has helped at least four different

governments formulate comprehensive food security strategies. These have looked at the key risks and exposures those countries face with regards to food security; changing food supply/demand dynamics locally and globally; issues by key food commodity type; assessing current plans to address current issues; formulation of new initiatives to solve key food security risks, both in the short and long term; overall cross-government coordination and implementation plans. A key emphasis of the work was making sure the plans were practical and involved close alignment between government and the private sector.

PwC has:

Did you know?

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Commodities risk management expertiseOver the last 4 – 5 years the world has witnessed a period of sustained energy and commodity price volatility, whether this be fuel oil, gas or electricity, metals such as aluminium, steel or copper, or agricultural products such as cotton, wheat or sugar. Commodity price risks are also being quickly transferred through the value chain, for example a company buying plastic will be exposed to the volatile price of oil.

This shift brings major implications for businesses across many sectors. Commodity price volatility is increasingly affecting the profits, cash flows and share prices of companies that use or consume energy or raw materials. It is difficult to think of a business model that isn’t in some way exposed to commodity price volatility – it’s just a matter of how much.

We are seeing a continued trend across corporates, particularly in the consumer and retail goods sectors, towards the implementation of commodity trade capture, valuation and risk management systems. These systems can be vital in ensuring sound controls in an area of

Completed a global agribusiness review for New Zealand Trade and Enterprise•New Zealand Trade and Enterprise, in

partnership with the Ministry of Economic Development, the Ministry of Foreign Affairs and the Ministry for Primary Industries, commissioned PwC to explore opportunities in key international markets with a focus on South America and China. The resulting agribusiness research provides insight into New Zealand’s pastoral production system and related areas of competitive advantage. The research is part of a wider programme of work focused on maximising international opportunities for companies within the agriculture industry. The two-part report provides a comprehensive background analysis and an executive summary outlining five areas of opportunity for New Zealand agribusiness. Segmented by country, the study looks at production opportunity and value chain for each of the seven countries analysed. To learn more and download copies of the report visit: https://www.nzte.govt.nz/en/export/market-research.

high inherent business and reporting risk. However, they can be complex to implement, and therefore require careful selection, project management and integration into the business processes and other systems. We have a dedicated team experienced at doing this.

Efficient tax structure expertiseIncreased competitive pressures and challenging market environment continue to force local, regional and global market players to centralise certain functions. This applies to centralised trading and can be used to plan the tax position of agricultural groups. PwC can help with the centralised, cross-border trading and risk management transactions from a tax perspective, having particular regard to transfer pricing (TP) and thin-cap (TC). PwC has unique experience with respect to advice on corporate tax compliance, and assistance in planning tax efficient trading structures, financing and transactions. In addition we can help with audits, dispute resolution and Advance Priced Agreements to minimise related tax risks.

PwC | Global Agribusiness | 11

Sustainability and climate change expertsBy 2050 the world’s population is projected have to grow to approximately 9 billion. As competition for agricultural commodities and inputs intensifies and our ability to satisfy this demand is increasingly constrained by economic, social and environmental factors, innovative solutions will be required to ensure that we make better, more efficient, use of resources and in some cases find more sustainable alternatives whilst increasing productivity and driving economic prosperity. PwC is working with organisations including agribusiness, the wider private sector, governments, NGOs and multilateral organisations on a range of sustainability and climate change related projects. Recent projects include; climate change risk mapping for soft agricultural commodity sourcing; sustainability strategy support for agribusinesses; evaluating the business case and socio-economic benefit for local sourcing of agricultural raw materials, climate change training for African agri-businesses, the development of a methodology and carbon calculator for understanding emissions from small holder agriculture in Africa, and assessments of market and financial opportunities for climate-smart agriculture.

