Global agribusiness www.pwc.com Monthly commentary from

www.pwc.com
Global
agribusiness
Monthly commentary from
our Agribusiness experts
around the Globe.
January 2015
Contents
Regional views
2
Did you know?
7
Publications10
Calendar of events
12
Prices13
Global Agribusiness contacts
21
Regional views
Overview
With teams around the Globe, this document sets
out to give a flavour of what our local agribusiness
experts are observing in their territories. As a
special feature this month our African Agriculture
consultant Richard Ferguson considers the oil price
decline and its impact on agriculture in the region.
Separately, as eyes move forward to the 2014/15
harvest many of our local experts give reviews of
last year and comment on the outlook for the year
ahead. As one example amongst many, Australian
Beef exports reached record highs last year, up 17%
yoy. Interestingly the largest growth in these exports
was to the United States, with China recording a
reduction yoy, due to changes in import protocols
and regulations. We also note that in South Africa,
the electricity generation and supply situation has
recently deteriorated significantly amidst increased
breakdowns. Agribusinesses, especially those that
use significant electricity in the cold chain and/or in
agro-processing, are looking at mitigation actions.
Finally, Deals activity remains buoyant and we note
the IPO intentions of Australia’s largest grower and
distributor of fruit and vegetables, the Costa Group.
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
Oil and its impact on African
agriculture – special feature
The power of two
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 subSaharan 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 Londoncentric 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 labourintensive 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.
PwC | Global Agribusiness | 3
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).
Of course, this is a 20-year, once-in-ageneration 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.
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.
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
4 | Global Agribusiness | PwC
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
Argentina
The US Department of Agriculture (USDA)
kept its forecasts for the upcoming harvest
season in Argentina, estimating 55m tons
of soy bean, 22m tons of corn and 12m tons
of wheat, with a total harvest of 101m tons,
1.4% down yoy.
Around 41m of the 55m tons of soy bean
are expected to be processed internally to
produce food and energy, while another
8 million will be exported directly as
grain. In wheat, around half of
production is expected to be consumed
domestically, opening the way for 6m
tons to be sold abroad. Confirming USDA
estimates, the Rosario Board of Trade is
forecasting wheat production to recover
after two bad harvests, growing 30.6%
yoy to c.12m tons.
Russia’s current economic distress could
end up benefiting Argentina if grain
exports and commodity prices both rise as
a result of Moscow’s decision to pull back
from international grain markets to cool
domestic prices. Argentina could fill the
spaces left by Russia in the international
grain markets, especially by increasing its
wheat exports. In order to do that,
however, the Argentine Government will
have to reduce export barriers. Things
may be moving that way: Argentina
recently approved c.1m tons of 2014-15
wheat for export in addition to the
1.5m tons cleared last month.
Mariano Tomatis
Gustavo Barrichi
Australia
Australia’s largest grower and distributor
of fruit and vegetables, the Costa Group,
has decided to undertake an initial public
offering in the coming six months.
Reports have suggested the private
group, held jointly by the Costa family
along with Paine & Partners with 50 per
cent, will seek to raise between A$300m
and A$600m, valuing the enterprise at
between A$800m and A$1bn. The
business started operations in the 1920’s
and at peak picking season employees
more than 7,000 people. Based in
Victoria, Costa is Australia’s largest
producer of blueberries, raspberries,
table grapes, citrus fruit, tomatoes,
bananas and mushrooms to name a few.
In other news, 2014 has seen Australia
reach new record levels of beef exports.
As reported by Meat and Livestock
Australia (MLA), beef and veal exports
reached 1.29m tonnes shipped weight,
up 17% yoy. The MLA have been quoted
as saying the Australian beef export
record has been broken three
consecutive years in a row. Interestingly
the largest growth in exports was to the
United States with China recording a
reduction yoy. Due to changes in import
protocols and regulations.
