ADB Plans to Boost Asia Agriculture Investments

By Surabhi Sahu

Lured by soaring food prices, sector inefficiencies in emerging markets and attractive returns, many private equity players and multilateral agencies are eyeing agricultural investments in Asia.

The Asian Development Bank has embarked on an ambitious plan to more than double its investments in the agriculture sector to $100 million-$200 million a year from 2013, Mr. Martin Lemoine, investment specialist at ADB, told Dow Jones Newswires.

ADB’s interest in agriculture comes close on the heels of International Finance Corp., the investment arm of the World Bank, which plans to double its agri-investments globally to about $10 billion by 2016.

The ADB’s loan to PRAN, a major agribusiness company in Bangladesh, will finance construction of a glucose factory, a flour mill and a frozen food processing facility, which will support local farmers and employ as many as 1,000 factory workers.

“Farmers are also consumers…it’s important to support them,” Mr. Lemoine said.

In China, ADB provided its first-ever logistics-related loan recently.

Investments in India and Kazakhstan are likely early next year, Mr. Lemoine said.

“In India, the fruit and vegetable sector is interesting [for investment],” he said, adding that about 40% of the country’s fruit and vegetable output gets wasted each year post-harvest. Such inefficiencies create opportunities to invest in companies with warehousing, cold storage and packing facilities, Mr. Lemoine said, noting that the bank is studying a proposal to lend to a provider of fresh produce.

In Kazakhstan, the ADB may lend to a local food and beverage company that sells fruit juices, he said.

The ADB could lend as much as $60 million for the two projects, Mr. Lemoine added.

“We like countries such as Indonesia and Vietnam, where about half the population is less than 30 years of age,” said Victor Lean, managing partner of Singapore-based Caudex Asia, noting that favorable demographics support domestic consumption.

The pattern of production is also changing, reflecting demand for better quality food and lifestyles, Mr. Lean said. Some mills in Myanmar are getting farmers to grow long grain rice instead of short grain fragrant rice to meet rising demand for the former grade, which also commands a higher sales premium, he said.

The average return for a 10 year-old fund with a holding period of about five years is usually 2-3 times on a cash-to-cash basis, but this figure can even reach 4-5 times, said Yap Kian Woon, partner at CMIA Capital Partners. “So it’s pretty good,” Mr. Woon said.

CMIA has invested over $500 million in different sectors including agriculture since 2003, he added.

– Sameer Mohindru contributed to this article.

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