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The Digitization Of Global Agriculture And Agtech Startups Poised To Profit

Bar chart and scatter chart showing livestock products consumption (Kcal/person/day) and beef and mutton consumption (Kcal/person/day) and percentage change in 2016 and 2050 (forecast). From 2006 to 2050, world livestock products consumption (Kcal/person/day) is forecast to increase 23% while world beef and mutton consumption (Kcal/person/day) is forecast to increase 30%.

The agtech startup scene is booming with venture capital funding climbing steadily over the past few years. According to data from PitchBook and US fund Finistere Ventures, the agtech industry raked in US$ 1.5 billion in investments in 2017, most of which were in early stage startups.

The flurry of interest in agtech startups is driven by a number of reasons. From climate change to increasing water scarcity, the global agriculture industry faces numerous long term challenges which, if unaddressed could affect global food availability in the future due food supply growth being far outpaced by food demand growth which is driven by a growing population and rising income levels.

Today’s approximately seven billion population is forecast to grow to 8.5 billion by 2030 and 9.7 billion by 2050, according to data from the United Nations Department of Economic and Social Affairs (UN DESA). Consequently, the demand for food is projected to be 60% greater than it is today.

Global rice consumption is poised to increase by around 1.1% annually from 2016 until 2025 when rice consumption is expected to reach 570 million tons according to market research firm IndexBox.

Per capita meat and dairy consumption is expected to see tremendous growth, particularly in China and India according to information from the World Resources Institute; global per capita, per day livestock products consumption is forecast to grow 23% while global per capita, per day consumption of beef and mutton is projected to grow 30% between 2006 and 2050.

Bar chart and scatter chart showing livestock products consumption (Kcal/person/day) and beef and mutton consumption (Kcal/person/day) and percentage change in 2016 and 2050 (forecast). From 2006 to 2050, world livestock products consumption (Kcal/person/day) is forecast to increase 23% while world beef and mutton consumption (Kcal/person/day) is forecast to increase 30%.

Yet, resource availability is growing increasingly scarce due to pollution and climate change among other reasons. Globally, agriculture uses 70% of freshwater worldwide according to data from the National Groundwater Association, making it the biggest consumer of the world’s freshwater. Water consumption for domestic use is second, accounting for about 10% of global freshwater consumption.

With agriculture having to feed a population of more than 9 billion by 2050, water demand from the agriculture sector is expected to increase substantially in the decades to come; without improved water-use efficiency measures, water consumption by the agriculture sector is expected to increase 20% globally by 2050. However with climate change affecting rainfall patterns, the world’s freshwater resources are being depleted faster than they are being replenished by rainfall.

About 50% of the world’s habitable land is used for agriculture. However, soil erosion and pollution have resulted in the loss of nearly 33% of global arable land in the past 40 years, at a rate faster than the ability for natural processes to replenish diminished soil, according to a study by the University of Sheffield’s Grantham Centre for Sustainable Futures. The study found that soil erosion had been occurring at a rate of up to 100 times faster than the rate of soil formation.

Environmental challenges coupled with rapid population growth and urbanization has resulted in a steady decline in arable land per capita; according to data from the Food and Agriculture Organization (FAO), arable land per capita declined from 0.35 hectares per person in 1965 to about 0.19 hectares per person in 2015, which is about a 40% decline over four decades.

Line graph showing global arable land (hectares per person) from 1961 to 2015. From 1961 until 2015, global arable land per capita has declined by about 40%.

Therefore, in order to feed the world’s population that is growing in number and purchasing power, the agriculture industry is compelled to solve these challenges by achieving greater productivity gains such as by reducing input cost, increasing yield, and increasing environmental sustainability and thereby increase food supply with limited resources.

Technology is emerging as a key solution and this growing digitization of the global agriculture industry is an opportunity numerous agtech startups are working to profit from. According to a report by Accenture, the market for digital agriculture services will expand 12.2% between 2014 and 2020 to reach US$ 4.55 billion.

WeFarmUp – France’s Airbnb of agriculture

Launched in 2015, French startup WeFarmUp could be described as the Airbnb of agriculture. The farm machinery rental platform allows French farmers with underused machinery to rent equipment to other farmers in need of such machinery which ultimately boosts farmer bottom lines since underutilized machinery could be converted into assets generating extra income and farmers can be relieved of the potential debt burden that comes with purchasing costly farm machinery.

Although France is the biggest recipient of EU farm aid under the EU’s Common Agricultural Policy (CAP), French farmers struggle with debt and weak farm incomes which are more volatile than wages and salaries in other sectors according to a report from the European Commission.

With the UK, a net contributor to the EU budget, reportedly not contributing to the CAP after 2020, the subsequent budgetary gap could result in a downward review of the Common Agricultural Policy which represents one of the biggest expenditures under the EU budget.

It has been estimated in 2016 that without the current level of subsidies under the CAP, more than 50% of all French farms would not break even, which suggests that any reduction in subsidies under the CAP could result in bigger losses for France’s farmers. This presents an opportunity for a platform such as  WeFarmUp which indicates bright prospects for the startup. WeFarmUp is currently focused on France but plans to expand to Belgium.

 Gold Farm and EM3 AgriServices – disrupting India’s agri sector with Farming as a Service (FaaS) platforms

Agriculture is one of the most important sectors of India’s economy. The country has the world’s second largest amount of agricultural land after the United States, is the world’s second largest producer of horticultural crops and fruits after China, and is the world’s largest producer and consumer of dairy.

However, the industry is challenged by low productivity and low profitability. While at least 50% of the country’s workforce depends on agriculture, the sector contributes just about 15% of India’s gross domestic product.

