Key factors impacting food and agriculture

Brad Mytton and Anna Ellis discuss the current and emerging trends influencing food and agriculture covering the increased corporatisation of food production, generational change, food security, the impact of geopolitical events on export markets and pricing and an increased focus on carbon mitigation strategies within Australia.

Anna Ellis: So, Brad now turning to you. You've got a bit more of a focus on the food and agricultural space. So, thinking about the factors impacting that sector, what are you seeing over the next six to twelve months playing out?

Brad Mytton: Yeah, one of the interesting things coming through at the moment is that generational trap change going through and sort of direct, you know food and angry businesses in Australia. I've been talking about that for a long time that it's coming and it feels like it's well and truly upon us now. So that's great for us opens up the opportunity for partnership style deals with successful founders to step back, either to a director role or fully retire spend some more time with their family. We can come on and come in and carry on the legacy that that business is no doubt sort of got in place. One of the things we're mindful of is making sure we're not throwing out that family culture in some of these organizations. So taking successful family businesses on that corporatization journey is a big part of the value add that we provide and we've had some good feedback from existing portfolio companies in that regard.

What we tend to see is, those small, successful family operations morph into small corporates, which over time should have grown to large corporates and we can sort of help in that transition. So sort of big part of our value add.

That's something that we expect to continue into 2023 and something we support but probably the biggest one for me in terms of the overarching theme where the markets up to and where the next few years actually will carry on is just that corporatization of food production. It's actually a global trend I'd say that Australia is 10-15-20 years behind the US in terms of that corporatization journey. Again, we can get in behind companies, add value to them on that journey and it's a great place for our capital to be involved. Taking a longer-term view, there’s clearly pressure on the planet in terms of its ability to produce food populations growing quickly. Access to clean water and available land is becoming more challenging. So, some institutional capital coming in to make sure that we are investing in technology investing in efficient farming practices is a big part of what we do.

Geopolitics is another big one obviously, most notably the Ukraine situation, in terms of its overlap with what happens with Australian grain farmers. The Black Sea region both Ukraine and Russia itself, are massive exporters nowadays. It's been a big shift over the last 15 or 20 years to them sort of, effectively setting that export market for grains. So that's relevant because grain production is such a big part of the Australian sort of agri scene. Prices are exceptionally high at the moment mainly on the back of that conflict and those sort of tens of millions of tons being held up imports over there. The cost of farm imports is also incredibly high at the moment softening slightly, but incredibly high so all of those things influenced by the geological situation, in the Ukraine.

Then there's been so other recent trade tensions with China, all of those things impact the ability of our food production strategies, they sort of staying close to those incredibly important.

Lastly climate change, it's the elephant in the room, always. It's how we're behaving in those situations. Carbon pricing has been stubbornly flat for a while. I think the world is structurally short carbon and as more and more companies and consumers need to get on board with what they're doing around carbon and they're sort of climate change mitigation strategies. I think that all seen the boost up.

So what we're seeing in that area is just a huge amount of activity. That's probably the last six months going into 2023, expect that to accelerate further just a number of opportunities that we have to get in behind projects that are basing carbon or have some other carbon mitigation strategies is just huge, clearly long overdue. But that is well and truly upon us now. So I expect a lot more activity both within our existing portfolio, as those companies achieve all they can achieve with that carbon abatement as well as the opportunities coming in the door.

Anna Ellis: Brad specifically the link between sort of agriculture and land and some of these projects. How does that work? And how does our capital get involved in that?

Brad Mytton: Yeah. It's a nascent area but having the depth of knowledge of some of our team in that area has been really helpful for some founders. So, mixed farming, property might have a carbon project on there that can be hugely additive both to the agri production, but also providing an additional carbon revenue stream, which is, having been through the numbers a lot of projects, it's surprisingly meaningful how much that how much that carbon revenue you can actually add to return. We see that as a great opportunity, for us I think that land prices are in some areas are actually starting to go up on the basis of potential carbon revenue coming back. So sort of factoring all of those things in knowing where to play in that market, sort of backing the guys who are already up curve on that, to grow what they're doing is a big part of what we do where our capital plays.

Anna Ellis: Perhaps Brad a slightly sort of different approach but thinking about the role of capital private markets in agriculture sort of 2023 and beyond, how are you seeing that?

Brad Mytton: I think p