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The most famous argument against active portfolio management compares the investment industry to the game of tennis. And it’s not flattering.

In his 1975 treatise on the subject, Greenwich Associates founder Charles Ellis described professional tennis as a winner’s game, where precision moves and skill decide the outcome. Amateur tennis is a loser’s game, where the smartest strategy is to simply avoid mistakes and let opponents defeat themselves through unforced errors.

The idea is that even as the overall economic pie increases in size, the investment industry is growing ever more crowded with skilled and informed practitioners. As a result, it has become less feasible to exploit a true edge, and the overripe gold rush has effectively turned portfolio management into amateur tennis. Don’t go for a smash; just keep the ball in court.

The theory is strictly academic and metaphorical – until it isn’t. AVCJ put the question to Uday Garg, founder of India’s Mandala Capital and one of few in the global private equity industry with experience playing world-class competitive tennis.

Garg was ranked number-one junior in India, played in the Junior Davis Cup, and competed against Grand Slam champions Andy Roddick and the Williams sisters. So, when he switched from tennis to investment, did he feel compelled to start playing a loser’s game?

“The people who are consistently winning at the top all come up with something new to elevate their game. Pete Sampras’ second serve was faster than his first. Everyone thought the second serve was conservative. Now everybody’s second serve on the [ATP] Tour is like a weapon,” Garg said.

“If you just do what everybody else is doing in investing, you’re never going to generate special returns for your investors. You can see that in most industries. The people who are doing well stepped out of their comfort zone and innovated in some way, and it looks normal now.”

Planting seeds

In fact, Garg’s career in private equity has deeper roots in family than sport. His grandfather, B.R. Barwale founded global seed company Mahyco and is a leading figure in the history of Indian agribusiness. In 1998, Barwale received the World Food Prize for “transforming the face of Indian agriculture,” through access to high-quality seeds.

Garg is the only person in his family without a science background, but he brought his interest in finance to the food and agriculture space in 2008 with Mandala, a returns-focused private equity firm with a strong impact agenda. His grandfather’s commitment to the welfare of farmers was the fundamental inspiration.

After graduating from the University of Pennsylvania’s Wharton School – where he played Division I tennis – Garg tried his hand in a few domains. He did commodity trading and macro trading at US hedge fund Amaranth before managing special situations portfolios in Eastern Europe for Altima Partners, a UK-based Deutsche Bank affiliate.

By 2006, Garg was helping manage a USD 1bn global farmland fund that Altima had raised on the back of a high-minded but arguably unfocused Malthusian food crisis thesis. This is when the blueprint for Mandala began to take shape.

“There’s room for that in every portfolio, but personally, I didn’t feel that it was really doingjustice to the theme. I felt like the action was in Asia, not simply, ‘Food demand is increasing, and there’s farmland next to me in the US. Let me buy that,’” Garg said.

“Even back then, I felt strongly that countries wanted to be self-sufficient in food, pushing their own agriculture ecosystems and knowhow. It’s not that they couldn’t do it. They just needed the right capital, teams, and government support – the right target sector push.”

Mandala was founded on megatrend tailwinds around changing climate and consumption patterns. In the developed world, demand is growing for healthier foods with cleaner, more transparent supply chains. In the developing world, demand is growing across the board, especially in terms of a shift from carbohydrates to proteins.

Food safety and food security in the context of climate change and geopolitical tension are complex overlays that underpin much of the mandate. In addition to India, Southeast Asia is becoming a core geography.

The key opening in this space for an active private equity strategy is in the fragmented nature of food in developing markets. Unlike in more advanced economies, agriculture is a major contributor to GDP in South and Southeast Asia, but this activity is mostly represented by small businesses that are inaccessible via passive investment channels.

Getting traction

Garg had an edge in his family contacts but has consciously distanced Mandala from Mahyco to avoid perceived conflicts of interest. Still, the LP base has consistently comprised blue-chip US institutions the likes of Teachers Insurance and Annuity Association and College Retirement Equities Fund (TIAA-CREF) and University of Texas Investment Management (UTIMCO).

The main fundraising hurdle has been a lack of comparable operators. Food and agriculture was an established niche in venture, but LPs had no benchmark for buyouts. The challenge was compounded by the need to balance elements of emerging markets, technology, consumer, and real assets strategies.

“I was only 30 when I started out, just talking to companies, using some of my own saved-up capital to invest in a few things, getting a friends-and-family pool going, a few million dollars. It was tough to manage that kind of cash and do something real, but we just figured out a way to keep the lights on and show some ability and track record,” Garg said.

“If you have a blank slate, you do not do food and agriculture with an India and Southeast Asia focus. You do a generalist Asia fund. I wouldn’t advise anyone to do this unless they really want to do it. There’s easier money to make doing software, financials, or healthcare.”

The first fund closed at USD 120m in 2016, with Fund II launching later the same year and closing on USD 130m. The portfolios are compact; there are less than 10 companies across both vintages. Midstream and upstream enterprise-facing suppliers are preferred. Control deals have proven the most successful. Climate shock is the wildcard.

“Our companies tell us they’re seeing events that they have not seen in 50 to 60 years, back-to-back droughts, extreme flooding, anomalies in El Nino,” Garg said.

“There’s been stuff we could never factor into our analysis because you look back and say, ‘Worst-case scenario, this happens.’ Then, something even worse happens. These three standard deviation events have started to happen. The flipside is it’s forcing a lot of innovation.”

Sugarcane processor Godavari Biorefineries offers a case in point. Mandala invested about USD 15m in the company in 2015 and spent the first two years shepherding it through a string of droughts said to be the worst in 30 years. The government had kept sugar prices low despite the domestic shortfall by allowing increased imports. The entire industry was operating at a loss.

Mandala stepped in on several fronts. Most importantly, it invested further capital to support the business and encouraged a move away from sugar toward ethanol and speciality chemicals, which had fewer price controls. Godavari is now the largest ethanol producer in India and prepping for an IPO.

It’s worth mentioning that sugarcane is a water-guzzling crop, which inspired some climate-conscious innovation on the side. Mandala mobilised another portfolio company, Jain Irrigation Systems, to install drip irrigation technology at the kind of plantations that supply Godavari’s feedstocks. Another investee, non-bank lender SAFL, helped those farmers finance the upgrade.

