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A recent survey has identified that private equity firms and traders are increasingly growing in prominence as sources of investment and innovation in agribusiness.

80 senior executive in the agribusiness sector responded to Norton Rose Fulbright’s Risks and opportunities in a changing global market survey and identified the role different types of finance play in the sector: 51% of respondents said that the availability of finance has improved in the last 12 to 18 months.

Trading places

Glenn Hall, partner at Norton Rose Fulbright, tells GTR that there are now more varied sources of capital for agribusiness, including private equity, bank debt and sovereign wealth funds, notably Chinese and Middle East-based funds.

“Increasing access to diversified sources of finance is encouraging for the agri sector. Further investment and the rise in popularity of innovative products will continue to support the industry,” he says.

According to the survey results, one of the biggest causes for concern, from a funding point of view, is the realisation that there hasn’t been any real innovation with export credit and trade financing structures for some time.

Hall explains that agribusiness has traditionally been funded by “bank debt and multilateral IFC and ERB-type money”, but it was a very interesting trend to see traders and private equity firms increasingly vertically integrating themselves into the agribusiness industry.

He adds: “There’s a comparative trend in the agri industry: a lot of the big traders are increasingly not just traders or middlemen buying from a producer and selling to an end user, but they’re vertically integrating. They’re developing their own ports, storage, processing facilities rather than just outsourcing this. They’re vertically integrating up the value chain to capture more margin and also increasingly going down to producing ingredients, and selling them on to food companies. In some cases they’re even going into their own branded products.”

Rabobank Australia’s Jeff Davis, head counsel, group legal, one of the survey respondents, believes that there is strong competition in the field now. He says: “Other banks are interested in agribusiness. They see it as a sustainable industry with good growth prospects.”

Investment

59% of respondents expect to increase their investment in agribusiness in the next 12 months with 48% considering investing in transport and other infrastructure to support food production.

Looking ahead at future opportunities, 26% of respondents identified China as the source of the greatest foreign investment flows in the next 12 to 18 months, although there was acknowledgement that resistance to foreign ownership of agribusiness assets will pose a problem. The US is believed to also be a continued influential source of investment.

To read the full survey, click here.