With vast land availability, rich water resources, and a relatively small population, the South American continent will remain a critical and growing region for agriculture in 2019. We foresee continued growth for competitive enterprises involved in the biological inputs, genetics, commodity row crop, niche tree crop, and produce markets. Limited capital availability in South America remains a challenge for small-medium size companies, with capital needs ranging from R&D funding to incremental working capital to support growth and investment projects, namely processing facilities. Financial and strategic businesses that utilize a local approach and a professional search process will benefit considerably from the unique investment opportunities in the region.
Argentina
Argentina is a vast country with exceptional weather conditions that permit quality food production for the rest of the world. It is a net food exporter that can feed 400 million people, ten times more than its population, and has multiple eco-regions that allow the production of a wide variety of agricultural products. The region of the Alto Valle in the south is recognized for its pears, apples and cherries, Tucuman for its lemons, Mendoza for its quality Malbec wines, Cordoba for its peanuts, and the Pampas for its rich soils that produce high yielding soybeans and corn.
Argentina is one of the key world hubs for seed consumption and production, and it has qualified technicians who are at the forefront of international R&D. Within the seed sector, firms such as Stine (US) and Sakata (Japan) are making their landing in the country with expectations of increasing their sales in the region. On the contrary, local companies like Criadero Santa Rosa and Don Mario are expanding into foreign markets: South Africa and the USA, respectively.
During 2018, there were several M&A transactions that involved international players: Deere & Co. acquired King Agro and Pla, both dedicated to Ag machinery; Limagrain acquired seed company Sursem; DLF acquired seed company Gapp; and Nanjing Red Sun acquired Ag input company Ruralco.
Brazil
Brazil, with more than 200 million habitants, 34 million hectares of harvested soybean and 17 million hectares of corn in 2017, is the largest economy in South America. The country is the leader in row crop agriculture and is also a basin of startup companies focused on AgTech and biologicals.
Recent M&A activity in the sector suggests that large strategic players and private equity believe in the growth potential of the country. Notably, Nuseed concluded the acquisition of seed company Atlantica Sementes; Limagrain acquired seed company Geneze; Syngenta entered into a binding agreement to acquire AgTech company Strider; and private equity Aqua Capital acquired biologicals company, Total Biotecnologia.
Chile
With a different landscape and production conditions, Chile is a country specialized in intensive agriculture production and high-value crops. The strength of the country has been mainly in counter season seed production, produce, dry fruits and wine. The country leverages its economic and political stability to sign many free trade agreements with countries such as China, USA, Canada and several countries inside the European Union. Chile also possesses excellent phytosanitary standards due to geographical boundaries and strict government control policies. Verdant has observed that several very competitive produce companies are looking to partner (merge) with international players, preferably from the northern hemisphere, to offer year-round supply to clients.
With a stable and mature domestic market, the natural growth of Chilean companies has been to expand into their neighboring country, Peru. The advantages that led the transition to this country are as much on the productive side (different production seasons and export windows for key markets), and on the financial side, since land, workforce, and energy are cheaper.
What’s Next for South American Agriculture
South America is a large and fertile region for the production of a wide variety of agricultural crops. Its soybean production exceeds that of the United States while its corn production is growing in size and importance. Brazil and Argentina have great opportunity but some of that opportunity has been challenged by long-standing political and economic problems. Conditions are getting better in these two countries but much progress is still needed. Chile has been relatively stable although its reputation as a preferred area for counter-season research and seed production is being hurt by the decline in new seed trait development and by rising prices driving some customers to other, less expensive areas.
South America, with continued improvements in political and economic stability and access to needed capital, can and should be a world leader in the important and growing agriculture industry.
Comments