Garg sees drip irrigation as a game-changer in the mitigation of climate change impacts on agriculture. In effect, the technology circumvents the problem of erratic rainfall by supplying water directly to the roots of plants, simultaneously minimising waste, erosion, desalination, and pesticide contamination.

“Think of watering your plants at home but instead of just using a hose, you drip the water straight on the roots extremely slowly,” Garg said. “The water savings are greater than 50% and it’s also very climate friendly because fertilisers and nutrients are sometimes mixed with the water, and the slow application of this water means less runoff.”

Making an impact

Fund III is now in the market with a target of USD 200m and has secured an anchor commitment. It is hoped to benefit from the shift of global capital away from China and related food supply chain changes, as well as increasing understanding of climate issues and agriculture as a buyout opportunity.

There’s also a fair amount of exit activity to point to. Mandala is on track to return four out of four structured investments made via debt-like instruments by December and two out of eight equity deals by June. Another equity exit is expected by year-end. There are two divestments in process, a trade sale and a structured buyback, both described by Garg as “very good multiples.”

Mandala’s sharpening impact credentials are also likely to play a supporting role in fundraising, even if it’s an incidental effect. The firm has spent the past several years devising its own formulae to clear up the murk around impact measurement. Some of these have received patents.

“There’s a lot of confusion in the impact space, and it’s become a lot about paying agencies to sign up to their reporting standards or becoming signatories to different agendas. I didn’t feel that that was solving anything. We’ve worked with consultants that felt we were not doing a good job storytelling, and I say, ‘We don’t want to do storytelling – we want something more black-and-white,’” Garg said.

“The only way is to show numbers, but even with numbers, it can be deceiving. So, we’re looking at what impact do you get per dollar invested, which most people don’t do. This is something you do because you want to, or because you think it’s good. It shouldn’t be a strategy to raise money.”

We are proud of the impact that our portfolio companies have achieved in 2022 and strive towards doing more for the environment and the community in the coming year. 

All the regulatory approvals related to the merger of multiple overseas subsidiaries of JITBV have been received by both entities. The condition precedent required by Share Purchase Agreement entered into by Rivulis Pte. Ltd & Jain International Trading B.V, have been satisfied. Jain (Israel) B.V. (step down subsidiary of JITBV) shall hold a strategic minority stake of ~18.7% in Rivulis Pte. Ltd post merger.

By virtue of this cash and stock transaction, the following is achieved.

Reduction in consolidated net debt of Jain Irrigation by 44% i.e. ~INR 2,800 crore (INR 28.0 billion). December 31, 2022 debt was INR 6,415 crore post transaction debt will be down to INR 3,615 crore.
Release of corporate guarantee given by Jain Irrigation, India of US$ 300 million (eq. INR 24.6 billion) to bondholders and lenders of IIB.
Jain (Israel) B.V. will continue to hold meaningful stake of ~18.7% in MergeCo
Jain Irrigation shall have a long-term supply agreement with the MergeCo, which will drive revenues and profits.
The MergeCo will continue to use and promote prominent JAIN Brands in markets where they have significant presence and value.
In terms of governance, Jain shall have representative directors and observer on the board of the MergeCo and will be able to help its growth through its significant expertise in micro-irrigation.
Jain Irrigation retains potential future value generation from the creation of this large global irrigation leader.

Going forward, Jain Irrigation will focus on further improving India business to drive higher growth and margin in one of the fastest growing irrigation markets in the world, and eventually aim to reduce debt on the standalone Indian business balance sheet as well.

A long approval process

“It has been a long process, partly because we are the first company in Malaysia to go through the approval process, so we and the Malaysian authorities had to do everything from scratch,” Nick Piggott, co-CEO and co-founder of Nutrition Technologies, told Aquafeed.com. “We originally applied to the Department of Veterinary Services (DVS), which is the competent authority regulating animal feed in Malaysia, in November 2021. At that time, Malaysia was not an approved 3rd party exporter to the EU, so the first process was for the EC’s DG Sante to assess and approve DVS as a competent authority capable of auditing farm operators in Malaysia to EU standards. This was completed in June 2022, and we were the first company audited in July 2022.”

The main requirements for the approval were to hold GMP and HACCP certificates and demonstrate global standards of food hygiene. “The UK and EU requirements are much more prescriptive than other countries, and far more procedural, mainly because our products are insect-based rather than animal- based,” Piggott told us.

The company also has the approval to ship to Thailand, Japan, Korea, Chile, Vietnam, Taiwan and Indonesia, all of which have pragmatic assessments of feed materials. “That basically means that we have to comply with the same regulations on quality and hygiene requirements as fishmeal, poultry meal, etc., rather than going through additional assessment simply because our material is of insect origin, rather than animal origin,” Piggott explained.

Markets

The first shipments to the EU and the UK will go in mid-March, once the company has processed the first TRACES health certificates. Nutrition Technologies currently ships industrial volumes of material throughout Asia and South America from the two-hectare factory in Malaysia.
The company is also beginning to ship to the U.S. this month and is looking into India. “We have a potential value-chain partnership in India which we are exploring that would bring sustainable, insect-fed seafood (primarily shrimp) to consumers in Japan and Europe. Our main focus is on pet food and aqua applications, so we’re focusing on markets that are strong in those two applications,” Piggott told us.

Less energy input

The insect meal is produced to the highest international safety and hygiene standards with full batch traceability, where the larvae are fed only vegetable-based agro-industrial materials such as palm and
grain byproducts.

Nutrition Technologies have a low-energy tropical production system that uses a unique combination of micro-organisms and black soldier flies to bioconvert 60,000 tonnes of waste organic byproducts into its value-adding products. As a tropical species, the black soldier fly larvae grow quickly and efficiently in the ambient Malaysian climate, meaning that very little energy is required to grow or breed the flies. This low-energy model means that the company benefits from a very low cost of production, but with the same high standards as any European or North American manufacturer, and is able to pass on those savings to the customer. This makes Nutrition Technologies’ products one of the most competitively priced insect products in the world, according to the company.

