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The Arrival of “Commercialization” in Turkey’s Agribusiness

When analyzing the M&A trends in the

agriculture sector recently, there is an

obvious change of trend.

Traditionally, there are two main sub-

sectors to focus when one considers

investing in agriculture. The first one is

farming obviously and the second one is

agribusiness that includes companies from

“farm-to-fork”. For long, the real action

on the M&A front has been on the

agribusiness front and there has been

some tremendous consolidation across

the world. As per a recent article in

Forbes, trends in the former suggest that

farming may soon become a “hotbed” of

M&A activity.

Turkey with ample land, labor and water

and still has a long standing productivity

problem, can offer mutual benefits for

those investors that can transfer know-

how and capital to her agriculture sector

making farmland investments of

particularly interesting.

With a promising high capital return,

diversification opportunity and hedge

against inflation; Turkey will inevitably be

a part of the ever increasing interest to

farmlands. The first comers will obviously

get the lion’s share. Pension funds,

sovereign wealth funds and other

corporations stand eligible as

implementations around the world has

shown.

Financialization of Farm

Lands: The focus of interest

globally …

Those who catch up with

“change” in today’s world that

can happen so fast, and invest

in “change” are often the ones

who profit in the medium to

long term from their choices.

When analyzing the M&A

trends in the agriculture sector

recently, there is an obvious

change of trend.

April 15, 2016

Agro Contemporary

Graph 1: 2002-2010 The Rise in Value of Global Farmland

Source: Fnews, Egeli & Co.

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Traditionally, there are two

main sub-sectors to focus

when one considers investing

in agriculture. The first one

is farming obviously and the

second one is agribusiness

that includes companies from

“farm-to-fork”. For long, the

real action on the M&A front

has been on the agribusiness

front and there has been

some tremendous

consolidation across the

April 15, 2016

projections that translate into

the rising demand for food;

investing into farmland has

become the new rising trend

in agriculture.

In fact, world population that

was about 1.8bn a century

ago is currently at around

7.3bn and is to reach 10bn by

2050 according to projections

shared by many. In the

meantime the rising income in

developing economies would

mean that the rise in food

demand would tend to focus

on protein and to health foods

that are grown naturally.

In figures, from today until

2050 food demand will rise

by 60-100%. This will

shape agricultural markets

in ways that have not seen

before. In order to meet

this demand, farmers would

either have to cultivate more

of land that is limited by

nature and being lost to

world. As per an article in

Forbes (Agriculture: The Next

M&A Growth Sector by Matt

Porzio), trends in the former

suggest that farming may

soon become a “hotbed” of

M&A activity.

The fact that farmland is

limited in many of the

developed nations and is being

lost to rent income in many of

the developing economies,

combined with population

Graph 2: 2003-2014 Direct Investments in Primary Agriculture and Ag-

ribusiness

Source: FAO, Egeli & Co.

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erosion, urbanization,

climate change and improper

applications. Or, farmers

would have to boost their

productivity levels from the

available land at their

control. In summary, the

agriculture sector needs

significant long-term private

and public spending.

In both ways, with the

limited food supply versus

April 15, 2016

farmlands, developing first

and then renting is regarded

as a secure way of creating

cash flow. Renting and

production sharing schemes

are also among the types of

establishments that have

become feasible ways of long-

term investing in farmlands.

Many large institutional

investors, including pension

funds and sovereign wealth

funds have already made

major commitments to

increase agricultural

production and trading in

recent years; not least

because agriculture land

investments have historically

delivered strong results but

also diversified investments

and outpaced inflation.

One striking example how this

reality “financialization of

agriculture” is spreading is the

very recent purchase of

widespread vineyards in

the multiplying demand for

food as per the population

increase; the rising interest

in farmland investments for

those with a medium to

long term perspective has

become noticeable in the

last couple of years

especially. In fact, there is

interest from even the ranks

of investors who do not want

to become farmers

themselves. Investing in

Graph 3: 2003-2014 Share of Direct Investments in Primary Agricul-

ture and Agribusiness in Total

Source: FAO , Egeli & Co.

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France by a Chinese

company that has a line of

business in manufacturing

equipment for service

stations. The former owners

of the vineyards do not lose

their jobs and in fact

continue with doing what

they know best and get paid

for it; while the new owners

are after a diversifies source

of sustainable income;

capital gains.

April 15, 2016

corporates working together

to produce the much needed

quality food in the globe as it

also opens doors for

expanding businesses

operations such as packaging,

distribution and marketing.

Moreover, those who own

family farms and who do not

want to pass on their business

to younger generations that

have shown interest in other

areas than farming appear

suitable for forming

partnerships over farmland

developing efforts. This is so

not only in Turkey but, in

many parts of the world as

well.

Given the above picture

farmland investments have

been on investors’ radar

screen at an increasing

scale since early 2000.

