Agriculture investments: The smart money is betting on the Pakistani farm

Published: October 24, 2011

Venture capitalists, merchant bankers and large conglomerates are all piling in.

KARACHI: 

The headlines may be screaming about violence and extremism but the smart money is betting, very quietly, on Pakistani agriculture.

From international venture capitalists to global and local conglomerates to private equity firms, there has been a small but growing trend towards investing in the Pakistani agricultural sector, one of the largest in the world in terms of its production of several key commodities.

The amounts involved are small so far, but the names of the investors coming in – and the expertise and connections they represent – are far more significant.

One company that has done more than most to bring in foreign investment into Pakistani agribusiness is Indus Basin Holdings, a new venture capital firm that has amongst is investors financial and industrial luminaries from Europe and the United States.

Indus Basin is the brainchild of Aamer Sarfraz, a merchant banker at the London-based private equity firm Tigris Financial, where he has been managing director since 2006.

“We’re focused on non-political commodities (those in which the government does not set the prices) where we can launch greenfield investments that yield a return that is 10, 20, 40 times the initial investment,” said Sarfraz in an interview with The Express Tribune. “We want to be the biggest agribusiness private equity player in Pakistan.”

The Boston University and LSE-educated Sarfraz has managed to bring in Tim Draper, the founder of Draper Fisher Jurvetson, one of the largest Silicon Valley venture capital firms that was an early investor in firms like Hotmail and Skype. He also brought in Baron Lorne Thyssen-Bornemisza, a Swiss aristocrat whose family owns the ThyssenKrupp, a German technology conglomerate with over 670 subsidiaries and 200,000 employees worldwide.

“I am very excited about the agricultural sector in Pakistan. There are excellent opportunities that provide sustainable growth. Being Swiss, this is a familiar sector,” said Baron Thyssen-Bornemisza.

The amounts committed by each of the two gentlemen to the firm, as well as to Indus Basin’s original project – Agroventures, a Faisalabad-based breakfast cereal manufacturer – are unclear. But being able to attract highly prominent investors to his firm has been an achievement for Sarfraz, especially at a time when most investors are reluctant to put their money in the country.

Indus Basin is now about to launch a rice export business as well as a corn mill and a dairy farm.

Yet they are not the only firm getting into the game. Nestle, the Swiss conglomerate, recently announced that it will be investing over $300 million in the Pakistani dairy sector to double its output of milk. Nestle’s Milkpak brand is one of the largest packaged milk brands in the market.

Several local conglomerates have been organising themselves into investment companies geared towards extracting high yields from the agriculture sector.

The Dawood Group of companies, for instance, has wound down its insurance company – Central Insurance – and restructured it to become Cyan Ltd, a company that will invest in high growth sectors in Pakistan and has agriculture as one of its priority sectors.

Hussain Dawood, the patriarch of the Dawood family, also owns 38% of the Engro Corporation, one of the largest conglomerates in Pakistan. Engro’s subsidiary operates the world’s largest single-train urea manufacturing plant, in what is likely the single largest investment in the Pakistani agriculture sector: $1.1 billion. Engro also owns Engro Foods, one of the largest food companies in the country. Another conglomerate – the Nishat Group, owned by Mian Muhammad Mansha, the richest man in Pakistan – has also decided to enter the consumer foods business by launching its own dairy company.

Nishat has interests in financial services, textiles and cement manufacturing. The new venture would be the group’s first in agriculture.

Published in The Express Tribune, October 24th, 2011.

Reader Comments (22)

  • Mir Agha
    Oct 24, 2011 - 7:12AM

    This guy’s articles are the only ones worth readin on ET (entertainment tonight).

    Recommend

  • Parvez Amin
    Oct 24, 2011 - 10:42AM

    I floated this idea in the late fifties but it was not considered serious by the Planning Commission. Implementation of this idea will demonstrate what we can do with the rest of Pakistan. It is in Pakistan’s benefit to allow this.

    Recommend

  • The Critical Eye
    Oct 24, 2011 - 1:26PM

    Oh, this is just perfect! In times of climatic uncertainty when the entire world is worried that food resources are surely threatened, we are donating away rights to our principal source of security for paltry gains. Learning how to make a cow double its milk production or increasing land yields can’t exactly be considered similar to sending a man to the moon anymore but can be learned by responsible Pakistani individuals through domestically mustered scholarships. Also, it is simply a function, I believe, of the potential foreign technology can increase of what is being produced through conventional means. Most importantly: hold those rights! You should read up on the gentleman who is the founder and principal of Tigris (http://en.wikipedia.org/wiki/Thomas_Kaplan). He seems like the kind of man who thinks just in terms of money, not human life. Beware of the decisions you make, Pakistanis. Selling yourselves to foreign corporate interests today might only lead to your own starvation! You cried about the price of sugar? If all those UN reports are correct, food prices will touch unforeseen ceilings, and we’ll be paying those prices for what is being produced on our own lands.