“This is a significant step forward in giving European manufacturers more sustainable options in their choice of feed ingredients,” said Nick Piggott, co-CEO and co-founder, Nutrition Technologies. “This development opens the door for new manufacturers to release insect-based products, and for existing manufacturers to both reduce their costs and improve their environmental footprint.”

All Digest subscribers were eligible to nominate and vote for candidates of their choosing.

All honorees on the 2023 Bioeconomy 500 list who attend ABLC can take part in the ceremony honoring and recognizing the Bioeconomy including the presentation of the official medals and ribbons to each honoree.

“The bioeconomy has grown leaps and bounds in the past 10 years,” said Digest editor Jim Lane, “and it is usually told as a story of technologies and Net Zero pledges — but it is individuals who actually translate opportunity into accomplishment, and the Bioeconomy 500 recognizes those individuals who played the leading part. Congratulations to all the winners and the friends who nominated, voted and campaigned for them.”

Insect protein, in the form of meal made from the larvae and oil extracted from them, is being promoted as a climate-friendly alternative to animal feeds produced from fish and soy. Nutrition Technologies aims to use the money to expand.

At Mandala, we are focused on making scalable and sustainable investments in the food and agricultural sector in India and Southeast Asia.

We believe we have a critical role to play in harnessing the power of capital to not just to yield financial returns, but to also make a positive impact on the community around us, socially and environmentally.

The theme that we have chosen for our Impact Report this year is Combating Climate Change.

The topic of climate change is all the more relevant to Mandala given that it is inextricably linked to the food and agricultural sector. The relationship between food and climate change is no doubt a symbiotic one. It is clear that the transformation of the food value chain has a key role to play in not only adapting to climate change, but also mitigating climate change.

We are heartened to be able to make a real difference to climate change and we hope to continue working towards net zero emissions with our investee companies.

Rivulis Pte. Ltd. (“Rivulis”) and Jain Irrigation Systems Limited (“Jain Irrigation”) are pleased to announce that they have entered into definitive transaction agreements pursuant to which Rivulis will acquire multiple overseas subsidiaries which consist of the International Irrigation Business (“IIB”) of Jain Irrigation. The transaction consideration is a combination of cash and stock. Jain Irrigation will receive stock comprising 22% interest in Rivulis, the holding company of the enlarged group (the “Company“), and cash for the financing of debt issuances of the IIB and of bonds issued by Jain International Trading B.V. (the “Transaction“), to create a climate and irrigation leader globally. Temasek, a global investment company headquartered in Singapore, will become the majority shareholder of the Company with a 78% stake. The transaction is subject to required regulatory approvals and other customary closing conditions.

The Company reflects the vision of both Rivulis and Jain Irrigation in building a long-lasting, purpose-led company that will spearhead the transformation of agricultural irrigation. The Company will lead the mass adoption of modern irrigation solutions and digital farming by growers and business partners globally through its focus on accessibility, innovation, and sustainability.

With this merger, the Company will be:

Driven by Customers: The Company will have unparalleled market coverage with 25 factories and 3,300 employees across six continents and 35 countries. The Company will continue to fully support the brands that growers and business partners have come to rely upon season after season: Rivulis, Jain, NaanDanJain and Eurodrip.

Driven by Innovation: Growers and business partners will benefit from an extensive product and solution offering, consisting of trusted industry brands such as D5000 PC, Amnon, T-Tape, Chapin, Ro-Drip, Top, Excel, Compact, 5035 and Mamkad. Eight decades of R&D and product engineering will be combined into a perpetual innovation engine, addressing the current and future needs of growers worldwide.

Driven by Digital: With digital farming services such as Jain Logic, Manna and ReelView, the Company is poised to become a robust ag-tech solution provider with the most extensive market coverage. Through its wide-ranging digital farming offering, growers will be able to finetune their irrigation operations in real-time, while increasing yields and reducing agri-inputs resulting in improved livelihoods and safeguarding of their land.

Driven by Sustainability: Beyond the known micro irrigation benefits of water conservation and soil protection, the Company will continue its purpose led ESG journey. Following the completion of the transaction, the Company will commit to tangible carbon emission targets and launch its global program to help growers and business partners reduce their carbon emissions and increase their carbon sequestration. The Company aims not only to make micro irrigation accessible to growers and to feed the planet, but also to enable a more sustainable and climate resilient future for all.

The Company will be dual headquartered in Singapore and Israel and will continue to be named Rivulis Pte. Ltd. For the purposes of corporate branding, the company will be represented as “Rivulis (In alliance with Jain International)”. Richard Klapholz, the current Rivulis CEO, will continue to lead the Company. Top senior associates from the IIB are expected to continue in leadership roles across the Company. Jain Irrigation will also be a supplier of irrigation products made in India to the Company for its international markets outside of India.

Anil Jain, Managing Director of Jain Irrigation, commented: “Jain Irrigation’s international businesses are the amalgamation of pioneering and pathbreaking companies which were brought together over a period under Jain Irrigation’s leadership – be it NaanDan, the original inventor of the sprinkler, or Chapin Watermatics that led the way for unique tape technology. We anticipate that the merger with Rivulis will create a world leading player ideally placed to serve its global customer base thanks to its geographic footprint, breadth of offering as well as from technological depth and expertise in micro irrigation. This will enable us all to address climate change and food security challenges with sustainable solutions and implement the critical knowledge transfer for water efficiency and productivity for growers. The combined entity will have a truly global presence in all relevant irrigation markets, enabling strategic growth and innovation that will further Jain Irrigation’s broad vision of reaching more small and large growers by creating shared value. We look forward to this value accretive long-term relationship to create meaningful positive impact in the agri and food ecosystem.”

Richard Klapholz, Rivulis CEO, added: “We are thrilled to have both companies join forces to better serve the growing needs of irrigation markets around the world. While benefitting from significant operational economies of scale and a dedicated, diverse employee base, we will ensure that all commitments to our grower community and to our combined business partners are maintained and further strengthened. Our goal is to ensure that all our customers will continue to be successful and benefit from a broader offering, leading industry brands, expanded manufacturing base and the support of leading irrigation services businesses. Rivulis, before the merger, represented the combination of four companies, and through this merger, several more companies from Jain Irrigation’s portfolio will be added, cementing our role as a market consolidator and leader across the globe and creating a single company with a much stronger financial foundation. Together with all Rivulis employees, I look forward to working closely with the Jain USA, AVI, IDC and global NaanDanJain teams. I am certain that we will all benefit from the vast experience and continued commitment and dedication of the combined teams.”

