The agricultural industry chain follows the smile curve, and big agriculture may become the next big trend
Is the time ripe for investing in modern agriculture?
By Wang Di, staff reporter / Text
The deep exploration of the value and added value of agricultural products and the extension and expansion of the industrial value chain provide a broad investment platform for PE/VC.
Modern agriculture is becoming an important new growth point for China's economy in the future.
Agriculture is tied to people's livelihoods, and also to the quality of and attitudes toward people's lives. Although Chinese agriculture has made considerable progress over the past 30-plus years, its overall level of development still remains relatively lagging. This is due partly to constraints from natural resources and partly to a shift in the focus of economic and policy priorities. Yet diverse and rich consumer demand, along with increasingly severe food and food safety issues, are all driving China's agriculture toward a market-oriented, modernized transformation and upgrading. This is an important reason why big agriculture is gradually becoming an investment hotspot.
Big agriculture, the next big trend?
Since 2004, the No. 1 Central Document has focused continuously on agriculture, rural areas and farmers for 11 consecutive years, especially with the abolition of the agricultural tax in 2006 and the clear proposal by the new government that modern agriculture will become an important new growth point for China's economy in the future. This is something that did not exist before.
With the expansion of the consumer market and advances in agricultural science and technology, the deep exploration of the value and added value of domestic agricultural products and the extension and expansion of the industrial value chain provide a broad investment platform for PE/VC, especially in fields such as the high-end food consumer market, agricultural e-commerce, the seed industry, cold-chain logistics and the Internet of Things.
Regarding investment opportunities in big agriculture, Li Wei, chairman of Shenzhen-Hong Kong Institution-Industry-Research Venture Capital and a member of the executive committee of the “China Agricultural Science and Technology Innovation and Entrepreneurship Competition”, said in an interview with a reporter from Financing China: “Under market economy conditions, the agricultural industry chain follows one rule—namely, the ‘smile curve.’ Before the scale of agricultural industrialization reaches a certain level, investment opportunities are concentrated at both ends: one end is agricultural-related enterprises such as seed sources, high-end agricultural technology, agricultural machinery and high-end pesticides; the other end is the market and consumption.”
Sun Dongsheng, president of Shenzhen Capital Group and a member of the executive committee of the “China Agricultural Science and Technology Innovation and Entrepreneurship Competition”, held a different view: “From the general understanding of the investment industry, agricultural investment is a process of steady growth, but this does not rule out localized breakthroughs: in technological innovation, information innovation and service innovation, it may also bring explosive growth to a certain segmented industry or specific enterprise.”
“Return expectations for investing in agricultural enterprises need to be adjusted, and simple cross-industry comparisons cannot be made. At present, agricultural enterprises are generally small in scale, and it is exactly the right time for VC/PE investment. Along with the process of rural land transfer and the further integration of agriculture with modern services, after 3 to 5 years, it is not impossible for agricultural enterprises to achieve explosive growth in the ordinary sense,” said Li Ji, chairman of Zhongnong Kechuang and deputy director of the executive committee of the “China Agricultural Science and Technology Innovation and Entrepreneurship Competition”, full of confidence.
Venture capital accelerates its influx
At present, looking at the entire agricultural investment field, the main investment targets of PE/VC are mainly concentrated in the basic planting and breeding industries that affect the national economy and people's livelihood. This reflects that with the rise of the middle class and the upgrading of its consumption structure, agricultural products are no longer limited to meeting consumers' survival needs.
From the perspective of investment stage, PE/VC investment in the agricultural field is mainly concentrated in the development stage and expansion stage, with limited investment in enterprises at the beginning and end of the industrial cycle. In recent years, PE/VC investors have become increasingly confident in companies in the development and expansion stages, have shown declining interest in companies entering the profit stage, and are also quite cautious about investing in early-stage agricultural companies.
With the advancement of rural land transfer and the widespread application of Internet information technology, new operating models and additional/value-added services are also constantly emerging in the agricultural industry. All of this will not only bring new investment opportunities, but will also bring us a more mature agricultural industry in the future.