Investing in Food and Agribusiness: Trends and Strategies

1. Annual MeetingIstanbul 13-14 October 2010Fund investments in Food and AgribusinessRecent trends in ECA

2. Outline of Presentation • Key investment drivers • What’s being said about investment in agriculture • Ways to invest in agriculture • Investment structures • Fund Investment process • Target markets • Broad classification of funds investing • Funds active in ECA – overview • Funds – illustrative examples • Farmland funds – current issues/revised strategies/ outlook • Impact of farmland funds • Additionality of funds/ private equity expertise • Examples of other fund strategies • Future trends/ issues

3. Key Investment Drivers - Food Sector 1/2 • BASIC PREMISE “A looming imbalance in the supply and demand of food commodities will result in a prolonged period of higher food commodity prices” • Factors affecting DEMAND • POPULATION GROWTH • Global population increase - from 6.5 BLN to 9.0 BLN by 2050 • Middle class increase - from 430 MLN to 1.15 BLN by 2030 • CHANGING GLOBAL FOOD CONSUMPTION TRENDS - as incomes rise • Esp. in China and India • Switch from starch-rich to protein-rich diets • Professionalization of meat industries will demand more grain • Move towards processed/ branded foods offers higher profit margins and adds further impetus to investments

4. Key Investment Drivers - Food Sector 2/2 • Factors affecting SUPPLY • SUPPLY CONSTRAINTS: • PRODUCTION LIMITS: Industrialization, urbanization, water limitations, climate change • SLOWING PRODUCTIVITY GAINS: GMO acceptance low … only corn (USA) and soya (USA/ South America) • IMPACT OF BIOFUELS • Diversion of crops and farmland • Though impact less than initially anticipated

5. HJ Heinz CompanyAnticipated growth in Emerging Markets • “Emerging Markets are on track to deliver at least 20% of our total sales by 2013, more than double their contribution of just five years ago,” Mr. Johnson said. “Heinz is already well-established in Emerging Markets like China, India, Indonesia, Latin America and Russia, where we have strong brands, local marketing expertise and the infrastructure necessary to sustain strong growth.” • “Emerging Markets are key to unlocking future growth because their economies are growing at a significantly higher rate than developed markets; the middle-class in Emerging Markets will eventually outnumber the combined populations of the U.S. and Europe; and per capita consumption of packaged foods in Emerging Markets has significant upside.” William R. Johnson, Chairman, President and CEO, H.J. Heinz Company, Pittsburgh, 31 August 2010

6. Key Investment Drivers - Farmland • Perception that farmland is fundamentally UNDERVALUED • Gains to be achieved from: • CAPITAL APPRECIATION (Russia ~ $700/ha vs Brazil ~ $3500/ ha) • PRODUCTIVITY IMPROVEMENTS (e.g. wheat yields 2.5t to 5.0t+) • LONG TERM HIGHER COMMODITY PRICES • Farmland an UNCORRELATED/ COUNTER-CYCLICAL ASSET • Farmland an INFLATION HEDGE • FSU has 13% of global arable land – up to 30 million hectares may be idle • [Farmland is second oldest form of investment – after the family cave]

7. What’s being said about investment in agriculture • Jim Rogers, the hedge fund manager who predicted the start of the commodity rally in 1999, said global warming will hinder crops and has advised purchasing farmland for at least a decade. ``Because of the disruptions, agricultural prices will go through the roof,'' he told reporters in Melbourne on 7 February 2007 ``I am extremely bullish on agriculture.’’ • “The race is on not only to feed the world, but also to produce more quality food to meet the changing nutritional needs of an increasingly affluent population.” Bill Barbour, Investment Specialist at DWS Investments. • "Sell banks, buy cheese," Crispin Odey, Odey Asset Management. Financial Times 25 April 2008 • “My boss wants to create the first Exxon Mobil of the farming sector”. Joe Calvin, Altima One World Agriculture Fund

8. What’s being said about farmland • "I'm convinced that farmland is going to be one of the best investments of our time. Eventually, of course, food prices will get high enough that the market probably will be flooded with supply through development of new land or technology or both, and the bull market will end. But that's a long ways away yet." - George Soros, June 2009 • "People are obsessed with real assets now. They want things they can touch," said Olivier Combastet, founder of Paris-based Pergam Finance, which has $1 billion in assets and two years ago formed Campos Orientales, a fund that buys farmland in Argentina and Uruguay. ``Three years ago people were skeptical about investing in farmland …. (now) it's become much more sexy.'’ – Reuters, 22 June 2009 • “Corn Farms Replace New York Lofts as Hottest Property” - Bloomberg 20Feb 2007

9. Ways to invest in agriculture • Agricultural commodities (futures, options, ETFs) • Direct investment in agricultural equities • Publicly quoted • Private equity • Direct farmland investment • Collective investment funds

10. Example: Investment Structures Example: Alpcot Agro Examples: Trigon Agri, Black Earth Farming Funding sources – may include private equity, sovereign wealth funds, high net worth individuals, family offices, other institutional investors, etc

11. Fund Investment Process • Optional structures: special purpose fund vs direct investment • Returns created through one or combination of three factors: • debt repayment, or cash accumulation through cash flows from operations • operational improvements that increase earnings over life of investment • multiple expansion - selling investments for higher multiple of earnings than originally paid • Fund investments typically realized after some period of time, varies depending on the investment strategy (farmland 5- 7, now up to 12 years ?) • Investments typically realized through: • Initial Public Offering (IPO) • Merger or acquisition • Recapitalization

12. Typical fund investment structure

13. Target markets - Global SEGMENTS/ SECTORS • Land and crops • Food processing • Agri-sector linkages (fertilizer, logistics, other inputs) • Commodities (ETFs etc) GEOGRAPHIC FOCUS • DEVELOPED MARKETS • USA/ Canada • Australia/ New Zealand • EU • EMERGING MARKETS • ECA (Russia, Ukraine, new EU countries) • Latin America (Brazil, Argentina, Uruguay, Paraguay) • Asia (India/ China) • South Africa • FRONTIER MARKETS • Africa (Sudan, DRC, Angola)

14. Target Markets - ECA • LAND AND CROPS • Russia and Ukraine – large scale farming • Farming in Romania, Slovakia, Bulgaria (e.g. AgroTerra North) – target opportunity to exploit EU subsidies • Bulgaria REITs (e.g. Advance Terrafund) (IFC an investor) • Latvia, Lithuania (existing agro holdings) • GENERAL FOOD AND AGRIBUSINESS • Russia and Ukraine, listed equities (no specific region-focused funds) • New EU countries (e.g. REEEP fund – partially targets food companies) • CENTRAL ASIA/ CAUCASUS • Generally only SEAF funds • Recent example: East Capital Explorer investing in Georgian food retail chain Populi

15. Broad Classification of fundsTypical Defining Features • BY MANDATE • Direct Mandate (private equity funds) • Discretionary (e.g. SEAF) how to describe REEEP • BY STRUCTURE • Fund structure • Direct investments (through investment manager) • BY INVESTMENT FOCUS • Land and crops • Equities – listed/ unlisted • Combinations (listed/ unlisted equities, or physical assets) • REITs/ only farmland • BY GEOGRAPHIC FOCUS • Country/region specific • Global • BY DEVELOPMENT FOCUS: SEAF

16. Funds active in ECA – General Food and Agri funds • Examples of GENERAL FUNDS targeting food and agri in ECA (and globally): • GAIA – invests in “up-stream farming companies, farmland, equipment and technology, and related businesses in emerging regions where scale and costs offer competitive advantages and growth rates are high” • Altima One World Agriculture Fund – invests “primarily in farmland and in world class farm operators ("agro champions" with strong franchise value), both in listed and unlisted investments” [IFC invested $75m] • Pharos Miro Fund – creates returns “through acquiring agricultural land, supporting infrastructure assets, and distressed operational farm holdings” • Trigon Emerging Sector Agri Fund – invests in listed food and agri coys • DWS Global Agribusiness Fund - a managed portfolio of global agribusiness companies (currently 2.6% in Ukraine) • There are no dedicated geographic/ thematic funds in food sector in ECA, so far