BofA Securities acted as lead financial advisor, Rabobank acted as a co-adviser, Latham & Watkins acted as legal advisor and PWC acted as tax and diligence advisor to Rivulis for the transaction.

About Rivulis:

Rivulis is a global micro irrigation leader focused on enabling and promoting a sustainable agri-food supply chain to not only feed our planet but also save it from the perils of climate change.  

Rivulis offers the most innovative irrigation solutions for seasonal, permanent, and protected crop environments, through its three product and service portfolio brands: Rivulis, Eurodrip and Manna. Established in 1966, Rivulis has 16 large-scale manufacturing sites located across six continents, three R&D Centers (Israel, California, and Greece) and multiple Irrigation Project Design Centers around the globe.

Leading the mass adoption of micro irrigation globally, Rivulis is committed to increasing accessibility to all growers everywhere through simple, affordable, and smart technology covering the full cycle from design to harvest. To learn how Rivulis can help you GROW BEYOND your highest expectations season after season, visit www.rivulis.com.

About Jain Irrigation:

Jain Irrigation Systems Limited (“JISL”) with its motto ‘Small Ideas, Big Revolutions’ with more than 10,500+ associates worldwide and revenue of ~USD 1 Billion, is an Indian multinational company with manufacturing plants in 30 locations across the globe. JISL, its subsidiaries and associates are engaged in providing solutions in agriculture, water and food sector through manufacturing of Micro Irrigation Systems, PVC Pipes, HDPE Pipes, Plastic Sheets, Agro Processed Products, Renewable Energy Solutions, Tissue Culture Plants, Financial Services, and other agricultural inputs since more than 34 years. It has pioneered a silent Productivity Revolution with modern irrigation systems and innovative technologies to save precious water and has helped farmers to get significant increase in crop yields, especially for more than 6 million small farmers. It has also ushered in a new concept of large-scale Integrated Irrigation Projects (“IIP”). ‘More Crop Per Drop™’ is the company’s approach to water security and food security. JISL is an early pioneer for IOT in the agri-sector and is leading efforts to create global solutions with precision agriculture. Its food brand ‘Jain FarmFresh’ is well known all over the world for quality and consistency. All the products and services of JISL help create a sustainable future while fulfilling its vision to ‘Leave this world better than you found it’. JISL is listed in NSE—Mumbai at JISLJALEQS and in BSE at code 500219. Please visit us at www.jains.com.

About Temasek:

Temasek is a global investment company with a net portfolio value of S$381 billion (US$283b) as at 31 March 2021. Headquartered in Singapore, it has 13 offices in 9 countries around the world.

The Temasek Charter defines Temasek’s three roles as an Investor, Institution and Steward, which shape its ethos to do well, do right, and do good.

As a provider of catalytic capital, it seeks to enable solutions to key global challenges.

With sustainability at the core of all Temasek does, it actively seeks sustainable solutions to address present and future challenges, as it captures investible opportunities to bring about a sustainable future for all.

For more information on Temasek, please visit www.temasek.com.sg.

ICICI Securities, Axis Capital and JM Financial are the book running lead managers for the issue.

The proceeds from the issue worth ₹155 crore will be used to repay debt and ₹110.76 crore will be used for funding capital expenditure requirements.

As of March 2021, its total income was at ₹836.03 crore versus ₹958.25 crore a year ago. Net loss for the period stood at ₹76.18 crore against a profit of ₹3.42 crore last year. Adjusted total borrowings were at ₹236.20 crore.

Kolkata based firm is a leading fast-moving consumer good with interests in packaged, dairy, and fresh food products. Its comprehensive range of products spans across various brands and categories with more than 90 stock keeping units (SKUs) as of Mar 2021 and a presence across the value chain in the fresh, frozen and ambient long shelf life food product categories.

Its franchised brands include Frooti, Appy, Appy Fizz and Bailey in pact with Parle Agro. It has frozen food, UHT milk, milkshakes and bananas under the Keventer brand.

For FY21, the firm had 3,126 distributors and a sales force of 570 employees (including contractual) and sales promoters. It had 4,281 freezers, 2,891 iceboxes and 284 pushcarts in its target markets.

Its business is supported by manufacturing and processing infrastructure comprising a flagship facility at Barasat, West Bengal and food processing units located at Durgapur, Midnapore, Siliguri, Malda and Patna. The company is also in the process of establishing a food processing unit at Ranchi.

The transaction was envisaged as an amalgamation of Mandala’s business transformation strategy & focus on the cold chain sector along with Gati’s ongoing strategy of exiting non-core businesses.

Uday Garg, Managing Partner at Mandala Capital, said “Gati Kausar is an established, 35-year-old brand with a trusted name in the cold chain industry. We believe that under our complete ownership, the Company will be able to fully leverage our technical expertise and financial resources to realise its potential over the next few years. ”

Reports show that the Indian cold chain industry had a c.18% CAGR over the last 5 years and has the potential for increased and continued growth with 80-85% of the industry still controlled by unorganised players. The pandemic has further accelerated growth rates with the sector playing an increasingly vital role in the broader food value chain, starting from local procurement to last mile delivery. Demand from producers, processors, QSRs and retailers for efficient, cost-effective, and reliable supply chains remains high; likewise, the end consumer increasingly expects products to be delivered in a timely and safe manner.
“Increasing customer expectations can only be met through technology-enabled solutions and automation in the cold supply chain. We are working closely with various consultants and our sector specialists to bring best-in-class technologies to Gati Kausar that will increase efficiency and provide innovative solutions to customers,” added Garg.

Rakesh Pachauri, recently appointed COO at Gati Kausar, said “For us, customer satisfaction is of utmost priority and we are excited at the prospect of delivering more value to our customers in this new phase under Mandala Capital’s ownership. We are looking to invest in new vehicles, warehouses, and technology to enhance the customer experience and provide enhanced service levels. We also aim to expand the Gati Kausar family in various areas. With the support of our customers, employees, and shareholders, we believe Gati Kausar can create significant value for all stakeholders.”
CJ Shaju, CFO at Gati Kausar, said “The company has been generating operating profits for the past 3 years despite a difficult market environment and restrained capital resources. With access to a larger capital base post-Mandala’s takeover, we expect more growth and increasing profitability in the years ahead.”

