Rajesh Srivastava is well-placed to talk about opportunities in the food and agriculture business in India. As chairman & managing director, Rabo Equity Advisors, Srivastava runs a sector-focused $120-million India Agri Business Fund, the only one of its kind in the country so far. The fund is sponsored by Rabobank, with IFC, FMO, DEG and CDC, UK as key investors.The private equity firm is now looking to invest an additional $ 35-40 million in 2010, apart from the $10-million it put into Avantha Group?s Bangalore-based agri firm Global Green earlier this month, its first investment this year and fifth after launching the fund in late 2008. In an interview with FE?s Chanpreet Khurana & Shailesh Dobhal, Srivastava talked about the agriculture focus in Budget 2010-11, the fund?s latest investments, growth areas in the food business and much else. Excerpts:
What is the equity you?ve picked up in Global Green?
It?s a convertible instrument. I think it will be around 22%.
What was the investment rationale?
Global Green is already the biggest vegetable company in the country, with sales over Rs 600-crore, and most of it is exports. They ship out 60,000 tonne of gherkins from India?the third largest in the world. Our investment hypothesis is not so much the export business they are doing anyway. The export from India, as you know, happens mostly in private labels. My investment thesis is because of the fact that they have a huge farmer connect, the back-end is so well tied up, they understand farming, they understand farm practices, so they can do a number of food products in India. They have a small brand here called Tify, which means ?this is for you?. I am not a votary for any 100% export-oriented unit, personally. I would want a mix between export and domestic. It?s too much of a risk overseas.
What about the other investments you have done…Sri Biotech?
In Sri Biotech, we now have 32.5% (stake). Sri Biotech makes organic pesticides. So, that is rising very fast the world over, especially because agro-chemicals have caused immunity in insects and pests.
This food and agribusiness opportunity is touted to be around $ 300 billion. What?s your own view on it?
First of all, a number of estimates, actually speaking, have been exceeded. Take food processing. And why I say this is because the first report was done by me and my team on the vision document of food processing sector some years ago. We predicted that by the year 2010, on an average across sectors from a level of 1.67% of processing which was happening, we would reach about 6%. Now, the current estimates are that we have actually reached more than 6% to 8-9%.
Public investment in agriculture has stagnated. Land holdings in India are small. What?s the way out?
You have to think out-of-the-box .Why can?t you let a private-public partnership model do irrigation? If you can build bridges, roads and dams (through PPP model), then why not irrigation? This whole issue about farmers not paying (for water) is actually a bogey. If you give them water, they will give you user charges. For consolidation of land holdings quickly, farmer cooperatives is the panacea. Lots of things happened with this Budget in terms of external commercial borrowing (ECB) relaxations for agricultural infrastructure like cold storages…I think this time, whoever has designed it for agriculture, has done a reasonably good job. You read about the ECBs, and that I think is a good way of doing things. The lending rate outside is very low at the moment. Even if you hedge fully, then also your cost of funding is at least 5% cheaper. Of course, I am not getting into the implementation details. But somebody is mapping this deep.
Are you looking at companies in related sectors at all?
Yes, I am very keen on logistics. In our value chain here, the most critical link is the middle part, which is logistics, because front-end has been organised?retailers have come in, they are setting up.
What other segments do you see yourself in?
I see animal feed as a very good sector. Animal feed means you can do poultry, you can do aqua, you can do cattle. And cattle feed is the biggest opportunity in India, because it is the least penetrated also.