Especially family offices have

shown rising interest to such

farmland investments/product

Today, we are dealing with

many big industrial and

financial groups, with

interest for farmlands

stretching across all

continents. Especially the

third generation of educated

farmers is more open to such

partnerships, strategic

alliances rather than standing

as sole owners opening door

for outside investment. In fact,

such partnerships secure the

foundation for farmers and

Graph 4: 2003-2014 Direction of Direct Investments in Primary

Agriculture and Agribusiness in Total

Source: FAO , Egeli & Co.

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sharing schemes. One of the

most famous among such

names being Bill Gates

actually.

Those investors that have

accumulated wealth in non-

agriculture sectors are now

showing interest in forming

Farmland Funds that collects

farmland in various parts of

the world to reach a scale;

and develop those farmlands

to manage them under

different types of

collaborations. Contract

farming being on top of that

list of collaboration methods.

Rare but existent are the

vertical organization schemes

that include banks to cover

food production from “farm-

to-fork”.

Farmlands in Turkey

Turkey already raises

much interest as it stands

the third in terms of

farmland size considering

April 15, 2016

Turkey with ample land,

labor and water and still

has a long standing

productivity problem, can

offer mutual benefits for

those investors that can

transfer know-how and

capital to her agriculture

sector making farmland

investments of particularly

interesting. Note that the

effects of climate change is

not expected to become

tangible in Turkey before 2040

speeding the time to get

returns from investing in

Turkey’s farmlands.

Moreover, even though it has

stabilized in the past couple of

years, the rise in income for

capita in Turkey makes

production to meet the rising

domestic food demand also a

lucrative business opportunity.

With animal and crop health

still an issue in Turkey, correct

policies applied could rapidly

Middle East, Caucasus, and

Europe. Countries w ith

enough wealth but lack

farmlands such as Saudi

Arabia, Qatar as well as

countries that face strong food

demand given their gigantic

populations such as China,

added corporations that seek

sustainable lucrative returns

from America and Europe are

hunting farmlands in countries

like Vietnam, Indonesia and

Sudan that have productive

lands. After developing such

lands to get the maximum

productivity such farmland

investors also employ locals in

agricultural production that

will be directed also beyond

borders and reach the world

markets through added value.

It would be correct to say that

in the last 7-8 years Turkey

has enjoyed a similar interest

in her arable lands.

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add to Turkey’s

competitiveness in its wide

scale of agricultural

production.

The current trend of rising

interest in farmland

investments is thus very

important. As production

becomes harder and

production costs rise hand in

hand; agricultural production

will gain systematically more

interest. And it should. It

will become among the

April 15, 2016

As investments to farmlands

in Turkey increases, the choice

of production should be fruits,

vegetables, wheat, soy and

other feed grains. As

production selection,

production planning, demand

analysis becomes the routine

of large scale farms in Turkey,

productivity gains will benefits

all of course starting with the

farmers.

One example would be the

evolving of what used to be a

strategically important sectors

in many countries increasing

the share of public support to

agriculture sector.

The decline of land

productivity by 25% in the

last decade is an important

issue that needs to be

addressed. The small

scale of land, erosion and

droughts being the main

reason behind such a drastic

loss of productivity.

Source: Farmlandgrab, Egeli & Co.

Graph 5: Historic Farmland and Gold (pound)

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small scale production in

fruits such as apples,

nectarine, plum and peach

into acres of production

areas as fruit juice

companies have been

engaged in contract farming.

With returns from fruit

production increased by 10

fold as size increases, the

products become eligible for

exports driving more of

younger and better educated

generations back into

farming in Turkey these

days.

Such a profile is able to

follow the trends in the world

and increase productivity

using modern cultivation

techniques given the enough

amount of funds or land to

work with/on. Lack of

enough capital for

agricultural investments in

Turkey could easily be

overcome as global norms

April 15, 2016

candidate to meet the

enourmous food demand in

the massive mentioned area.

With a promising high

capital return,

diversification opportunity

and hedge against

inflation; Turkey will

inevitably be a part of the

ever increasing interest to

farmlands. The first

comers will obviously get

the lion’s share. Pension

funds, sovereign wealth

funds and other

corporations stand eligible

as implementations around

the world has shown.

Though the Turkish

government, realizing that

it competes with Africa, Far

East and Eastern Europe,

needs to act to prepare the

necessary legislation to

fast forward such

investments and to reduce

the risks that stand

such as farmland funds enter

Turkey; or are established in

Turkey in the near future.

One of the trends in the

farmland funds is

specialization of funds

according to land classified as

wetland or dry land. As an

example, Pictet, very famous

in the finance world has a fund

only invests in companies that

develop irrigation schemes.

Turkey stands right in the

middle of the giant lands of

Eastern Europe, Caucasia,

Middle East, Middle Asia, and

North Africa. This area

happens to be among the

world largest food importers.

In return, Turkey offers its

huge agricultural production

capacity and its vast

farmlands. Investments

directed to Turkey’s

agriculture sector that would

aim to raise productivity and

competitiveness stands as a

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inherent to agricultural

production.

April 15, 2016

Contact: Güldem Atabay Şanlı Director, Research and Strategy

+90 532 347 82 06 guldem.atabaysanli@egelico.com

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