The current linear food system is ripe for disruption into a Circular Economy. I would argue that changing our food systems is one of the most impactful things we can do to address climate change, improve health and nutrition, rebuild biodiversity, and lift hundreds of millions of people out of poverty. Impact investing will always mean different things to different people. It took us a while to define what it means for Mandala. There are three questions we always ask ourselves to help us think through this:

What is the Impact we are trying to make?
Sustainable and scalable Impact across the food value chain.

Why are we choosing this type of Impact?
Because we feel that Food and Agri is the most impactful sector to influence the things we consider important, such as climate change, rural development, soil health, water conservation, health and nutrition.

How are we making or contributing to this Impact?
By investing in companies with a shared philosophy, by finding investments that enhance the Impact we are trying to achieve, by tracking and monitoring our Impact effect, and by encouraging better Impact standards post-investment.

I am encouraged by the iterative process we have followed so far to arrive at our current understanding and definition of Impact and excited about the years ahead as we continue to learn from what others are doing in this space, while continuously evolving our own thinking on the best way to define and implement Impact investing.

Increased demand for (perishable) food
The world’s population is expected to increase by two billion people in the next 30 years, with demand for food and livestock in 2050 estimated to be 56% greater than in 2010. As health-conscious and richer consumers around the world seek to consume more meat, fruits and vegetables, fresh and frozen, all year long, there is a growing demand for nutritious, perishable food requiring sufficient cold transport and storage.

Healthcare and Productivity Costs of Foodborne Diseases (FBD)
Foodborne diseases cost India $28 billion a year (0.5% GDP), and productivity loss of $15 billion a year, with cases expected to increase to 170 million a year in 2030 from 100 million in 2011.
Food contamination monitoring is essential to ensuring the safety of food supply and managing risk. Likewise, consumer awareness about food safety plays an especially important role in the successful implementation of food safety guidelines.

Mandala’s Social ROI for Food Safety in FY2020 is 1.6
This means that every $1 invested in food safety has resulted in $1.60 of social value. Food testing, cold chain storage and reefer truck capacity contribute to reduced contamination risk and reduced healthcare spend on FBD. Food safety accounts for 54% of all social impact created by Mandala’s portfolio companies. For more insight into our impact methodology, click here.

How Mandala’s Portfolio Companies Contributed in 2020
To ensure a safe and sustainable food supply, initiatives in technology, food packaging, and waste reduction can lengthen food’s shelf life and increase food supply.

• Gati Kausar owns temperature-controlled facilities, including an extensive fleet of 180 refrigerated vehicles and a growing network of cold warehouse facilities across India that are needed to meet the growing demand for food with quality and safety.
• EFRAC is one of the largest integrated food testing and research facilities in India, testing food products for nutrition, hygiene, adulteration and quality.
• EFRAC also conducts food safety clinics and provides food safety kits to raise consumer awareness about food safety.

The safe food imperative is more pressing than ever, and investments in market-led capacity building solutions are far outsized by the FBD burden. We want to hear your thoughts on supporting more companies like EFRAC and Gati Kausar towards a safer and healthier world!

01:21 Introducing Uday

02:26 Breaking down the food and agriculture investment food chain

06:33 Why invest in India and SEA

10:30 Family business

12:19 Mandala Capital’s playbook

18:19 Agritech investing for productivity and efficiency

29:17 Mandala’s approach to impact investing

In contrast to the ‘take-make-waste’ linear model, a circular economy approach to economic development is today widely favoured because it benefits businesses, society, and the environment.

Regenerative by design, it aims to gradually decouple growth from the consumption of our planet’s finite resources. This month, we share snippets from Samir Somaiya, CEO of Godavari Biorefineries, who talks about India’s renewables and the circular economy strategies his company is taking to develop the industry.

Biorefining is the process of converting feedstock into value added products such as foods, fuels, electricity, chemicals, pharmaceuticals, fragrance chemistry, bio materials, agrochemicals and more.  In a press release with Chemical Engineering World, Somaiya illustrates an example of how Godavari Biorefineries has pivoted toward being a circular and cascading biorefinery that continuously strives to add value: 

“A few years ago, we installed an incinerator boiler to recover energy from our waste. Now, we are implementing a process to extract potash from the ash from the incinerator. This potash will then be sold to our farmers.”

Currently, India imports almost all 4 million tonnes of its potash needs, but this could be different in the future. If more companies start producing potash from waste, especially as subsidies for potash-based fertilisers were recently cut amidst an attempt to contain fiscal deficits, India can reduce its import reliance.

Godavari Biorefineries invests heavily in energy efficiency and engineering to convert available surplus bagasse (the fibrous by-product of sugar production from sugarcane stalks) into next generation feedstock. They also produce acetic acid from renewable sources instead of from petroleum feedstock, which substitutes conventional materials without loss of functionality.  Mandala’s investment proceeds were used to kickstart and accelerate some of the key products and processes that form part of Godavari’s integrated biorefinery model today.

The next phase of growth in renewable chemicals in India rests on two key factors: renewable chemical prices compared with that of conventional fossil-based chemicals, and the willingness of the end user to pay a price premium for renewable-derived feedstock. There are signs in the skincare sector that show responsibly sourced, traceable, renewable and biodegradable chemicals can command a price premium from the end customer. 

Of course, capital outlay for the development of renewables industry does not come cheap, and initiatives like the US’ Bio-Preferred Program and EU carbon markets enjoy the support of governments that sponsor investment in research, heavily capital-intensive pilot plants, and commercialization of renewable processes and technologies. Likewise, India’s Viability Gap Funding (VGF) program subsidises up to 20% of project costs for Greenfield facilities to make 2G ethanol (ethanol from biomass). 

Somaiya believes India should take a ‘bolt-on’ approach in both 2G ethanol and biofuel, adding onto existing infrastructure the equipment and technology necessary for production of ethanol and biofuel. This way, funding needs can be drastically reduced. With a strong agriculture base and abundance of biomass, India needs to focus on education and research to harness its dormant potential in renewable energy and chemicals. 