Craig Heraghty
Brazil
Overview
Cepea (the Center of Advanced Studies
in Applied Economy) expects the
Agribusiness sector to grow by 2.8% in
2015. However the year may yet prove
challenging for the sector. The domestic
market faces probable high
unemployment and wage deflation the
year. Overseas the prospects are less
liquid, higher interest rates, rising dollar
and falling commodity prices. ‘The
dominant feature in the market will be
high volatility,’ according to Cepea.
Inputs
Fertilizers
Anda (National Association for the
Promotion of Fertilizers) has highlighted
higher fertilizer sales in 2014,
estimating yoy growth of 5% in the
period to November. Lower
international prices also helped imports.
The result would have been better but
for US dollar movements. A higher
dollar has increased product prices
domestically, given about 70% of the
volume sold internally is imported.
Animal nutrition
In 2014, the animal nutrition sector grew
4.1%. The growth was driven mainly by
the poultry industry due to increase in
chicken meat production. Beef and dairy
cattle also contributed to the increase in
feed consumption. With rising beef
prices, farmers invested more in herd
nutrition. National feed production
should grow by 3% in 2015, according to
Sindirações (Nation Union of Animal
Feed Industry), reaching 69m tons.
Agricultural Machinery
The Anfavea (National Association of
Automotive Vehicles) estimates that
agricultural machinery sales will be
below expectations, reaching around
70 thousand units – a fall of about
15% compared to 2013.
Animal protein: 2014 in review
Bovine
Overall, 2014 was a positive year for
Brazilian beef cattle. Beef prices reached
a high of c.R$ 150/@ in November. Even
in December, when the offer was bigger,
the price hit R$ 145/@. The price
appreciation was not higher because
domestic consumption, hampered by
weak economy, limited animal protein
demand. Beef exports had record
revenues in 2014 of US$ 7bn. In volume,
the growth was 4% higher compared to
2013. Brazil has benefited by
geopolitical issues such as the conflict
between Russia and Ukraine with Russia
closing its borders to several countries.
Pork
Pork prices were high in 2014 as a result
of the adjustment between pig
production and demand. The beef price
increase also contributed to the price
raise in competing meats such as
chicken and pork. The year exceeded
expectations and December closed with
a positive balance. Pork exports, mainly
to Russia, also exceeded expectations
and had a record billing.
Chicken
There were two important moments in
the poultry sector in 2014: price hikes of
live chicken and meat price increase in
the domestic market. Both price hikes
were followed by periods of price
stability. The most significant driver in
this area, however, was the strong
market for chicken exports.
PwC | Global Agribusiness | 5
Bioenergy
Estimates are being increased for
2014/15 sugarcane milling. Unica
(Union of Sugarcane Industry) revised
its 2014/15 projections 545m tons
(estimated in August) to 567m tons. In
turn this leads to higher estimates for
sugar and ethanol volumes at 600m tons
and 1.8bn litres, respectively.
Outlook for the ethanol sector is also
positive. The industry expects an
increase in the ethanol volume mixed in
gasoline and the return of Cide (Tax
Contribution on Economic Activities)
imposed on gasoline. The Cide will
increase gasoline prices and consequently
will raise the ethanol price, since it is
indexed by gasoline price. Another
highlight for the sector was the
commercialisation of the first litres of
cellulosic ethanol produced in Brazil.
Biofuel produced in a plant in Piracicaba
(SP), named Raizen, reached one of the
city’s service stations in December 17.
Grains and other cultures
Storage
One of the more promising markets this
year is likely to be grain storage, which in
2015 is expected to register the biggest
advance in recent years. Infrastructure
projects which the government has
financed with low interest rates should
help boost the sector. New silos with
capacity of 10.5m tons are due to be
installed, raising the country static
capacity to 160m tons. This amount is
still small, hoever vs. the historic deficit
of grains storage in the country.
6 | Global Agribusiness | PwC
Soybean
Finally, Soybeans total production
estimates may also get revised upwards.