Extensive forensic skills and supply chain experience We have carried out independent investigations and advised on governance improvements in some of the highest profile reputational crises of recent years. We believe the benefits of a robust, independent review of the facts are considerable. Our specialists help companies respond decisively – a key first factor in maintaining trust and protecting shareholder value. We work with clients to define and implement enhanced supply chain risk management strategies and capabilities. This can

range from conducting supplier risk assessments and audits, supply chain and procurement strategy and organisation redesign, deployment of automated monitoring technology as well as crisis management, financial restructuring and company turnaround, and administration/liquidation services. We can:

•Deliver forensic investigations to identify what may have gone wrong, the potential consequences, and provide support in claims management.

•Perform risk profiling and assessment of the supply chain to quickly identify and quantify key sources of risk, dependency and vulnerability.

•Assess the effectiveness of the control environment and audit approach and re-perform audits to provide assurance as required.

•Deploy risk monitoring solutions to ensure compliance with agreed standards.

•Develop robust supply chain risk management methodology, tools and capability.

•Redesign supply chain structure, strategy and organisation to optimise balance between cost and resilience.

PwC New Zealand assists in development of a food-safety joint venture in ChinaHigher-protein diets and lingering distrust of domestic food sources in China have not only increased New Zealand’s beef and lamb exports, but have presented further opportunities for New Zealand to assist with developing food safety practices.

AsureQuality and PwC New Zealand signed a collaboration framework agreement with China Mengniu Dairy Company and COFCO Corporation to investigate the development of a China-New Zealand agribusiness service and Food Safety Centre of Excellence in China.

AsureQuality is a commercial company, wholly owned by the New Zealand government, providing food safety and biosecurity services globally to the food and primary production sectors.

The objectives of the joint venture are to introduce total management and operational risk management systems to the Chinese agriculture industry. These management systems are based upon the New Zealand agriculture sector model and form a framework for the development of industry best practice across the agricultural supply chain in China, with a focus on food safety.

The partnership also has the support of New Zealand Trade and Enterprise (NZTE) and is the result of extensive research work commissioned by NZTE and carried out by PwC in 2012 to identify international opportunities for New Zealand’s agribusiness sector. In addition, agritechnology is a sector of focus for New Zealand in China, as outlined in the NZ Inc China Strategy.

For more information, visit http://www.pwc.co.nz/foodsafety.

A focus on inclusive businesses in the agricultural sectorAn established Nigerian bank seeking to catalyse a whole new approach to smallholder farming and rural banking, a biscuit manufacturer developing a commercial approach to cassava farming in Malawi, and a summer tomatoes contract farming venture led by a Bangladeshi agribusiness conglomerate. Over the past three and a half years a PwC UK led team has worked with these and other exciting companies to help them develop commercially viable business models that are inclusive of the poor across Africa and Asia. Results, findings and lessons from their work on the UK Business Innovation Facility pilot have been documented in seven case studies, with a final report available here bit.ly/BIFfindings.

12 | Global Agribusiness | PwC

Wine Insights – New Zealand PwC New Zealand produced the NZ Wine Insights publication as a follow up from the work undertaken after the strategic review of New Zealand winegrowers. The publication comments on various aspects of New Zealand’s competitive advantage and provides insights and observations into the New Zealand wine industry to inform members and stakeholders about the industry’s rapidly changing environment.

Excerpts from the report include:

•The competitive advantage of New Zealand wines lies in markets perceiving New Zealand wine to be of higher quality and more distinctive in style than competitors’ wines, which translates to higher prices for New Zealand exports.

•The New Zealand wine industry remains relatively young in its development compared to many other wine producing nations. The industry has experienced rapid growth and continues to evolve, with substantial structural change occurring in various areas. The industry will continue to develop and evolve, which will present both opportunities and challenges.

•Initiatives aimed at driving efficiency gains and cost reductions, while not impacting quality, should be positive for the industry. Furthermore consolidation opportunities remain.

To learn more and download copies of the report please visit:

http://www.pwc.co.nz/publications/new-zealand-wine-industry-insights/

Securing Food Supply Chains through Adequate FinancingReport presented at the international summit of cooperatives.

