Deep processing in the agriculture sector is becoming a new hot spot for investment, as venture capital and private equity companies seek new outlets in the gloomy economy.
A report released by ChinaVenture Group showed the agriculture industry has become popular among investment institutions since 2010. A total of $887 million flooded into 22 VC/PE [Venture Capital/Private Equity] funds in the last quarter of that year. During the first three quarters of this year, a total investment of $214 million poured into the agriculture sector from 37 PE/VC funds.
“The slowing down of economic growth causes most investment institutions to adopt cautious strategies nowadays,” said Wan Ge, an analyst with ChinaVenture Group, a research and consulting institute in China.
As a result, it is not surprising that the investment volume has shrunk. Based on statistics from the first three quarters, there is a tendency for more investment to go into the deep processing sectors, she said.
Central China’s Henan province-based Haoxiangni Jujube, a company specialized in producing dried dates, date vinegar and date juice, went public in November last year. It gave an exit return rate of 7.81 times to three investment companies. Hunan province-based Caixin Investment had a return rate of 16.18 times with the initial public offering of Hainan Grand Agriseeds Technology, a company specializing in hybrid seeds technology. It was a record return rate in the agriculture sector.
In the third quarter of this year, the IPO exit return rate in the agriculture sector was an average 5.49 times, higher than the average level of the VC/PE sector, which was 2.73 times, according to the ChinaVenture report.
Su Chuang, vice-president of Gold Stone Investment, a direct investment arm of CITIC Securities, said China’s agriculture has ushered in “10 golden years” for development as it evolves from an ancient industry into a modern one.
By the end of 2010, the average per capita consumption of pork by Chinese people came to 33.1 kilograms for the year, an 85% increase from 1990. The figure for dairy products, meanwhile, was 11.27 kg, 6.7 times greater than 10 years ago.
Chinese people attach more importance to health today as they become more affluent. Modern agriculture featuring deep processing, or “organic” is becoming more and more popular among consumers, said Wan from ChinaVenture. However, quality control and the high volatility of the industry, which relies on the weather, also pose risks, she added.
Since China joined the World Trade Organization and cut import tariffs for agricultural products, trade volume in the sector has witnessed sharp growth. According to the Ministry of Agriculture, total trade volume shot up more than threefold to $122 billion in 2010 from $28 billion in 2001. Meanwhile, a trade deficit has been expanding rapidly over recent years. In 2010, China’s trade deficit in the sector of agricultural products had increased to $23 billion from $4.6 billion in 2004.
Analysts believe China should further develop its agricultural processing industry to ensure food security while also reinforcing the nation’s advantages in the international trading system.
The processing industry, which carries added-value, could cushion the impact from the global food market and secure China’s food security, Sun Licheng, a former president of North China’s Jilin Agricultural University, said during an interview with China Daily.
Source: China Daily Dec 2012