The Aviove (Brazilian Association of
Vegetable Oil Industries) has increased its
forecast to 91.9m for 2014/15 – an
increase of 6.5% vs. the previous estimate.
Jose Rezende
Canada
Agriculture and Agri-Food Canada
(AAFC) released its production outlook
for the 2014/2015 crop year last month.
Total production of principal field crops
is estimated at 79.7m tonnes (MT),
about 5% higher than pre-harvest
estimates, but significantly lower than
2013 production of 97.2 MT. Total wheat
production is forecast to be about
29.3MT in 2014/2015, down about 22%
from 2013. Total oilseed production is
forecast at 22.5MT, still the second
highest on record, although down
compared to 24.0MT in 2013. Very high
yields in 2013 were largely a result of
favourable weather conditions during
the growing and harvest seasons, but
with more variable weather in 2014,
yields across all crops fell by about 15%.
Carry-out stocks for all crops are
expected to be about 10.8MT, down
from a high of 17.6MT in the prior year.
The decline is driven primarily by
wheat, as lower production and higher
domestic use, offset by slightly lower
exports, is expected to contribute to a
3.6MT or 37% decline in carry-out
stocks. In the oilseed market, canola and
soybean exports are expected to
increase by 1% and 19%, respectively.
Carry-out stocks for canola are expected
to fall most sharply, by about 39% to
1.45MT, due mainly to lower production
in 2014 and higher domestic crush from
large canola supplies earlier in the
season. Despite growing demand for
food products in the global market,
canola prices are expected to decline by
about 8% as a result of lower protein
meal and world vegetable oil prices.
Nonetheless, a weaker Canadian dollar,
which is expected to remain at a
discount of about 10 to 15% of the US
dollar, is expected to provide some
support to Canadian prices.
Lori Robidoux
Germany
Export Climate of German
Food Industry Drops to New
Low-Point
In December 2014 PwC and the
Federation of the German Food and
Drink Industries (BVE) published the
biannual ‘Exportbarometer’. The index
is based on the current export situation
and companies’ expectations for the
next six months. It is calculated as the
balance between positive and negative
evaluations. The German export climate
dropped by 25% and reached a historical
low level of 34 points, mainly caused by
the import embargo to Russia resulting
from the Ukraine crisis as well as the
high pressure of competitors in foreign
markets. Outside the EU, German
exporters also have to deal with market
entry barriers such as a low legal
security and instable currencies. The
strong competition on the world market
will probably lead to a further
consolidation of the industry.
Link: www.pwc.de/lebensmittel
Reinhard Vocke
New Zealand
The GlobalDairyTrade (GDT) index
looks to have finally found a resistance
level at an average price of US$2,513 per
metric tonnes of milk solids, the low
reached in December 2014. The GDT
index has increased modestly in each of
the past three auctions, up 7.2% since
the December low.
At any time, suppliers can apply to join
the co-operative, purchase shares and
supply Fonterra directly.
According to provisional Statistics NZ
figures, New Zealand dairy cattle numbers
have increased by 4% over the past year to
reach an all-time high of 6.7 million. In
contrast, the numbers of beef cattle, sheep,
deer and pigs have all declined, with the
sheep population dropping to 29.6m.
Shanghai Pengxin’s Milk NZ holding
unit tripled its sales and profit last year
after taking a controlling interest in
Synlait Farms and agreeing to extend its
land holdings with farms in Northland
and near Taupo. Profit rose to NZ$32.8m
in the 12 months ended June 30, from
$11.1m a year earlier supported by a
revaluation of property assets at balance
date. Meanwhile, PGG Wrightson CEO
Mark Dewdney reiterated guidance that
results would better last year’s earnings,
expecting strong first half results for the
six months to December 2014.
Fonterra’s milk production continues to
grow despite extremely dry conditions
in parts of the South Island, with
production for the first seven months of
the season up 4% since 2013.
Meanwhile, the co-operative has
established a new South Island-based
milk-sourcing company called Mymilk.
The company will operate as a
standalone entity to compete with other
milk processors for milk supply.
