The acquisition spree in Agriculture continues.
Last week we saw Bayer make a $66bn offer for Monsanto. And the breaking news this week is that the Agricultural Development Bank of China is making at least a trillion yuan available for the modernisation of Chinese agriculture via ‘Policy Loans’.
Translation: “we are making extremely soft loans, frequently undated and carrying zero interest available for Chinese companies and groups to make ‘strategic’ acquisitions such as ChemChina’s $43 billion acquisition of Syngenta.”
My take on the Monsanto bid is that Bayer is buying into advances in Precision Agriculture. With big farms, notably in North America and Europe becoming connected — from satellites to soil types — global agriculture has reached an inflection point, and ‘actionable data’ rather than bucolic wisdom and superstition are beginning to be put to work on improving agricultural productivity and profitability.
I think the Chinese Politburo Standing Committee — reflecting China’s perennial concerns over food security and the country’s relative lack of arable land — have come to the same conclusion.
As Monsanto chief scientist Robb Fraley recently described it: “in 20 years, seeds will be planted from something like an ink-jet printer, they’ll have 20 traits engineered into their genomes, and farmers will use designer microbes and genetic sprays to control pests. All of it will be coordinated, to the inch, by weather and analytics software. Corn yields, could double again to 300 bushels per acre”.
There are at least two takeaways for investors….
1. More acquisitions to come
These deals are indicative of how every industry is investing heavily in digital intensity. A new economic divide has opened up in recent years, with leading companies in technology, media and financial services having increased their digital intensity four fold since 1997 — exploiting advances in sensors, big data, machine learning algorithms to gain and increasing share of their market — while laggard sectors such as government, healthcare, construction are left behind.
These methods are being adopted by leading companies in every industry. I believe that 40% of companies currently quoted on mature exchanges will be wiped out or acquired over the next five to ten years.
In Agriculture, I fully expect some US and Israeli acquisitions in the months ahead — the US Treasury Department’s all powerful Committee on Foreign Investments in the US permitting.
2. Invest in the enabling technologies
And a bid for Trimble Navigation (Nasdaq: TRMB) isn’t out of the question.
Trimble leads the way in such technologies as GPS receivers, laser range finders, unmanned aerial vehicles, inertial navigational systems and real-time software processing tools, and holds a host of valuable patents in GPS related technologies: technologies that enable the collection and processing of centimetre accurate data from aerial imaging.
This is exactly the kind of company that could help Chinese or American farmers boost their yield.
My message is to investigate companies like these that enable data-processing networks — the suppliers of specialist sensors, the drones, the miniaturised component cameras, molecular scale chip makers and network threat detection systems.
Tomorrow, in the next in my series on investing in technology, I look at how emerging City States will advance these data-driven networks by focusing scientific talent and enormous state resources in advanced industries.
The scale of investment will dwarf the $450bn set aside for Chinese agriculture.
For example, there is some $53 trillion in urban infrastructure development in the pipeline, including China’s ‘one belt, one road’ project linking China to Europe.
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