17. Funds/PE active in ECA - Land and Crops Examples of funds active in LAND AND CROPS in ECA: • NCH (Russia/ Ukraine). FUND. ~ 425,000 ha +. Unlisted • Black Earth Farming (Russia). DIRECT. ~ 330,000 ha. Listed FirstNorth • Rencap (UAFL) (Ukraine). DIRECT. ~ 330,000 ha. Unlisted • Alpcot Agro (Russia/ Ukr). FUND. ~ 175,000ha. Listed FirstNorth. • Trigon Agri (Russia/ Ukraine). DIRECT. 169,000 ha. Listed FirstNorth • Landkom (Ukraine). DIRECT. ~ 74,000 ha. Listed AIM. • Volga Farming (Russia). DIRECT. ~ 60,000 ha. Unlisted • Agro Generation (Ukraine). DIRECT. ~ 50,000 ha. Unlisted • First Farms (Slovakia/ Romania). DIRECT. ~ 15,400 ha. Listed FirstNorth. • Northbridge (France/ Romania). FUND of FUNDS. ~ 550 ha. Unlisted • Bulgaria REITs (6 funds). FUNDS. ~ 50,000 ha. [Ceres Agrigrowth Investment Fund listed on Bulgaria Stock Exchange (IFC an investor)]

18. Context of land holdings by funds within Russia and Ukraine • Total arable land in Russia: 121 million ha (45m ha grains) • Total arable land in Ukraine: 32 million ha • Total land acquired by funds: ~ 1,7 million ha (~1.1% of total) • Top 10 Russian agro holdings control ~ 3.5 million ha + • Largest fund/PE investor: Black Earth Farming (~323,000 ha) • Largest land holder in Russia ~ 570,000 ha (Prodimex) • Largest land holder in CIS ~ 1.1 million ha (Ivolga) Definitions of land in control and land in ownership: • Land in control is registered land and land where a subsidiary of the company, either itself or in the name of agents, has registered a lease agreement or is in the process of registering a lease agreement with local authorities. • Land in ownership is registered land and the indirect ownership of land within the Russian Pai system. The Pais can be registered either in the company's subsidiary's name or in the name of an agent acquiring Pais on behalf of the company's subsidiary within the framework of legally binding contracts, or is in the process of entry into the land register with local authorities.

19. Funds/PE - Illustrative Examples (7) FARMLAND • Alpcot Agro – Russia and Ukraine • Trigon Agri – Russia and Ukraine • Insight Global Farmland Fund – Global GENERAL FOOD AND AGRI • AgriSar – Global food and agribusiness • Pictet - Global food and agribusiness • Trigon Emerging Agri-Sector Fund • Resource Eastern European Equity Partners Fund

20. Alpcot Agro • Established 2006/7 • Six share issues to raise ~ SEK 1.34 billion • Fund Objective “.. to generate an attractive return on invested capital by acquiring and farming agricultural land in Russia and other CIS-states. Operational strategy is to engage in highly efficient integrated agriculture in accordance with Western best practice, in three parts of the value chain: cultivation of the land, storage and sale”. • Alpcot controls • 190,000 ha in Russia • 9,800 ha in Ukraine • Of this, approx 72,000 ha harvested in 2010 • Listed on NASDAQ OMX First North Exchange in Oct 2009 • www.alpcotagro.com

21. Alpcot: investment strategy Investment opportunities evaluated on: • Quality of the soil and precipitation • Size of farm - at least 10,000 hectares needed to achieve efficient scale • Proximity to urban centers to facilitate recruitment • Proximity and access to infrastructure • Geographical diversification to reduce exposure to local weather • Geographical extension along a north-south axis to extend planting and harvest seasons and enable optimal utilization of machinery • Strong relationships with local decision makers and stakeholders

22. Alpcot: shareholders • Example to illustrate shareholders profile • Alpcot had approx. 1,000 shareholders at 31 March 2010

23. Trigon Agri • Established in 2006 by Trigon Capital investment group • Integrated cereals and dairy producer, storage and trading • Strategy: • focus on large-scale farming clusters within small geographical areas • clusters between 40,000 and 100,000 ha • develop integrated production and trading by acquiring grain storage • integration enables profit maximization throughout value chain • Operations in Ukraine, Russia and Estonia • Start-up equity capital (€19.6m) from Trigon Capital and Finnish high net worth individuals • Total equity raised €175 million • Current market cap ~ €84 million • Listed on Nasdaq OMX First North exchange - May 2007 • www.trigonagri.com