Applications will initially be invited
from farms not supplying Fonterra in
Canterbury, Otago and Southland, for
one-year contracts renewable for a
maximum of five years, without the
obligation to purchase Fonterra shares.
Export log prices advanced for a fifth
month in December as a decline in
shipping costs bolstered local returns
and offset weak prices from China. The
average wharf gate price for NZ A-grade
logs rose to NZ$101 a tonne, from
NZ$98 a tonne in November, according
to AgriHQ’s. Meanwhile, significant
forestry investment has been confirmed
across the country. Red Stag has
confirmed it will construct a state-ofthe-art super mill that will double log
input to 1.2+ million cubic metres per
year and increase output from 450,000
to 700,000 million cubic metres per
year. Oji Holdings and its co-investor the
Innovation Network Corporation of
Japan, have acquired Carter Holt
Harvey’s Kinleith and Tasman
(Kawerau) mills for NZ$1bn and are
expected to undertake a mill
modernisation programme that will
increase its need for wood fibre.
Turning to red meat, a more favourable
exchange rate and strong demand,
particularly for beef, saw average meat
export returns improve in the first
quarter of the 2014-15 season. The
average per tonne value of lamb exports
continued to improve in the first quarter
of the 2014-15 meat export season (up
8.7% to NZ$9,140 per tonne), while the
amount of lamb exported was down
6.2% compared with the same period
last season. New Zealand beef and veal
exports registered a record high 78,000
tonnes between October to December
2014, up 14% on the same period in
2013. This reflected record high
international beef prices (up 29% yoy),
driven by a beef shortage in the US and
high slaughter numbers in New Zealand
partly due to low dairy prices. The
additional beef that New Zealand
exported was essentially directed to
North America, which accounted for
58% of New Zealand beef and veal
exports in the first quarter of the
2014-15 season, up from 45% in the
same period last season.
Craig Armitage
PwC | Global Agribusiness | 7
South Africa
Power System under pressure
The electricity generation and supply
situation has recently deteriorated
significantly due to increased unplanned
maintenance resulting from increased
breakdowns. The breakdowns are the
result of a major planned maintenance
backlog. Agribusinesses, especially
those that use significant electricity in
the cold chain and/or in agroprocessing, are looking at power and
energy strategies to mitigate the
significant risk of prolonged and regular
power outages over the next year
especially, but that in all probability will
be with us for the next six years.
Erratic start of season and
increased likelihood of belowaverage January to March
rainfall could affect crop
performance
Rainfall performance has been poor
across much of the region for the first half
of the 2014/15 agriculture season,
particularly in some highly productive
cropping areas. Delayed and erratic onset
of the rains resulted in moisture deficits
in some central and eastern parts of the
region. Moderate to heavy rainfall in the
past three weeks has brought immediate
relief to some parts. Several long-term
rainfall forecasts for the January to
March period suggest continued average
to below-average rainfall in some of the
affected areas. The poor start to the
season, combined with forecasts for
reduced rains could adversely impact the
main agricultural season in the region.
Close monitoring of the situation is
required as the season progresses.
While a similar poor start to the season
occurred last year, average to aboveaverage January-March rainfall offset
the deficits and allowed for generally
average crop production. This year,
however, several national level forecasts
indicate an increased likelihood of
average to below-average rainfall in
southern the region between January
and March. These forecasts are
consistent with several international
forecasts and with the expected effects
of both El Niño and a negative
subtropical Indian Ocean Dipole in the
region. The latest El Niño forecasts show
at least a 65 percent chance of an El
Niño event occurring during the
2014/15 rainfall season.
8 | Global Agribusiness | PwC
Areas that experienced delays in the
start of the season and erratic rains since
the onset could have a shorter window
of time for crops to grow and mature
before mid-season dry spells set in or the
season ends. If rainfall improves during
the second half of the season and
replanting (if necessary) takes place, the
cropping season will likely progress as
normal and the impact on food security
outcomes will be minimal. However,
poor rainfall during the January-March
period could have an adverse impact on
household food security because green
harvests could be delayed in some areas,
the current lean season could be
prolonged, and household food security
during the 2015/15 consumption could
be affected.
