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Farm operators must diversify to succeed at IPO

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Farm operators wishing to float the stockmarket should expand into higher margin, and less volatile, markets such as food processing if they are to fare better as a listed companies than their predecessors.

David Gray, partner at Altima Partners LLP, which has some $1bn under management, said that the downturn in commodity prices had meant that the wave of farm operators which floated some nine years ago had, in the main, seen their share prices tumble – if they remained listed at all.

"Some still trade," Mr Gray told the Agrimoney Investment Forum in London.

"A couple of big South American ones have their share prices at levels respectable compared with the IPO price," he said, citing Adecoagro, the Argentine and Brazilian operator in which George Soros is the top investor, as one example.

However, a number have failed, or been taken over, while shares in the like of Trigon Agri and Black Earth Farming, both former Soviet Union operators, are well below flotation values.

Educated investors

The sector's troubles reflected largely weak commodity prices which had, besides curtailing margin opportunities, curtailed operators' access to capital.

Indeed, companies faced an investment community which was "substantially" more knowledgeable and skilled in its assessment of the risks involved in the industry.

The way for operators wishing now to float on the stockmarket would be to present a business plan less vulnerable to volatility in crop prices.

"The opportunity for pure producers is to become something much more integrated," into the food supply chain, Mr Gray said.

Successful investment in agriculture was essentially "about taking a commodity crop and turning into something with more value".

Such a strategy is already being followed by many producers, including KTG Agrar, the listed German group, which has expanded into biogas and food brands.

By Mike Verdin

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