Over the next decades, five major trends will re-shape the world and the food sector: population growth (9.5bn people on Earth in 2050 living mainly in Africa and Asia), switch in economic power to the benefit of emerging markets, accelerating urbanisation, climate change and resource scarcity, and technological breakthrough.

This will put food supply chains under huge pressure.

Between May and August 2014, we interviewed a selection of top managers of food cooperatives all around the world to get their opinion on the upcoming challenges for them in such a context. They told us about ten main challenges all along the value chain that we analyse in our report. Ranging from producing more, differently to customising products to consumers’ new needs and tackling the price volatility or waste issues, these challenges are not specific to cooperatives.

During our discussions, we have identified six key levers that top managers of food cooperatives typically leverage to take up these challenges: 1. Go bigger; 2. Be more global and 3. More integrated; 4. Build stronger brands, 5. Be more innovative and 6. Be more inclusive by opening doors to new type of partnerships.

A 15 pages executive summary can be downloaded here:

https://form.pwc.fr/dev/formulaire_pwc_publication/formulaire_pwc_publication_1.0.0/index.php?tmplvarid=57&id=7312&langview=eng

Please contact:

Ludivine Allardon +33 1 56 57 10 13 ludivine.allardon@fr.pwc.com

Publications

Brazilian Agribusiness ReportIn Brazil we have recently published a series of documents outlining the sector and its characteristics:

•Doing Agribusiness in Brazil: an in depth look at the agribusiness industry.

•Agribusiness highlights.

•Agribusiness overview: key numbers and facts.

PwC involved in major Asia-Africa Business ForumThe Federation of Indian Chambers of Commerce and Industry (FICCI) and the Government of India organised the first ever Asia-Africa Agri Business Forum from February 4 – 6, 2014 in New Delhi. PwC was part of this initiative, as a knowledge partner. We produced a paper ‘Unlocking the food belts of Asia and Africa’ highlighting the potential of the agricultural sector in both continents, and the best areas for collaboration.

Event detailsThe event was targeted at tapping the tremendous business opportunities between Asian and African continents in the agriculture, agribusiness and food-processing sectors, and had strong political support: the Indian President inaugurated the forum, with agriculture ministers from many Asian and African countries attending. Leading international organisations like African Development Bank, Asian Development Bank, World Bank, World food programme, Department for International Development (DFID) brought a global perspective. It provided a unique business platform for industry leaders, policy makers, governments and other important stakeholders to collectively address the issue of food security and the opportunities to engage with each other while looking at the huge potential for growth, development and business.

PwC | Global Agribusiness | 13

CEOs of agribusinesses are also very positive towards the possibility of expansion into the rest of Africa. 70% indicated that they would pursue such opportunities. Africa is increasingly becoming a preferred investment destination and is said to represent the last frontier in global food and agricultural markets with its large percentage of uncultivated fertile land and sufficient water resources, according to a recent report issued by the World Bank. The report calls on governments to work side-by-side with agribusinesses, and to link farmers with consumers in an increasingly urbanised Africa.

The report is available online: http://www.pwc.co.za/agri-business

PwC Netherlands report on megatrends affecting AgribusinessWe discuss five megatrends that heavily impact each link of the sector’s value chain, and explore the drivers of this change and the long term outlook for the sector. Demographic change leads to an aging workforce and fewer students opting for a career in farming and food engineering. In addition, consumers spend less and spend differently – for example on healthier foods, or on smaller packages for singles. Accelerating urbanisation brings expanding cities and farming in closer proximity, shifting the sector’s focus in stakeholder management from ministers to mayors. Cities also face