Biofuels a possible answer to India’s sugar surplus crisis, renewables growth part of circular economy 

Indian sugar millers face a multitude of issues: unsold sugar stocks, cane dues and unpaid interests. With performance feasibility, production capacity, and the consumer market overturned by the raging coronavirus, a bailout package seems to be the only favorable solution to the sugar surplus crisis, Somaiya shared recently in an interview with Chinimandi News. 

Taking a longer term view, Somaiya argues that India has long proven itself to be a surplus producer of sugarcane, and suggests ways this surplus can be utilised to meet the country’s burgeoning food and energy needs. 

How Godavari Biorefineries leads the Indian sugar industry in building a sustainable bio-fuel economy

-Expanded distillery capacity from 200,000 lpd to 320,000 lpd last season, and to 400,000 lpd this season
-Manufactures ethanol via sugarcane syrup and B Heavy molasses, diverting over 40% of sugar towards ethanol
-Created optionality between sugar and ethanol
-Actively supports government policies on producing 2G ethanol, and Bio-CNG
-Pioneered the use of renewable feedstocks to make chemicals, materials and renewable power with applications in pharmaceuticals, agriculture, flavours and fragrances coatings
-Working on intercropping with farmers to improve their agronomy so that they farm and earn better

Long-term policies recommended for the growth of India’s ethanol industry

To get to production levels in Brazil and the USA, India will need a wide variety of renewable biomass. Apart from pushing for the use of sugarcane juice and B Heavy molasses in ethanol, increasing the ethanol blend rate in petrol will go a long way to help meet India’s energy security needs. Already, the Government has indicated bold targets to move towards a 20% blend rate. In states that already have ethanol surplus, the blend rate can be increased more quickly. Promoting flex fuel cars like Brazil has done is another strategy to further increase adoption rates. Overall, the pace of transformation will rely on how quickly sugar companies can obtain regulatory approvals and financing to build distillation assets and divert their sugar surplus to ethanol.

In the short term, the surplus sugar will have to be exported. India has exported a new high of nearly 6 million tons of sugar this season and sugar millers will need continued government support on export policies. 

In turn, these questions have contributed to a myriad of pressures on policymakers and commercial entities. As balance sheets weaken (especially for early-stage companies) and both a social need and opportunity have become even more widespread, fund managers looking for sustainable food and agriculture investment opportunities must rethink the meaning of social impact. Governments and businesses must adapt policy and strategy to balance circumstantial exigencies with long-standing consumption and demographic trajectories. Essential sectors like food and agriculture are uniquely sensitive to this dynamic, especially so in developing markets like India and Southeast Asia.

Uncertain and changing conditions in markets—either from within or exogenously—challenge existing supply chains and necessitate innovation. Like never before, innovation must be tailored to achieve sustainable food and agriculture investments at scale. There is no dearth of innovation in food and agriculture and companies throughout the sector will need to innovate to ensure they are also poised to accommodate the consequences of the coronavirus on their category in the supply chain and ultimate consumer. As fund managers consider how to either invest in innovation or ensure their existing assets have access to innovation, they must evaluate the role innovation can play in this context. How can LP capital be allocated efficiently to achieve optimal impact in an era of restrained capital and capital scarcity? Is it through technology, commercial methodology or some hybrid of both? Is obtainable impact realised through drastic shocks to the supply chain or incremental development?

These strains have led to depleting resources and resulted in long-term secondary lasting effects, often overlooked and not easily measured, such as climate change, degrading soil health, water pollution, seafood sustainability, chemical runoffs human health problems, and infant nutrition deficiencies.

We are committed to achieving the UN Sustainable Development Goals (SDGs) through our investments. In particular, our current investments are focused on SDG 2: Zero Hunger, SDG 3: Good Health and Well-Being, SDG 6: Clean Water and Sanitation, SDG 8: Decent Work and Economic Growth, SDG 10: Reduced Inequalities, SDG 12: Responsible Consumption and Production, SDG 13: Climate Action, and SDG 15: Life on Land.

Impact and sustainability are at the core of our personal philosophy and have been carried over to our investment philosophy. We have gotten better at incorporating Impact at every stage of our investment process and more importantly, we are now better at identifying ways to improve, track and monitor the Impact of our investments. We have maintained an integrated team for this exercise and the entire investment team has contributed towards the data, case studies, photos and commentary in this report.

I hope you enjoy reading our second annual Impact report and look forward to hearing from you.

New Technology:

Over the last 5-10 years, several new technologies have been developed and are staring to make inroads into the input ag system.

1. Molecular or Marker assisted breeding and advanced breeding techniques
2. Precision Agriculture – data analytics
3. Microbial or Biologics
4. Gene editing
5. Robotics
6. New crops

Molecular or marker assisted breeding:

Advances in molecular or marker assisted breeding are resulting in delivery of new varieties at a much faster rate than traditional breeding methods. We see many new fruits and vegetable varieties with improved taste, colour and texture for example; smaller watermelons, a variety of sizes and tastes of peppers etc.

One of our companies, Arcadia Biosciences has used TILLING, a breeding technique, to develop high fibre wheat varieties and reduced gluten wheat varieties which are being commercialized now. Other companies have developed “heart healthy”, high oleic oils in soy, corn and canola.

Precision Ag – Data Analytics:

The power of data analytics has led to a whole new area of improved crop management methods and farmers are adopting these as a way to optimize their inputs and maximize yields. Companies like Climate Corp (Bayer), Farmers Business Network and others are providing data analysis services to farmers to help them determine when to plant, when to irrigate, apply inputs etc.

Precision agriculture equipment is being used to apply inputs at variable rates in fields. Drones are being used to monitor fields for pests, crop growth status, and predict yield.

Both data analytics and precision ag has been shown to increase yields in fields by as much as 15% using the same inputs as the farmer may use in his general practice. This technology can be used by farmers to increase income and improve his overall farm operations.

Microbial or Biologics:

In the last few years microbials (or biologicals) have been gaining ground in the ag input market as biopesticides, biofertilizers and biostimulants. Because these products are considered “natural” they have gained more acceptance in the horticulture and specialty crop markets. In the large, broadacre markets like corn, soybean and wheat these products have not gained as much market share as in the specialty crops.

