A minute for your Feedback please

Wednesday, March 23, 2011

Meeting food security IN Africa(not FROM Africa)-does this reduce Karuturi Network's risks?

Karuturi Networks is the world's largest exporter of uncut roses, with a 9% market share in the European uncut roses markets. Rather than merely resting on its floriculture laurels, it began to purchase agricultural land in Africa much before it was fashionable to do so. The intention is to cultivate cereals on these lands, presently 3,00,000+ ha of them. Their strategic rationale for the same(as expressed in investor relations presentations) was that contrary to the popular perception of Africa as a water starved desert, many parts DO have a strong agricultural competitive edge with Only a small portion of arable land in production, good access to water, incentives for investment, lower input prices and favourable supply/demand dynamics.

And their rationale for local sales is interesting. They figure that with a Ethiopian domestic market of around 85 million people there is ample scope for local sale Also, they plan to exploit the preferential trading area COMESA (The Common Market for Eastern and Southern Africa), stretching from Libya to Zimbabwe.
Below is the map of their target markets.
One might wonder whether they are biting off more than they can chew. But what is going for them, is their earlier successful globalization of the cut roses business where they have successfully set up rose production/export hubs in Africa, and plan to do so elsewhere. Their awareness of the global food market does seem astute, even if they are operating on the present low scale.
Floriculture Business graphic, 2011
My take:- While local sales do reduce the expropriation risk(as happened in Zimbabwe where white farmers had to offload their landholdings at fire sale prices), it may widen their operating cycle if payments are delayed. Also,  while the political environment in Ethiopia is stable, the perceived political risk around it(its neighbours) may weigh adversely on the stock.

No comments: