Ben Funk Liongate Capital Management

1. The Case forAgricultural Investments

2. The Case for Agricultural Investments • Land restrictions and erosion… • Farmland is giving way to to towns and cities as urban growth outpaces rural living. Every year the planet loses almost 25 tons of topsoil. Over the past 20 years the world has lost enough soil to cover the entire cropland of the United States.2 • …with water shortages and climate change… • Water, an increasingly scarce resource in many parts of the world, is threatened by the competition of human consumption and agricultural production. Agriculture already accounts for 70% of all freshwater drawn from rivers, lakes and aquifers3. Extreme weather conditions, creating both droughts and floods, continue to impact key crop areas. • …are leading to scarcity • Growing demand for meat, particularly beef and dairy products, require disproportionate quantities of water to produce. By 2050, climate change has been estimated to hamper food and agriculture production by as as much as 30 percent.1 • A diverse range of investment opportunities… • Strong supply and and demand trends driving food and agricultural production have created opportunities across a range of sectors (upstream, midstream and downstream), from field to fork. These include land and farm inputs, equipment, producers, traders, processors, food companies and retailers. • …with compelling returns… • Returns have been high while providing unique portfolio diversification, with a general tendency to be uncorrelated to traditional stock and bond assets, resistant to inflation and less sensitive to economic shocks and interest rate hikes. Offering both yield and capital appreciated, it has been dubbed “gold with a coupon”.4 • …overlooked by investors • And yet there are only limited agriculture-focused funds managing a mere $15bn of AUM in the space, a trifle compared to the 144 funds focused on infrastructure $89bn) and 473 targeting real estate ($163bn).5 • A rising population… • The base case for investing in food and agriculture is an obvious one. The world population is projected to grow by two billion people over the next 35 years and these people must too eat. • …with greater income… • At the same, average incomes in developing countries are rising quickly and there is a large emerging middle class with more discretionary money to spend. • …and changing diet… • As people grow richer they shift from a subsistence diet of basic staples to one with more meat, dairy, fruit and vegetables, beer and wine, processed foods and restaurant prepared meals. • …is disrupting the food chain. • While every 1kg increase in beef consumption requires 7kg of grain and 7kg of water to produce it, biofuels are drawing on crops once produced for human consumption. As much as 25% of US grain crops, for example, are used to produce ethanol for cars.1 1. Earth Policy Institute; 2. UN Environment Program; 3. World Resources Institute; 4. The Economist; 5. Prequin

3. The Population is Growing Fast and a Large Middle Class is Emerging 108.9 Africa 43.9 Oceania Regional % Change 2015 – 50 forecast Latam/Caribbean 23.6 North America 21.0 Asia 19.9 • The world population is rising dramatically - from just over seven billion today to almost 10 billion by 20501 - and people must eat. • Most of this growth is in the developing world. And at the same time, average incomes in emerging markets are growing very quickly from low levels, far outpacing developed countries • 3 billion more people are projected to enter the global middle class by 2030, and they will certainly demand more resource-intensive foods such as meats and vegetable oils. • In the next 40 years farmers will need to grow more food than in the prior 10,000 years put together.2 -4.3 Europe Total Population (in billions) 2015 2050 forecast 2100 forecast Annual Growth Rate – Per Capita Income • Rising economic growth and expanding urban populations are leading to increased consumer demand for a greater quantity and wider variety of foodstuffs. • Consumers in developing countries spent $12trillion in 2012; this figure is expected to reach $30 trillion by 2025.3 • Population and demand growth is already impacting food availability and some developing countries are unable to meet their populations’ basic food requirements. • Total world grain production has fallen short of global demands in seven of the last eight years Demand drivers of agriculture and food 1. Graphs from the Economist;, 4 August 2015; 2. The Economist, 3 January 2015; 3. McKinsey & Company

4. As People Grow Richer They Eat More Meat …has a multiplier effect on grain demand Increased meat consumption… • The rising middle class is shifting away from traditional plant-based staples towards a more varied diet. With more money to spend, hundreds of millions of people in China and India are departing from a subsistence diet to and adopting more complex one. • As people get wealthier they eat more meat and demonstrate greater demand for fresh fruit and vegetables, dairy, spices, processed foods, and restaurant prepared meals. Additionally, improved and more widespread refrigeration at food distributors allows the easy sale of dairy and beef products. • More than a quarter of all the meat produced worldwide is now eaten in China. In the 1970s, China’s meat consumption was only one third of that of U.S. consumption. By the 1990s, China had overtaken the U.S. as the world’s leading meat consumer. Today China’s annual meat consumption is more than double that of the U.S. and is expected to grow as their middle class emrges.1 • This change in diet effects the entire food chain as more meat requires more grains to feed cattle and hogs. Every 1 ton increase in pork consumption requires 4 tonnes of grain to produce it, while every 1 ton of beef requires 7 tonnes of feed grain and 7 tonnes of water. Increase meat demand results in exponential growth in demand for grain, water and land 1. USDA; IMF; A.T. Kearney; Map, FAO 2013