    Recommend

  • The Critical Eye
    Oct 24, 2011 - 3:16PM

    …..not Muslim* human life….

    Recommend

  • Meekal Ahmed
    Oct 24, 2011 - 3:50PM

    @Parvez Amin:

    Don’t know why you asked Planning if it was a private sector project.

    Recommend

  • Fair and Balanced
    Oct 24, 2011 - 3:52PM

    Critical Eye, I appreciate your concern but would you clarify how many sugar mills are actually owned by foreign investors in Pakistan? Almost none – so the analogy is in correct. And solutes to Aamer Sarfraz who has managed to convince foreign investors to invest in Pakistan in these difficult times. Being in the Middle East, I can imagine it must be challenging. Investors will always follow the money and this is not inherently bad. What is criminal is the government allowing them excessive rights without proper protective/regulatory measures. This needs to be watched and this is where the government has to play a role. Presently, even Pakistani industrialists are moving their finances abroad even to the likes of Bangladesh. Good luck to Agroventures – they have indeed targeted a very lucrative area and since they are coming at a time when should not facing much of competition from foreign investors, I imagine there dividends will be good – undoubtedly a smart investment strategy!

    Recommend

  • Talha Khan
    Oct 24, 2011 - 3:53PM

    Very happy to hear about increased investment in agribusiness, its about time and this is big opportunity for Pakistan

    Recommend

  • Fair and Balanced
    Oct 24, 2011 - 4:03PM

    …and apart from the fact that Kaplan donates to Jewish organizations, in addition to other causes, does not make him “anti-humanity”. There is no stopping to muslims in donating to the charities of their choice. May be we should follow the suit instead of criticism!

    Recommend

  • anwar
    Oct 24, 2011 - 4:42PM

    Any more investments in agriculture without improvements to water availability will just increase the “lawlessness factor” in the villages and eventually civil strife

    Recommend

  • Concerned
    Oct 24, 2011 - 5:18PM

    @ Critical Eye:

    I am rather concerned that you’ve come up with a classic asymptomatic response, that one would expect from (unfortunately) some segments of our nations masses that are plagued with phobias of anything “Foreign” or “Jewish”. Firstly, this is purely a commercial transaction the viability of which is justified by commercial returns and the “touchstone” of religious ideologies does not fare in its analysis. More importantly, however can we really blame foreigners for our existing double digit inflation, structural fiscal deficit, trade imbalances and eye watering unemployment rates?
    I give full credit to Farooq Tirmizi for highlighting the achievements of Aamer Sarfraz, it is individuals like him that we should be supporting and giving recognition to who are doing more for the uplift of our economy than our so called elected representatives (aka sugar mafia). I therefore urge you to stop with the scaremongering and join in the appreciation of what is a remarkable feat for a young Pakistani entrepreneur.

    Recommend

  • Z
    Oct 24, 2011 - 5:22PM

    Great work by Paksitanis, they only need opportunity and encouragement. We will prove to the the world we are as good as anyone else. The country and nation has great potential. Education must be a national emergency too. Agro buisness must be giventhe right tax breaks too.

    Recommend

  • Abbas Khan
    Oct 24, 2011 - 5:32PM

    Critical Eye, that’s just the type of negative thinking that has put the country at its present position and has kept the downward spiral since 50+ years of independence. At a time that the world is relying more and more on each other you are advocating shutting the country down and becoming a cocoon. Foreign investors such as the big wigs brought by Mr. Aamer Sarfraz are just what are needed especially due to the environmental and political changes encircling the world. The country benefits from it, the people of the country benefit from such investors and it increases employment which is desperately needed. Hats off to Mr. Sarfraz that at a time such as this when worldwide people are tightening their belts and no one is lining up to invest, he has brought these investments to Pakistan.