Frans Weilbach
USA
View from Midwest-Minnesota
Updated estimates from the U.S.
Department of Agriculture (USDA) this
month say Minnesota’s corn production
was 1.18bn bushels. That’s down 8%
from the USDA’s November forecast and
down 9% from 2013. Yields averaged
156 bushels an acre, down 9 bushels
from the November forecast and 3
bushels below 2013.
•Minnesota soybean production for
2014 remained steady from the
November forecast at an estimated
305 million bushels, up 10 percent
from the previous year.
•Spring wheat production is estimated
at 64.9m bushels, down 2% from
2013. Yield was 55 bushels an acre,
down 2 bushels from 2013.
•The sugar beet harvest is estimated at
9.77m tons, down 12% from 2013.
Minnesota is currently ranked #1 – from
the Minnesota Turkey Growers
Association – for turkey production in
the U.S. with farmers raising
approximately 46m turkeys in 2014.
Turkey meat is healthy and has more
nutritional value than chicken or beef
and turkey farming is sustainable for
Minnesota the most independent turkey
farmers of any state in the U.S. and
many of these are 3rd, 4th and even 5th
generation family farmers. Turkey
farmers anticipate continued growth in
US sales and exports expanding in 2015.
View from US Ag Retailers
for 2015
After several strong years for Ag
Retailers in the US, the survey data from
CropLife 1001 indicates overall
spending forecasts are trending flat to
down from 2014 but overall grower/
rancher activity is predicted to be strong
again in 2015 and 2016. Overall US
farmers net income had grown to over
U$130bn1 as of 2013 and spending
trends appear to be flat for crop inputs,
Ag services and technology in 2015.
•US Soybean seeds sales growth is
predicted to grow faster than corn in
2015.
•Liquid fertilizer growing faster than
dry for US row crops.
•Herbicides growing faster than
insecticides and fungicides.
Ag Technology
The new year is starting off with many
new announcements in precision AG
technologies including from John Deere,
DTN, Granular.ag, Climate CorpMonsanto and many more. The pace of
new software releases, extending
content and data services, integration
with UAVs, images, and field sensory
networks continues to accelerate.
Several new entrants (i.e. high tech) are
testing their solutions within
agribusiness. US agribusinesses are also
aggressively investing in AG technology
for factory farming, hydroponics,
telematics, sensory integration, and
aquaculture. The maturing Cloud
solutions and more affordable sensors
should increase technology innovation
– both in terms of time to market and
broader US adoption in 2015. Data
privacy, end to end integration, security
and costs continue to be the key
requirements. The InfoAg conference in
July 2015 (www.infoag.org) is
becoming a significant AG technology
conference to view the convergence of
these Ag technologies to drive grower
performance and efficiency.
Tom Johnson
Did you know?
PwC has:
An extensive global network
•We’re a network of firms in 158
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A dedicated agribusiness
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•We have also created an Agribusiness
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options in the agribusiness industry.
An Agribusiness Service
Centre in Argentina
Extensive Agribusiness team
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opened an Agribusiness Service Centre
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the economy.
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members have experience of working
in Nepal, Bhutan, Bangladesh,
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team brings vast experience and
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subsectors such as agri-retail, food
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• We believe there is extraordinary
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• 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.
•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 | Global Agribusiness | 9
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.
10 | Global Agribusiness | PwC
Commodities risk
management expertise
Over 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
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
expertise
Increased 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.
Sustainability and climate
change experts
By 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 climatesmart 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 China
Higher-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 ChinaNew 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 sector
An 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.
PwC | Global Agribusiness | 11
Publications
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-wineindustry-insights/
Securing Food Supply Chains
through Adequate Financing
Brazilian Agribusiness
Report
Report presented at the international
summit of cooperatives.
