Who's investing in British agri-food?

‘Does the increase in foreign investment in British agri-food present a cause for concern?’ EFFP asks and are British investors missing a golden opportunity?

"British food companies have a good record of investment and reward, but overwhelmingly this activity is downstream of the processing stage," comments EFFP Chief Executive Siôn Roberts, in the latest version of VIEW, the company's quarterly publication. He suggests that the preliminary stages of food processing tend to be viewed as a commodity operation lacking scope for the value creation captured by brands. But he argues that enterprising processors could leverage their position to develop much more lucrative downstream opportunities and better returns.

"What we have identified at EFFP is that there is opportunity for improvement and investment at the production and processing end of the chain, particularly in productivity and increased R&D." Mr Roberts cites businesses such as Long Clawson and Milk Link [both UK funded] as excellent examples of where this has been achieved. "Given some of the longer term challenges facing the industry [such as increased market volatility and security of supply] we feel that future opportunities to create and capture value in the chain will move progressively upstream towards farm businesses."

The Changing Pattern of Ownership
"Although in recent years some processing investment has come from the UK much has come from overseas, primarily from two types of organisations: farmer controlled and owned businesses from continental Europe e.g. Arla, Danish Crown and Vion, and privately owned businesses such as Cargill, Lactalis and Müller." Mr Roberts points out that the scale of this foreign investment has been substantial to the extent that the red meat and key dairy sectors are now characterised by a significant presence of foreign players.

In milk processing Mr Roberts adds that Arla, the Scandinavian FCB, now accounts for more than a third of the UK's liquid milk market and that foreign owned businesses dominate the production of yoghurt.

"In the meat sector foreign intervention is even more substantial for example, Vion, the Dutch based farmer owned business is significant in all four of the main meat sectors," he says.

A cause for concern?
"We should not be xenophobic about foreign investment, we enjoy the benefits that an open free-trading economy can bring, and foreign investment in the British agri-food supply chain has delivered substantial benefit to the economy, the industry and in the spill over in demand to local firms." That said, Mr Roberts still points to a number of barriers he believes exist, which deter investment in the upstream part of the supply chain such as (amongst others): the heritage and structure of the industry; an FCB sector that - relative to European counterparts - is younger with smaller financial reserves, and a difficulty in raising finance due to the longer term payback and risk profile of investment in the sector.

"It is essential that the industry address these issues, but we should also question whether foreign investors see opportunities that British investors do not." Mr Roberts believes there are key differences in the mindset of foreign investors which are not frequently displayed by the British investment community when dealing with the sector, these are:
1. A deep understanding of the farming and food sector.
2. A longer-term investment horizon, and
3. Access to long-term capital that has the benefit of dedicated fund managers that also really understand this sector.

A Growing Opportunity
Mr Roberts believes that the investments made by foreign businesses in British agri-food will deliver substantial benefits both to them and to the industry. "But we would also like to see more involvement from British investors and part of the challenge to achieving that is to adopt this mindset. What is more, key to making investment decisions is getting the timing right and as the economy moves out of recession we believe that the agri-food sector will also bring new patterns of ownership, new champions and new investment opportunities. We would hope that both British and foreign investors are able to seize these opportunities."

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