Success for some agricultural trading giants from investments in the alternative meats sector underlines the contrasting levels of returns reaped from diverging strategies on acquisitions, which have topped $35bn in a decade.
Some agricultural traders have reaped large windfalls from their investments in plant-based burger groups, a sector whose flagship, Beyond Meat, has seen its shares soar since their flotation at $25 in May.
The stock rocketed to $239.71 in July before falling back on news of a secondary offering, with the shares on Tuesday trading at $141.65 in New York.
US-based Bunge – with Archer Daniels Midland, Cargill and Louis Dreyfus, one of the ABCD group of ag trading giants - reported for the second quarter a $135m unrealised gain in its investment in Beyond Meat, which, at $8.78bn, now has a higher market capitalisation than Bunge itself.
This type of gain “is not only leading grain and oilseed participants to wonder if meat-free burger patties are worth more than their global supply chain network - it also accelerates their strategic portfolio review,” Rabobank agriculture research head Stefan Vogel said.
In fact, some of Bunge’s rival have invested in the alternative meat sector too, with Cargill investing in the likes of Aleph Farms, which develops meat from livestock cells, and in Puris, a plant-based protein group.
On Monday, Ian McIntosh, the chief executive of Louis Dreyfus said, as the group unveiled half-year results, that it had “invested in plant-based ingredients start-up Motif Ingredients in February and took further steps to access food innovation start-ups, becoming a founding member of the China Food Tech Hub in May”.
“Food innovation in particular is key to finding alternative proteins for the future.”
Rabobank added that, “strategic investing in new meat alternatives, aside from potential monetary gains, sometimes also allows companies to gather better insights as to what might become major threats to their existing business model of processing grain and oilseeds into feed for animals”.
Quest for margin
The potential for investments in alternative protein groups provokes comparisons of ag trading groups’ success in the more than $35bn their have spent on acquisitions since 2008.
Many of these, such as Cargill’s above-$1bn 2017 purchase of advanced animal nutrition group Diamond V, and Archer Daniels Midland’s $3bn purchase of Wild Flavors in 2014 – have “focused on downstream, in the hunt for higher margins and diversification”.
“Traditional grain and oilseed players often made their larger investments in feed and food solutions to benefit from higher margins in those sectors,” Mr Vogel said, adding that “we expect this [trend] to continue.
“Many grain and oilseed companies see the need to transition their business down the chain,” he said, although noting that “we don’t expect them to achieve this quickly.
“Finding the perfect acquisition target is difficult and requires significant financial means.”
‘Viable long-term strategy?’
By contrast, “landmark deals” within the ag trading sector “were driven by recently-scaled-up grain and oilseed companies like Glencore Agri, Cofco International and Marubeni”.
Marubeni bought Gavilon for some $10bn in 2012, while Cofco spend more than $3bn on Noble Agri and Nidera later in the decade.
These acquirers “need to prove that cost leadership in bulk handling and primary processing is a viable long-term strategy”.
Of late, incomes in the ag trading sector have shown mixed result, Mr Vogel reported, saying that “companies heavily focused on trading especially struggle.
“Non-grain and oilseed downstream businesses often deliver some of the better results.”