Publication: Unlocking the Food Belts of Asia and AfricaOur paper analyses the major agriculture sub-sectors of both continents in terms of production, demand and supply, export potential and processing capability, in order to identify various business and investment opportunities. It also highlights various headwinds to development, in areas like market policies, increasing agriculture input accessibility, access to finance, infrastructure enhancement, skill development, etc. with suggestions on how to overcome these challenges. It also reviews various successful case studies across different countries in Asia and Africa which highlight that good policies, support from government and a favourable business environment can promote agri-business. We have highlighted that forming partnerships between Asian and African countries of Asia and Africa could bring immense opportunities for development and value creation and transform agri-business in both continents. We discuss various partnership models between Government and Private sector, to bring efficiency and improvement in key areas such as skill development, agriculture research, investment in agriculture and agricultural operations.

Click here for a link to the document.

Agribusiness Insights Survey – South AfricaPwC’s annual Agribusiness survey is with a group of agribusinesses with operations mainly focused on delivering agricultural and related services to primary producers. The aim of the survey is to provide the insights of business leaders and the benchmarking of their financial data to add value to the agricultural industry.

The sector is confident about its growth prospects over the next few years amidst a raft of regulations, wage negotiations, land reform and the global economic uncertainty. The main reason for growth expectations as indicated by CEOs is new joint ventures and strategic alliances.

This sentiment is also echoed in the Confidence Index of the Agricultural Business Chamber (Agbiz) and the Industrial Development Corporation (IDC). This index indicated a further increase in the agribusiness confidence levels in the fourth quarter of 2013.

logistical issues how to bring food in – and waste out. Technological advances increased yields and reduced use of energy and water, while food processing extended shelf life, reduced waste and widened variety of products. Logistics enable year-round availability of fresh products. Consumers share recipes on social media – and concerns on food safety. Resource scarcity contests the way we produce, source and consume. Phosphate for fertilisers, energy for greenhouses, or cocoa for food manufacturers abundance is not obvious. Also, the way we ship, store, sell and dispose food needs ethinking. The shift in economic power increases living standards in high-growth markets, providing opportunities for agrifood companies to further expand their non-European footprint.

Click here for a copy of the report

PwC-Publication: Megatrends in the German Agrifood IndustryPwC just launched an analysis of five megatrends – demographic change, accelerating urbanisation, technological advances, resource scarcity and shift in economic power – with regard to the German Agrifood industry. The authors concluded that there are great chances to increase business outside the European Union as German food products are famous for their high quality.

14 | Global Agribusiness | PwC

Calendar of events

March

18th – General Mills

April

1st – Monsanto

23rd – The Dow Chemical Company

30th – Bunge Limited

30th – The Mosaic Company

PwC hosts African Agribusiness workshop in NigeriaPwC hosts African Agribusiness workshop in Nigeria On 21 November, PwC hosted an African Agribusiness workshop in conjunction with the UK Trade & Investment (UK TI). Held in Lagos, the workshop was well attended by a mixture of Agribusiness corporates and State Ministers for Finance and Agriculture. We had a lively debate and gave a series of presentations addressing:

The Global Picture•Food security

•Urbanisation

•Rise of the SuperFarm

•Where our clients are focussed

Headwinds•Why farms fail

•Client concerns and how to address them

•Barriers to investment in Nigeria

The way forward•Risk mitigation and investment models

•The best way to raise capital

Contact Mark James, Richard Ferguson or Shuli Adebolu for further details.

PwC | Global Agribusiness | 15

Prices

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16 | Global Agribusiness | PwC

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18 | Global Agribusiness | PwC

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PwC | Global Agribusiness | 19

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20 | Global Agribusiness | PwC

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PwC | Global Agribusiness | 21

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22 | Global Agribusiness | PwC