In Brazil we have recently published a
series of documents outlining the sector
and its characteristics:
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
[email protected]
12 | Global Agribusiness | PwC
•Doing Agribusiness in Brazil: an in
depth look at the agribusiness
industry.
•Agribusiness highlights.
•Agribusiness overview: key numbers
and facts.
PwC involved in major AsiaAfrica Business Forum
The 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 details
The 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.
Publication: Unlocking the Food
Belts of Asia and Africa
Our 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 agribusiness 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 Africa
PwC’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.
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
Agribusiness
We 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
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
Industry
PwC 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.
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.
PwC | Global Agribusiness | 13
Calendar of events
February
3rd – Archer Daniels Midland
4th – Syngenta
11th – Yara
12th – Bunge
12th – Kellogg
PwC hosts African Agribusiness workshop in Nigeria
PwC 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.
14 | Global Agribusiness | PwC
(30%)
(60%)
Wool
Ammonia
Natural gas
Brent Crude
Ethanol
Gasoline
Cattle
Lean Hogs
Ammonia
Natural gas
Brent Crude
Ethanol
Gasoline
Cattle
Lean Hogs
Ammonia
Natural gas
Brent Crude
Ethanol
Gasoline
Cattle
Lean Hogs
Milk
Copper
Gold
Iron
Milk
Copper
Gold
Iron
Milk
Copper
Gold
Iron
Soyabeans
Wheat
Corn
Wool
(40%)
Wool
(20%)
Cotton
0%
Cotton
20%
Cotton
40%
Sugar
60%
Sugar
80%
Sugar
100%
Coffee
One year
Coffee
(20%)
Coffee
(10%)
Cocoa
0%
Cocoa
10%
Cocoa
20%
Soyabeans
30%
Soyabeans
40%
Wheat
Three month
Wheat
Corn
% change
(20%)
Corn
% change
% change
Prices
One month
50%
40%
30%
20%
10%
0%
(10%)
Source (all graphs): Datastream
PwC | Global Agribusiness | 15
Corn, cents/bushel
900
800
700
600
500
400
300
200
100
0
01/01/2008
01/01/2009
01/01/2010
01/01/2011
01/01/2012
01/01/2013
01/01/2014
01/01/2015
01/01/2011
01/01/2012
01/01/2013
01/01/2014
01/01/2015
Wheat, cents/bushel
1,400
1,200
1,000
800
600
400
200
0
01/01/2008
01/01/2009
16 | Global Agribusiness | PwC
01/01/2010
Soyabeans, cents/bushel
2,000
1,800
1,600
1,400
1,200
1,000
800
600
400
200
0
01/01/2008
01/01/2009
01/01/2010
01/01/2011
01/01/2012
01/01/2013
01/01/2014
01/01/2015
01/01/2010
01/01/2011
01/01/2012
01/01/2013
01/01/2014
01/01/2015
Cocoa, US$/mT
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
01/01/2008
01/01/2009
PwC | Global Agribusiness | 17
Coffee, cents/lb
350
300
250
200
150
100
50
0
01/01/2008
01/01/2009
01/01/2010
01/01/2011
01/01/2012
01/01/2013
01/01/2014
01/01/2015
01/01/2011
01/01/2012
01/01/2013
01/01/2014
01/01/2015
Raw sugar, cents/lb
35
30
25
20
15
10
5
0
01/01/2008
01/01/2009
18 | Global Agribusiness | PwC
01/01/2010
Cotton, cents/l
250
200
150
100
50
0
01/01/2008
01/01/2009
01/01/2010
01/01/2011
01/01/2012
01/01/2013
01/01/2014
01/01/2015
01/01/2010
01/01/2011