Most large companies like Bayer and Corteva have invested in this technology. However, we see that many small companies are growing with new and better products. Marrone Bio, Pivot Bio, Joyn Bio are just a few examples of companies growing in this field.

Gene Editing:

This has been the major innovation in the last 10 years which is expected to make a huge impact in the world of agriculture and life sciences. This area has been a major focus of research and funding by venture capital. The first products from gene editing will likely get to market in the next 4-5 years. All the major ag companies are investing in this technology either directly or via investments in smaller companies.

The regulatory picture for gene editing is somewhat unclear as Europe and other countries like India have decided to regulate products from gene-editing as GM crops while the US, Japan and Australia have stated that products from gene editing will not be regulated.

Robotics:

This is a rapidly growing field and robots are being developed and commercialized for almost all aspects of the farming operation. There are robots now available for planting, spraying and harvesting. There are autonomous driving tractors being used for tilling and other operations on the farm.

Most of the companies developing and marketing these robots are smaller companies. Currently the use of robots is on a smaller scale but in the next few years this will expand as farm labor costs increase.

New Crops:

New crops are emerging that increase the opportunities for farmers to become more profitable. In 2018, hemp was legalized in the US after many decades of being illegal. The increasing demand for hemp products like hemp oil, CBD and the use of seed as a protein source has spawned new research in breeding of new and stable varieties. Our company, Arcadia Biosciences, is developing new and stable seed varieties of hemp with characteristics like increasing CBD content, lower THC content and disease resistance. Farmers in many states of the US have increased their acreages of hemp as a cash crop. Acreage has increased from 77K acres in 2017 to over 400K acres in 2019 and is expected to reach over a million acres in 2020. Other startups are developing new crops for oil production for use as biofuel. An example is a startup in St. Louis called Cover Cress that has modified pennycress.

Future Perspective:

The food – ag system is starting to look different now with the emergence of these technologies, changing consumer behaviour and the increasing demand for different types of foods. The next 20 years the ag input world and the ag output world is expected to look very different from the last 20 years.

On the input side, the new technologies are spawning a large number of companies around the world that are using these technologies to develop new tools for farmers. We can expect that smaller companies may play a bigger role in the future. The large ag majors will continue to be the major suppliers of seeds and chemicals.

In the farming systems we are seeing more farmers growing specialty crops to serve the urban demand for fresh vegetable and fruits. Farmers are growing more organic produce. They are also switching to different high value crops including hemp. Farmers are also looking to buy directly from input companies as some suppliers start to emulate the Amazon model in ag inputs for farmers. The development of output traits like high fibre wheat, reduced gluten wheat, high oleic oil crops by companies also means that if farmers grow these varieties they will need to maintain a tight closed loop system so that there is good identity preservation. These crops must be kept separate and therefore storage facilities and transport systems are being developed to maintain identity end to end from seed to end product.

In the output ag system too we see a proliferation of new companies introducing new products to the market to meet consumer demands. The success of brands like KIND bars, Belvita, Blue Buffalo (natural pet foods) and many others shows that the big companies in the output side are not being able to innovate as fast as the smaller companies. We are already seeing these companies make a big impact on the food system and we can expect this impact to grow in the near future.

The last few years have seen unprecedented amounts of investments into the food and ag sector. AgFunder estimates that in 2016 there was $4B in investment into the ag and food industry which grew to $17B in in 2018.

Conclusions:

The rapid changes in consumer behaviour coupled with the explosion of new technologies create a new world in the agriculture and food sectors. This creates opportunities for investments in a wide range of companies across the sectors – whether they are in the input system, farming system or the output system. Smaller companies are growing in this space and will likely have a bigger share of the market in the near future. The next 10-20 years will be a time of opportunity in this sector.

Executive Summary:

The Ag and Food industries are changing rapidly as consumer demands and technology innovation drive change. The next 20 years promise to be an exciting time as we see a whole new range of foods and technology in the marketplace.

The last 60 years was mostly about productivity and efficiency in producing food – the focus was on yields. Technology was dominated by improved breeding, mostly for yield, and chemicals for increasing fertility and pest management. It was the green revolution from the 60’s to the 90’s followed by the gene revolution (GMO’s) in crops; again, largely to increase productivity and lower cost of production.

However, over the last 5-10 years we have seen significant changes as consumers demand healthier, more nutritious foods. Concurrently, a plethora of new technologies have emerged for growing food with improved quality.

This change is not a passing fad; all evidence shows it is real and we are on the cusp of significant change. Over the next 20 years these technologies will mature and offer opportunities for investment in a myriad of new companies and career growth for professionals in the field.

Historical Perspective:

The last 50+ years have been pivotal in dramatically increasing US and world food production – be it cereal grains, fruits, vegetables, dairy or meat. From a technology standpoint, much can be attributed to the green revolution in the 60’s and 70’s – the use of improved genetics, chemical inputs and advancements in mechanization and irrigation.

The period 1996 thru 2016 saw a dramatic change in the ag input industry. Bioengineered crops were first introduced in the mid 90’s and within a few years farmers in the US, Brazil, India and other countries adopted the technology in major crops like corn, soy, and cotton. Several countries are planting GM crops or importing produce from countries producing GM crops. Currently, approximately 450M acres of GM crops are planted around the world each year.

This demonstrated to farmers around the world the power of technology to dramatically increase yields and manage pests (weeds and insects). During the same period, huge advances in breeding technology including molecular and marker assisted breeding fundamentally changed how plant breeders develop new crop varieties and hybrids. Coupled with transgenic technology the period from the mid-nineties to the mid twenty-teens saw the fastest adaptation of these technologies by farmers.

By the middle of the prior decade (~2015) it became apparent that transgenic technology appeared to have peaked as novel trait introductions became less frequent. New products introductions were limited to newer versions of the existing agronomic traits and stacking of multiple traits.

Additionally, opposition to GMO’s impacted regulatory processes and slowed approvals in many parts of the world. Lower commodity prices have caused farmers to not invest in higher priced seeds.