24. Insight Global Farmland Fund • Fund of farmland holdings • Established 2008. Target $300m • Insight’s view: “Farmland provides the complete thematic exposure” • Target return 15% per annum • Achieve diversification from geographical spread and commodity range • 3 components to investment return: • Rising commodity prices • Land value appreciation • Active Alpha • Variety of holdings: • stakes in vehicles incorporated exclusively to hold farmland assets • listed farmland companies • direct ownership of farmland • debt covenants over farmland • stakes in existing farmland funds

25. Sarasin AgriSar Fund • Fund launched March 2008. Current AUM - GBP 109m • Global focus across full spectrum of equities, land and commodities • Sarasin & Partners LLP: London-based investment management firm. • Bank Sarasin listed on Swiss Stock Exchange - majority shareholder Rabobank. • Invests at all stages of agricultural production - from land, fertilizer, pest control and seed inputs, through irrigation, mechanization and production technologies, to storage, processing, distribution and consumer • Targets two key trends: • the need to invest to increase productivity(includes supporting infrastructures e.g. seeds, technology, etc) • the growth in volumes throughout the agricultural chain (strategy more sophisticated than protein only – seeks broader consumer patterns, also aspects like branding, obesity, etc) • Not a commodity price play, but rather trends in food consumption • www.sarasin.co.uk

26. Pictet Agriculture Fund • Fund established May 2009. • NAV €126m (~71 positions) • Invests in listed companies operating in agribusiness value chain • Provides investors with a high exposure to pure agriculture • Favors companies operating in production, packaging, and supply, also in manufacture of agricultural equipment • Also addresses resource efficiency (favors companies that produce more food with lower inputs) • Targets 3 key segments: • FARM INPUTS (e.g. Yara fertilizer), • FARM PROFESSIONALIZATION (e.g. Tyson, Nutreco) • SUPPLY CHAIN SERVICES (e.g. Brazil railroads, testing company Neogen) • Invests not restricted to a specific geographical zone • IN ECA: so far, investments in Agroton (Ukraine) and Linas Agro (Lithuania) • www.pictetfunds.com

27. Trigon Emerging Agri-Sector Fund • Launched May 2008/ fund domicile Estonia • Fund size €15.7m (22 positions) • Trigon Capital is leading CEE investment firm, manages ~ USD 1 billion assets • Trigon Emerging Agri-Sector Fund invests in • listed food and agribusiness companies • in emerging markets with high growth potential and imbalance in supply and demand in agricultural produce • focus on smaller companies • May also invest into developed markets provided these companies have substantial business interests in emerging markets • Fund combines Trigon's operational farming experience with emerging market portfolio management expertise • Investments so far mainly China (Asian Bamboo, Asian Citrus) , Russia (Chergizovo), Ukraine (Kernel), Turkey, Poland • www.trigoncapital.com

28. Resource Eastern European Equity Partners Fund • NEW FUND: established 2010 • Fund target size is €200 million • EBRD and Rabobank each investing €25 million • Focus on mid-cap agribusinesses in Poland and EU countries in Central and South-Eastern Europe, operating in the food processing, manufacturing, retail and logistics sectors "which have been historically underserved by private equity”.

29. Farmland funds – current issues • Most formed since 2005/6 • INITIAL MOTIVES: Land appreciation, productivity gains, new crop price paradigm • REALITY HAS SO FAR BEEN DIFFERENT: • Land appreciation expectations scaled back … horizon now up to 12 years ? • Valuations now on DCF/ PE basis, rather than land appreciation • Productivity gains not achieved so far … not as easy as it seemed • Most funds underestimated complexity of investment … esp. working capital requirements and “soil correction cost” • Paradigm on crop prices deferred ... stocks (were) back at record levels • Most funds are trading well below investment value • Many funds have listed – Nasdaq OMX First North is most popular option • IFIs have not invested in farmland funds (except in Bulgaria Agri REIT) • Total investment so far > $1.0 BLN

30. Farmland funds - revised strategies • FOCUS NOW ON: • RETHINKING INVESTMENT MODEL AND KEY ASSUMPTIONS • quality and location of assets/ more selective entry • consolidating land bank • changing structure of land bank/ developing mega clusters • fundamental assumptions on yields and prices • infrastructure like storage and logistics • focus on vertical integration using low price grain (beef, milk, poultry, etc) • developing grain trading to leverage local opportunities • CONSOLIDATING operational competencies and asset synergies • Generally, lowered investment return expectations and longer investment horizons ?

