AgFood Executive Chairman Paul Jensz discusses the relationship between agriculture and technology.Lauren Hayes: We're talking today with Paul Jensz, Executive Chairman from AgFood. The AgFood Opportunities Fund is an investment fund that creates wealth for clients by identifying undervalued investment opportunities both locally and globally through listed and unlisted companies in the food and agricultural sectors. Paul, welcome back to the network.
Paul Jensz: Thank you very much, Lauren.
Lauren Hayes: Now, firstly, what is your belief behind the AgFood Fund?
Paul Jensz: The main belief is that we've got strong growth here, underlying growth of around 4 per cent, and that if we can add selection of new-age areas like aquaculture, plant-based protein and brands, that we can grow that to 10 per cent per annum with good management and selective processes.
Lauren Hayes: And what impact is the heavy rainfall across the east coast having on agri businesses across the country?
Paul Jensz: Well, there's a short-term impact in that there's, unfortunately, a very small portion that get flooded out, and our hearts go out to them. And the good thing is the agriculture industry rallies around those people and makes sure that there's no loss of life, the safety's good, and livestock and those sorts of things are sorted out. It's a small portion. So, we are now working through the next little phase of three months or so, hoping that we get some dry weather so that the impact is not going to be as great on some of the broad-acre crops, the wheat, the barley, canola, and those sorts of crops. But if you look medium term next year and the year after, soil moisture's good. You make a lot of money with mud. You don't make much money in drought.
Lauren Hayes: Elders
(ASX:ELD) fell heavily this week despite strong outlook and dividend growth. What's your view here?
Paul Jensz: Well, the view of Elders is that it's coming off a very high base. So, it's at this high level where it's making $230m of EBIT, which is a great result. If you go back 10 years, it was making no EBIT at all. It was actually in losses. So, it's been through this recovery phase, it's been through a build phase, and now it's in a growth phase. So, people are concerned, also, that this season that we were talking about, this wet weather and those sorts of things that are helping the season has boosted the numbers as well. On top of that, the MD announced that he's leaving in 12 months time. Now, we think that the platform's very strong. We know a lot of the general managers. We understand the competitive environment. And Elders has got into a very strong position with around 25 per cent market share. And I do think that this is still a scalable business. Large groups like Elders typically grow from 25 per cent to 35 per cent market share with the right environment and the right management. So, I think that's what Mark wants to happen. Mark Allison, the MD that's retiring late next year, wants the new group to come in under a new leadership and take it to the next level. But that new group is actually there. He's put the general managers in. They'll be a new MD announced and a transition to the next 6, 12 months. And I do think it can grow from here.
Lauren Hayes: And what opportunities are you seeing in regards to how technology can help the agricultural industry?
Paul Jensz: We've got underlying growth here in Australia set up by wonderful people. They are growing at around 4 per cent per underlying. What technology and sustainability initiatives and others are doing is allowing that growth to get up towards 10 per cent per annum, which is what is attractive for investors like ourselves. And what's happened is technology players have done a lot of work in the last 20, 30 years out of CSIRO, AWRI, which is the wine group that's doing the same sort of work. They've got this plethora of opportunities coming their way. They got a bit excited with valuations a little while ago. The traditional companies sort of did their own thing. But we've now got this opportunity where both of those groups can come together with technology application and commercial activation.
Lauren Hayes: And in terms of Digital Agricultural Services, what new companies is Digital working with?
Paul Jensz: That's a great question. So Digital Agriculture Services is an opportunity that came out of CSIRO and Accenture around about five years ago. They're one of 20, 30-plus companies around the world that is using satellite imaging and digital work to help financial service companies and other enterprises help the farming community. So, this group has distinguished itself because it's one of the few in the world that's gone directly to the financial institutions -- the Rabobanks, the IAGs, the Cardinals of the world -- and has worked with them last two, three years to make sure that what they do is actually useful. Because, as we said before, a lot of the technology ideas have been pushed onto people. Said, "Look, this gee-whiz thing is working wonderfully. You should use it." Whereas what Digital Agricultural Services has done is worked extensively with these large global and local companies and made their technology very useful, and that's embedded them in the processes. They make around $5m a year per annum with these services. And we think that's scalable now both here and in the US, where they've already started some work in the US.
Lauren Hayes: And the Prime Minister said overnight at the G20 that Australia could help feed the world. Is this the opportunity for investors to consider when looking at the agricultural sector?
Paul Jensz: Yeah, I mean, it's great to have that sort of belief right from the top. Most of our product that we can push at that higher end, if we can get up to that 10 per cent growth, needs to go offshore because we are this opportunity where we have a large domestic market, where we can prove things, but we do have this opportunity of being low cost base. We don't have many subsidies here. That was something we went through 20, 30 years ago. So, no subsidies, large scale, we can export, but we do now with our high wages and our high cost of living here and the high cost of energy and others, we do need to export higher-value products. And that's the challenge, and that's the opportunity, to bring technology into our products and aim them at the premium end of the market, where you can extract good margins. Therefore farmers benefit and the processes benefit. And if they do, then investors benefit as well.
Lauren Hayes: Well, Paul, thank you for your time and for coming back to the network.
Paul Jensz: Always. Thanks, Lauren.
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