Bioengineered seeds have been most successful in weed and insect management. Abiotic stress management traits have had limited success (drought tolerance). Resistance has developed to Bt traits in corn and cotton leading to increased use of pesticide use after many years of reductions in pesticide use. Similarly, development of glyphosate (Roundup) resistance weeds has also resulted in increased pesticide use after many years of reductions.

The world of ag and food is changing rapidly. Today; the consumer is driving the change and the entire industry is responding to the consumer.

Changes in Consumer Demands:

Consumer demands are changing rapidly. We want more naturally produced food, organically grown and non-GMO. There is more local sourcing or “farm to table” as opposed to food transported overt long supply chains.

Consumers are also demanding more nutritious (or functional) foods – higher protein, less processed, less sugar, more fiber, less carbs etc. Consumers are also demanding better quality – improved taste, color texture. Sustainable production and more plant-based foods are also a consumer demand.

Transparency in food is also a major concern. People want to know more about what they are eating and what is in their foods.

All of these changes are driving changes on how farmers are producing food. They are growing more organic crops, and more specialty crops which will give them a higher income as commodity process continue to be low.

Supply chains are also responding by developing improved ways of identity preservation – keeping the specialty crop separate from the commodity crop all thru the storage, handling and transportation.

Over 60 thought leaders across the food value chain and key members of the global investment community were exclusively invited to participate in this event. What ensued was a fruitful afternoon full of intriguing ideas and new collaborations fostered between industry players, all with the aim of accelerating growth opportunities within the Agri industry in India and Southeast Asia.

Keynote speakers and panelists ranging from prominent companies such as Lazada, Thai Union, Arcadia Biosciences, Jain Irrigation to emerging startups like Shiok Meats, InnovaFeeds, Sustenir Agriculture took the stage to share insights and challenges, a unique perspective on the entire food value chain from seed to shelf. The afternoon saw a broad range of topics covered, including traditional farming, Ag tech, and the latest news in online/offline retail.

Participants were encouraged to make connections during the coffee break and drinks session and ask further questions.

“Coming from Europe, it is very precious for us to get the opportunity to meet such a great variety of players of our industries at once. The challenges are huge, and the companies from our part of the world need partners like Mandala and its networks to grow their presence in Asia.” – David DA, Unigrains, Director

Mandala Capital hopes that all participants found the Symposium insightful and valuable. In keeping with our commitment to continually bring together an alliance of diverse thought leaders in the food value chain, we look forward to hosting future symposiums and events that foster networking. Sign up for our newsletter below to keep up to date with the latest news.

Sustainable impact requires durability that ensures impact on all stakeholders beyond an investment cycle or fund life. The inherent challenge in our work is the potential for a promoter or owner of a business to have a time horizon and return expectations that are not fully aligned with the investment style and structure of a fund. As a firm, we recognize this dynamic and approach investments with the aim of balancing our objectives of optimal investor return while ensuring that investments are meaningful to the company. Often, it is only through active dialogue that these issues can be resolved to achieve an ideal outcome for all stakeholders.

Fundamentally, our relationship with the companies is built on a basis of trust that transcends the transactional and provides a foundation to influence operations post-investment. It is through our close operational involvement that we are able to closely monitor and prioritize value creating events that align EBITDA progression with sustainable social impact progression. Each of our companies are their respective category leaders in the food supply chain and, as such, innately capable of delivering positive social impact. Our investment structures are designed to ensure our companies are well poised to deploy Mandala’s investment to integrate operational adjustments as well as innovation to demonstrate return that has a correlating effect in contributing to long-term positive social impact. The developments that we guide within our portfolio are designed to be fixtures of an investee company and will amplify over time rather than truncate.

Scalable impact is impact that has a meaningful effect and that can be replicated at a larger scale without diluting impact.

Small scale start-ups established solely with the purpose of achieving impact either through innovation or geography are often dislocated from viable sources of capital and, more importantly, the supply chains that their products and services must be integrated with in order to have measurable and sustainable impact. Certainly these companies can develop and often grow into meaningful market leaders, but, as an asset management strategy, it is not a reliable assumption to expect high quality returns — financial and social — within 10 years. Instead, we have discovered that larger companies in the sector are naturally best positioned to make large scale, socially impactful, changes and bring in the private sector, government and DFI funding to grow.

In preparing to draft this impact report, we spent a long time reviewing the existing literature and practices in the space. In most instances we found at least one of two trends on display: either social impact is very loosely attributed to a fund manager’s investment or targeted impact investments show very little capability to achieve demonstrable returns. We then decided to take a slightly unconventional approach to evaluating our investments – intended to employ many of the same elements of our investment strategy – that would be focused on what our role was going to be, where we could add value and how we could showcase the sustainable and scalable impact we seek to create.

This report demonstrates our initial best effort in defining, measuring and monitoring the impact our investments havecreated and in laying the foundation for continuing to track their impact trajectory. We have defined our goals and the corresponding data points and worked with all our partners to gather the data. We have also formulated calculations that allow us to translate those data points into the monetary impact created towards each of our goals, per dollar invested into the Fund and deployed into each company.

We have taken this approach because we believe that numbers tell a complete story, removing from the results the emotion and bias that often favor less compelling and impactful investments from those which create true value. Numbers also serve as an effective bridge between our investors and portfolio companies. The trendiness of impact investing leads me to believe that the impact investing industry is moving towards a more quantitative approach in measuring and communicating impact.

Publishing and sharing Mandala’s inaugural impact report is a major milestone, both for the company and for me personally. The Mandala team – including all our partners – care about a lot of social causes and actively support and lead various philanthropic endeavors. This is in large part due to the influence of my grandfather, Mr. B.R. Barwale, who built a very large and successful business in agriculture and always emphasized the importance of giving back a significant amount to the farmers and the rural community, without seeking recognition or advertising his philanthropic efforts. Thus, from the outset, we have naturally sought partners aligned in this basic philosophy.

Mandala Capital was established in 2008 and we launched Fund I in 2014. This report is certainly long overdue, but we deliberately wanted to watch the impact investing industry mature and contemplate our role in the community of impact investors. We believe that this report reflects who we truly are while demonstrating adequate respect to the impact investing world. It is my sincere hope that you will enjoy reading it and that it will provoke new thoughts and ideas that broaden and elevate our ongoing dialogue.