31. Farmland funds – medium term outlook • KEY ISSUES: • Limited access to equity and debt on attractive terms – stopped further land acquisition/ expansion • How will initial investment drivers play out esp. yield and price trends, also land appreciation ? • Infrastructural/ Logistical bottlenecks ? • Political awakening to large foreign land holdings ? • Russia mortgage market developments ... likely impact on land prices ? • Ukraine – land title issue ? • Exit prospects – via IPOs/ strategic sales ? • Operational risks (weather, markets, management) ? • Relatively unproven as an investment opportunity • Fund interest in farmland is now returning .. ?

32. Impact of Farmland Funds • Articulating/ catalyzing opportunities in agriculture • New investors bring in financing, know-how, professional standards • Benefits of scale • Specialized fund management enables more efficient capital allocation in agriculture/ better diversification of risk • Efficiencies from consolidation, scale, capital renovation • Potential for substantial crop yield gains • Driving improvements in land rights processes • Employment, management and other skills development • CREATING NEW ASSET CLASS TO INTERNATIONAL BENCHMARKS

33. Additionality of funds/ private equity expertise • Provide expertise in structuring investments/ unlocking value • Expertise to identify, assess and acquire farmland • Extensive due diligence • Improved strategic focus/ management/ asset utilization • Corporate governance • Investor discipline • Underwrite funding without burden of debt payments • Enhance leverage/ borrowing capacity • Corporate Governance: facilitate development of private/ (often) family run businesses into institutionalized companies • Improves efficiency of market information for farmland • Facilitate exchange of know how between similar businesses • Exit/ liquidity: Prepare the business for IPO/ other exits

34. Ray Goldberg, Harvard University • “ The food system has to be put back together by big global companies that look ahead many years in their planning rather than governments that view the world from one election to the next. These large-scale firms have become quasi-public entities responsible to society in order to survive in a world that holds them accountable for nutrition, food security, food safety and economic development. ” Professor Ray Goldberg, Harvard University, speech at IFAMA 10 March 2010

35. Examples: other fund strategies • CLIMATE CHANGE CAPITAL LAND FUND - PROPOSED Fund “.. will forecast physical impacts of climate change on land productivity around the world and seek to implement sustainable management practices that increase the land’s capacity to adapt to climate change and maintain or increase productivity ..” • ALTIMA ONE WORLD AGRO FUND targets global agricultural businesses, primarily in farmland and in world class farm operators ("agro champions" with strong franchise value), both in listed and unlisted investments • INDIA AGRIBUSINESS FUND targets all sectors of food and agribusiness and agric-infrastructure, with focus on SMEs and companies in rural areas • AGRO-ECOLOGICAL FARMLAND FUND invests in farmland in New Zealand (also South America, Southern Africa, USA), acquiring conventionally-managed farms and converting them to organic production

36. Future trends/ issues • Farmland Funds • consolidating operations/ refining strategy • more operationally focused/ less land bank speculation • further focus on improvements in technology/ infrastructure/ skills • Significant scope for further investments in Russia and Ukraine • Farmland as new asset class/ concept needs to be proven ? • IFIs - future interest in supporting farmland investments ? • Food funds • no specific geographic or thematic food funds so far in ECA • prospects in Russia, Ukraine, other CIS • likely merger and acquisition/ consolidation of strong regional players • Other CIS: • limited or no prospects in farmland? • Maybe Kazakhstan (title issues?) • Belarus (investment climate?) • Other Central Asia/ Caucasus too fragmented/ complex ? • REIT-type consolidations in smaller countries ?

37. Thank you Ian Luyt NOViROST Moscow, Russia ian.luyt@novirost.com +7 495 774-1759