5. Biofuel Production Competes with Food for Scarce Water, Land and Grain Global Biofuel Production Forecast • Many large oil consuming nations, including the US, EU, Canada, Japan, China, India and Brazil, have developed frameworks for biofuel production mandated by legislation and supported by government subsidies. Biofuels, it is argued, bolster energy security, while reducing dependence on fossil fuels with significant environmental benefits. • World production of bioethanol from sugar cane, maize and sugar beet increased from less than 39 billion litres in 2006 to over 85 billion litres (bnl) in 20121and today bioethanol and biodiesel have become established commodities traded widely in all continents2. • The market, initially focused on supplying fuel for cars and trucks, has expanded considerably to aviation, maritime transport, electricity generation and household cooking. • Crops previously raised for human consumption are now being diverted towards fuel production. As a result, large agricultural regions in the US, Brazil and the EU, have seen significant areas of land converted to the production of ‘energy crops’ to supply national consumption mandates. The state of Iowa (the largest corn producer in the US), for example, is now a net importer of corn to meet the demand of its biofuel processing facilities. • This diversion of grain toward bio-fuel production is having a significant impact on the price and availability of food and creating significant distortions in the food supply mechanism. Its impact on demand is likely to remain or grow, as governments continue to draft legislation pertaining to its production and usage. Ratio of Global Grain Crop Yield Required for Target Biofuel Production Demand drivers of agriculture and food 1. Renewable Fuel Association; 2. United Nations Conference on Trade and Development, 2014; Pike Research; World Resources Institute

6. Arable Land per Person is Falling Urbanisation Growth Map Soil Degradation • Vast tracts of potential agricultural land are destroyed through erosion, salinisation, desertification, is lost to urbanization, industrial use or utilized for biofuel production. • On average, the planet has about three feet of topsoil spread over its surface, replacement is slow - it grows back perhaps an inch or two over hundreds of years. • As a result, agriculture is increasingly shifting onto marginal lands with poorer soils and weak infrastructure. Constraints on land have meant a high focus on improved yields per acre. • Due to advances in agricultural science, we don’t need 2.8 acres of land per person. However, yield per acre must still be improved to ensure food security for a growing global population with limited land. • High yields rely on a combination of factors including: fertile soil, sufficient water availability, skilled labour, favourable climatic conditions and continuing advancement in research and development.2 • Over the past 40 years, yields per acre have increased by 2.1% per year, but the pace of those gains is slowing. Since 2000, the average increase in yields per acre has been less than 1% per year.3 • Erosion and degradation of soil quality is negatively impacting existing agricultural land. In Africa, it is estimated that soil erosion has depressed land yields between 2% and 40%, leading to a continent wide fall of 8.2% in crop yields per acre. Arable Land per Person • In 1960 there was 2.8 acres of farmland per person globally; by 2030 it is estimated that the average arable land per person will have fallen to only 0.8 acres.1 The rate of loss in supply of fertile farm land has outpaced the advancement in yield per acre 1. Chris Mayer, The Daily Reckoning; 2. SilverStreetCapital; 3. World Bank;

7. Climate Change Can Reduce the Yields of Crops Around the World Global Warming Climate Change • Changing weather patterns are causing disruption to the food production process, and many researchers argue that they are set to get worse in the future. • Extreme weather events and changes in the frequency and severity of droughts and floods can cause widespread damage to crops and livestock, impacting the practices of farmers and Ranchers. • Studies on the impact of climate change on long-term agricultural production have varying results, but work assuming a doubling of atmospheric CO2 result in a reduction in global cereal yields by as much as 34%.2 • Today’s poor countries are likely to be the biggest losers, due to the substantial share of agriculture in their gross domestic product, their location in the hotter, drier climates, and limited ability to adjust their farming practices and locations.3 • By 2050 it is estimated, as a result of the temperature change, that 200 million people may be permanently displaced climate migrants, a tenfold increase over the current documented total of refugee and internally displaced people. Consequently unmitigated climate change and environmental degradation may cause social instability, generate mass movements of human population, which will only further pressure on resources • Ironically, according to the World Bank, Agriculture is also a major part of the climate problem. It currently generates 19–29% of total GHG emissions. Without action, that percentage could rise substantially as other sectors reduce their emissions. • It is hard to estimate the impact of climate change, but the above is just one of the possible scenarios. In the graph above, large negative yield impacts are shown in red across much of the world.4 • Climate change’s negative impacts are already being felt in the form of reduced yields. While there is significant variation across crops, regions and adaptation scenarios, the majority of models predict a yield reduction of more than 5% with around 10% of projections expecting yield losses of more than 25%.5 Supply drivers of agriculture and food 2. USDA, Agricultural Adaption to Climate Change. 3. USDA, Climate Change and Long Run Agricultural Production; 4. World Bank; 5. IPCC, 2014