    Recommend

  • Ali
    Oct 24, 2011 - 6:25PM

    … @ Critical Eye

    Agree C Eye that we should not give away our rights (or food) to anyone … however, keep the facts in mind that Pakistan wastes over 40% of its produce due to lack of infrastructure, before Nestle and Engro invested in the Dairy cold chain the waste in the dairy sector, we waste tomato in season and import paste for processing due to lack of processing, we import large quantities of animal feed due to lack of processing capability .. the list goes on … so any investment in the value add sector like Indus Basin is doing is good, the cereals they are making are a substitute for Kellogg and Co .. so where is the logic in your argument, lets look at the project rather than individuals and move forward for a change

    Recommend

  • Adeel759
    Oct 24, 2011 - 6:36PM

    Kudos to Mr Sarfraz for fetching Fore-Inves. It indeed has become very lucrative business, i’ve personally been conducting feasibility for a medium scale agribusiness and I was amazed to see the rate of return on investment, either its dairy farming or agro farming. People with capital should deeply look into this, you wont regret. You will help yourself and help your country.

    Recommend

  • Meekal Ahmed
    Oct 24, 2011 - 9:42PM

    Every investment in Pakistan, and God forbid if it involves a “foreigner”, even a Pakistani, is an attempt to steal from us and exploit us. We need to grow up and thank our lucky starts that there are still people interested in investing in our country.

    Of course, this is not charity. They invest to make a profit. As long as they play by the rules and pay their taxes (they are too big to fly below the radar) we should have no objection.

    I don’t know if a study has ever been done but a comparison of the quality of “foreign” investment versus local investment could turn up some interesting findings. I would bet on the former.

    We have not been able to exploit our coal reserves for four decades because of one reason or the other. In the meantime Reko Dig seems to be going nowhere because of the same paranoia. You can probably get a standard joint-venture “template” off the inter-net for free. Use it, build in all the safeguards you want and just get on with it.

    Recommend

  • Oct 24, 2011 - 11:13PM

    Sarfraz good work to bring FDI into so far the most neglected part of economy. But make sure we are not stripped of our lands down the road and all conspiracy theories don’t come true. I see the local farming community jumping out of comfort zone once there are best practices introduced by foreign investors.

    Recommend

  • Proud Pakistani
    Oct 24, 2011 - 11:29PM

    I think this is an impressive initiative. Proud to have someone like Aamer Sarfraz creating business in our country. It’s a nice to change to hear something positive about our country as opposed to the usual negative press that surrounds out country. Thank you for this wonderful initiative. From a proud Pakistani.

    Recommend

  • Parvez Amin
    Oct 25, 2011 - 5:36AM

    @Fair and Balanced:
    Excellent advice. Unfortunately, I have little hope that it will be taken becauce I have no faith in the honesty and competence of the incumbents. Sad. Maybe they will do what is required for a part of the action.

    Recommend

  • Parvez Amin
    Oct 25, 2011 - 5:44AM

    @Meekal Ahmed:
    It was so long ago that I cannot answer your question honestly. It was something like this; my uncle, Kh Said Hassan was Dy Chairman of the Planning Commission. I asked him because ‘permission’ was required to float a Public Limited Company. He discouraged the idea and wanted to ‘industialize’ Pakistan. I am a contemporary of Dr Mahbub ul Haq and he too was in the Planning Commission at that time.

    Recommend

  • Parvez Amin
    Oct 25, 2011 - 5:47AM

    @anwar:
    Drip irrigation and similar mechanically assisted watering would use little water and replace the traditional method of flooding fields.

    Recommend

  • Parvez Amin
    Oct 25, 2011 - 5:57AM

    @Meekal Ahmed:
    I say this generally and admit exceptions but the people capable of thinking like you have all emigrated. Our brains have been robbed. Fortunately, we have the internet to connect us. Based on this idea, the political party I am designing takes this into account and expects to provide a platform for Subject Specialists on the Net so that perhaps the largest think tank in the world, with people spread all over the planet can project and manage their ideas for developing their homeland.

    Recommend

  • Naveed Arshad
    Oct 26, 2011 - 8:55AM

    Well done Mr. Aamer Sarfraz. Attracting Foreign Investment in to the country at times of such crisis and turmoil is a huge achievement, salutes to you for all your efforts. I think it’s high time we realize that Agribusiness is one of our greatest strengths and we should make the most of it. Agribusiness is the next big thing. The entire world is concerned about food security in the coming years and we have ample indigenous capacity to cater this evil.

    @Critical Eye, my friend thinking like yours is exactly what has kept has behind for the last 64 years and if we continue to think like this we will be left alone in the coming years. This is purely a commercial transaction which has got nothing to do with Kaplan or any one for the matter of fact. It’s just one “Patriotic Pakistani” (Aamer Sarfraz) trying to do good for his country. Let’s appreciate his and his team’s efforts rather than criticizing.

    Recommend

More in Business