Private equity investment into China’s agriculture sector sagged in 2012, but with the government vowing to modernize farming methods and general growing demand for food, going back to the land increasingly is looking like a good bet.
CMIA Capital Partners and Infinity Group are among a handful of fund managers placing bigger bets on China’s agricultural industry. CMIA raised a new $150 million fund focused on food and agriculture investments and has already secured around $100 million in commitments, said Managing Partner Lee Chong Min.
Meanwhile Infinity, a cross-border China-Israel fund, will back agriculture-related companies operating in Beijing Eco-Valley, a newly established agriculture park in the capital city.
The Chinese government set up pilot schemes to encourage large-scale farming, which in turn has helped boost industries such as farming equipment.
However, a scarcity of good management teams and corporate governance issues have hindered returns, industry insiders said. Although private equity investment across all sectors slowed in China last year, agriculture was hit particularly hard.
Incentives to boost the agriculture sector, including tax rebates or capital expenditure subsidies, had made it more appealing for companies to operate in the industry and have led to an increase in potential investment opportunities. However, corporate governance remains a challenge. Many deals between agriculture companies are completed using cash, making it easier for companies to “fake” accounting numbers, said a Beijing-based investor.
Investing in agriculture companies can often take longer than investments in other sectors.
That said, agriculture investors point to China’s gross domestic product growth, which remained solid at 7.7% on a year-over-year basis in the first quarter. However, the country’s first quarter GDP did slip from 7.9% in the fourth quarter of 2012. Despite the sector’s challenges, investors contend that agriculture deals can pay off handsomely.
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