Financialization of Farm Lands: The focus of interest globally

1. 1
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.

2. 2
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.

3. 3
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.

4. 4
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.

5. 5
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.

6. 6
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)

7. 7
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

8. 8
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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