PwC | Global Agribusiness | 23

Global coordinatorMark James+44 (0) 7803 858721 mark.d.james@uk.pwc.com

AfricaRichard Ferguson+44 (0) 7880 827282 richard.ferguson@uk.pwc.com

ArgentinaMariano Tomatis+ 54 11 4850 4757 mariano.c.tomatis@ar.pwc.com

Gustavo Barrichi+ 54 341 446 8000 gustavo.h.barrichi@ar.pwc.com

Sebastian Azagra+54 341 446 8000 sebastian.azagra@ar.pwc.com

AustraliaCraig Heraghty+61 282 661 458 craig.heraghty@au.pwc.com

BrazilAna Malvestio+55 16 2133 6624 ana.malvestio@br.pwc.com

Jose Rezende+55 11 3674 2279 jose.rezende@br.pwc.com

Daniela Coco+55 19 3794 5400 daniela.coco@br.pwc.com

CanadaLori Robidoux+204 926 2464 lori.j.robidoux@ca.pwc.com

FranceYves Pelle+ 33 (0) 299 231 705 yves.pelle@fr.pwc.com

Germany, Austria and SwitzerlandReinhard Vocke+49 (0) 211 3890 195 reinhard.vocke@strategyand.pwc.com

Sven Massen+49 (0) 30 88705 876 sven.massen@strategyand.pwc.com

IndiaAjay Kakra+91 124 3306029 ajay.kakra@in.pwc.com

Sunjay VS+91 124 3306171 sunjay.vs@in.pwc.com

IrelandJimmy Maher+353 (0) 1 792 6326 james.maher@ie.pwc.com

MENAMark Webster+966 11 211 0400 (Ext. 1555) mark.a.webster@sa.pwc.com

NetherlandRuud Kok+31 (0) 887926382 ruud.kok@nl.pwc.com

New ZealandCraig Armitage+64 3 374 3052 craig.armitage@nz.pwc.com

RomaniaAnca Scurtescu+40 21 22 53 871 anca.scurtescu@ro.pwc.com

SingaporeRichard Skinner+65 9823 3771 richard.skinner@sg.pwc.com

South AfricaFrans Weilbach+27 (21) 815 3204 frans.weilbach@za.pwc.com

UkraineOlena Volkova+38 (0) 56 733 5010 olena.volkova@ua.pwc.com

UKMark James+44 (0) 20 7212 1869 mark.d.james@uk.pwc.com

Stephen Oldfield+44 (0) 7710 388792 stephen.m.oldfield@uk.pwc.com

Thomas Sengbusch+44 (0) 7725 069448 thomas.sengbusch@uk.pwc.com

Global Agribusiness contactsUSAThomas Johnson+1 612 596 4846 thomas.r.johnson@us.pwc.com

Commodity treasury servicesNick James+44 (0) 20 7212 6550 nicholas.c.james@uk.pwc.com

Tax structuringAnnie Devoy+44 (0) 20 7212 5572 annie.e.devoy@uk.pwc.com

Szymon Wlazlowski+44 (0) 20 7212 1889 szymon.wlazlowski@uk.pwc.com

Sustainability and climate changeKieron Blakemore+44 (0) 20 7212 4212 kieron.j.blakemore@uk.pwc.com

Teresa Fabian+44 (0) 20 7213 8309 teresa.fabian@uk.pwc.com

Supply chain and forensic investigationsFran Marwood+44 (0) 20 7213 4709 fran.marwood@uk.pwc.com

Matt Elkington+44 (0) 20 7804 1417 matt.elkington@uk.pwc.com

Craig Armitage+64 3374 3052 craig.armitage@nz.pwc.com

Private Sector and International DevelopmentCarolin Scramm+44 7808 105691 carolin.c.schramm@uk.pwc.com

Jack Newnham+44 7889 521600 jack.g.newnham@uk.pwc.com

Cristina Bortes +44 7769 941119 cristina.bortes@uk.pwc.com

24 | Global Agribusiness | PwC

PwC | Global Agribusiness | 25

www.pwc.comThis publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers LLP, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.

© 2015 PricewaterhouseCoopers LLP. All rights reserved. In this document, “PwC” refers to the UK member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details.

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