01/01/2012
01/01/2013
01/01/2014
01/01/2015
Wool, Aus cents/kg
1,400
1,200
1,000
800
600
400
200
0
01/01/2008
01/01/2009
PwC | Global Agribusiness | 19
S&P GSCI Lean Hogs
250
200
150
100
50
0
01/01/2008
01/01/2009
01/01/2010
01/01/2011
01/01/2012
01/01/2013
01/01/2014
01/01/2015
01/01/2009
01/01/2010
01/01/2011
01/01/2012
01/01/2013
01/01/2014
01/01/2015
CME milk
250
200
150
100
50
0
01/01/2008
20 | Global Agribusiness | PwC
Pork/Corn (rebased)
300
250
200
150
100
50
0
01/01/2008
01/01/2009
01/01/2010
01/01/2011
01/01/2012
01/01/2013
01/01/2014
01/01/2015
01/01/2011
01/01/2012
01/01/2013
01/01/2014
01/01/2015
Milk/Corn (rebased)
140
120
100
80
60
40
20
0
01/01/2008
01/01/2009
01/01/2010
PwC | Global Agribusiness | 21
22 | Global Agribusiness | PwC
Global Agribusiness contacts
Global coordinator
Mark James
India
Ajay Kakra
USA
Thomas Johnson
+44 (0) 7803 858721
[email protected]
+91 124 3306029
[email protected]
+1 612 596 4846
[email protected]
Africa
Richard Ferguson
Sunjay VS
Commodity treasury
services
Nick James
+44 (0) 7880 827282
[email protected]
Argentina
Mariano Tomatis
+91 124 3306171
[email protected]
Ireland
Jimmy Maher
+44 (0) 20 7212 6550
[email protected]
+353 (0) 1 792 6326
[email protected]
Tax structuring
Annie Devoy
MENA
Mark Webster
+44 (0) 20 7212 5572
[email protected]
+ 54 341 446 8000
[email protected]
+966 11 211 0400 (Ext. 1555)
[email protected]
Szymon Wlazlowski
Sebastian Azagra
Netherland
Marco Jansze
+ 54 11 4850 4757
[email protected]
Gustavo Barrichi
+54 341 446 8000
[email protected]
Australia
Craig Heraghty
+61 282 661 458
[email protected]
Brazil
Ana Malvestio
+55 16 21336624
[email protected]
Jose Rezende
+31 (0) 88 792 3133
[email protected]
New Zealand
Craig Armitage
+64 3 374 3052
[email protected]
Romania
Anca Scurtescu
+40 21 22 53 871
[email protected]
+55 11 3674 2279
[email protected]
Singapore
Richard Skinner
Daniela Coco
+65 9823 3771
[email protected]
+55 19 3794 5400
[email protected]
Canada
Lori Robidoux
+204 926 2464
[email protected]
France
Yves Pelle
+ 33 (0) 299 231 705
[email protected]
Germany, Austria and
Switzerland
Reinhard Vocke
+49 (0) 211 3890 195
[email protected]
Sven Massen
+49 (0) 30 88705 876
[email protected]
South Africa
Frans Weilbach
+27 (21) 815 3204
[email protected]
Ukraine
Olena Volkova
+38 (0) 56 733 5010
[email protected]
UK
Mark James
+44 (0) 20 7212 1869
[email protected]
Stephen Oldfield
+44 (0) 7710 388792
[email protected]
Thomas Sengbusch
+44 (0) 20 7212 1889
[email protected]
Sustainability and climate
change
Kieron Blakemore
+44 (0) 20 7212 4212
[email protected]
Teresa Fabian
+44 (0) 20 7213 8309
[email protected]
Supply chain and forensic
investigations
Fran Marwood
+44 (0) 20 7213 4709
[email protected]
Matt Elkington
+44 (0) 20 7804 1417
[email protected]
Craig Armitage
+64 3374 3052
[email protected]
Private Sector and
International Development
Carolin Scramm
+44 7808 105691
[email protected]
Jack Newnham
+44 7889 521600
[email protected]
Cristina Bortes
+44 7769 941119
[email protected]
+44 (0) 7725 069448
[email protected]
PwC | Global Agribusiness | 23
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