India lags behind countries such as China in terms of crop yields. For instance, India produces 2.4 tons per hectare (t/ha) of rice (nearly half of China’s yield of 4.7 t/ha) and 3.15 t/ha of wheat (compared with China’s 4.9 t/ha).

According to data from the World Bank, as of 2016, agricultural value added per worker in India amounted to US$ 1,202, far behind the world average of US$ 16,730, ranking India 119th in terms of agricultural productivity out of 155 countries.

Farm mechanization could help boost crop productivity however, much of India’s farmers have small-scale farming operations and are often heavily in debt, which constrains their ability to invest in expensive farm machinery; almost half of India’s agricultural households are in debt and the average farm land size in India is estimated at 1.15 hectares according to India’s Agriculture Census conducted in 2015. 65% of Indian farmers are marginal farmers holding less than one hectare of land, while less than 1% have large land holdings of 10 hectares or more.

The challenge is an opportunity for Indian agtech startups such as EM3 Agri Services and Gold Farm which manage platforms that aim to improve India’s poor farm mechanization levels by allowing farmers to rent, rather than purchase, expensive but much needed farm machinery. Using their respective mobile apps, farmers choose and book the machinery required and pay based on the amount of time the machines are used (hence the term Farm as a Service) which cost-efficiently boosts farm productivity.

Of India’s approximately 120 million farmers, just about one-quarter or roughly 30 million are equipped with smartphones. However, smartphone and mobile internet penetration are on an uptrend among rural Indians, including rural segments such as farmers, aided by increasing affordability of smartphones and mobile data, as well as government initiatives to help digitize Indian farming as part its Digital India program, such as the Government of India’s AgriMarket app.

This factor coupled with an increasing trend among younger Indians to move away from agriculture, rising input costs and rising labor costs, could result in greater demand for FaaS solutions such as the outsourced farm mechanization services offered by Gold Farm and EM3 Agri Services. According to data from Bain & Company, total investor funding into FaaS startups in India is currently about US$ 105 million to US$ 115 million, and more than 40% of funding rounds are at “series stage”.

Gold Farm partners with local entrepreneurs and farmers who have the financial wherewithal to invest in farm machinery and helps them with demand generation by renting out the machines to India’s rural, small-scale farmers through the Gold Farm platform, creating a win-win situation for all parties. The payback time for the entrepreneur is reportedly around two years.

Stellapps – improving productivity along India’s dairy supply chain through IoT and Big Data

 India is the world’s largest producer and consumer of dairy and the country has been the largest milk producing country in the world since 1997.

However, despite per capita milk consumption in India steadily rising over the past few years, there is still ample potential for growth; Indian per capita milk consumption is just about half that of countries such as the United States, Australia and New Zealand.

Bar chart showing annual per capita milk consumption (kilograms per capita) during 2012 and 2017 in Ukraine, New Zealand, Australia, United States Russia and India.

As India’s middle class expands and incomes grow, protein needs are expected to grow as well which should drive demand for milk and milk products. India’s urban dwellers being wealthier on average tend to consume more milk per person than the average rural Indian.

But with just about 31% of the one billion plus Indian population living in urban areas, there is tremendous potential for growth in per capita milk consumption as India’s remaining half a billion or so population urbanize over the longer term.

While India could meet this additional demand by growing its huge livestock population which is already the largest in the world (58% of buffaloes and 15% of cattle), the country may be better served by increasing efficiency and productivity in its dairy industry; according to India’s Agriculture Ministry, the average milk yield for cross-bred cattle stands at around 7.1 kg per day which is significantly lower than developed countries such as the United Kingdom, the United States and Israel which boast daily milk yields of 25.6, 32.8 and 38.6.

Indian agtech startup Stellapps Technologies, which is backed by the Bill and Melinda Gates Foundation is aiming to address this issue. The company’s solution uses technologies such as IoT, Big Data, Cloud and data analytics to help dairy farmers, cooperatives and private dairies optimize their dairy operations and covers all aspects of the dairy supply chain across milk production, procurement, cold chain, animal insurance and farmer payments. The full dairy technology solution, brand named SmartMoo™ uses different types of sensors which gather data through wearable devices. For instance, on the farm, data on the animal’s health and yield is gathered,  while data on milk quality (such as fat content) is gathered at dairy collection sites which assists with pricing. The data is automatically sent to relevant parties across the supply chain such as the dairy farmer and dairy companies with the ultimate aim of helping participants improve efficiency, quality and productivity by improving milk yields, improving animal health, reducing pilferage, spoilage etc.

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Multi-Billion Dollar Water Sector Offers Business Opportunities

Bar chart showing the top 15 countries with the largest estimated groundwater extractions in 2010, breakdown by sector (%): agriculture, domestic use and industrial use . The top 15 countries are (in order), India, China, United States, Pakistan, Iran, Bangladesh, Mexico, Saudi Arabia, Indonesia, Turkey, Russia, Syria, Japan, Thailand, and Italy. Data from the National Groundwater Association.

The gap between global water demand and global water supply is widening. Already more than half of the people in the MENA region (Middle East and North Africa), live under conditions of “water stress” (i.e., the demand for water exceeds supply) according to the World Bank and a report by the United Nations reveals that the world could face a 40% water shortfall by 2030. Demand for water is expected to grow by nearly one-third by 2050 according to a 2018 World Water Development Report by the United Nations.

Yet while water demand is projected to grow, earth’s water supply is limited. Just 1% of all earth’s water is fit for human use according to the National Groundwater Association, and 99% of this is derived from groundwater, 0.86% from lakes and 0.02% from rivers.

Earth’s total groundwater supply is estimated at 5.5 million cubic miles (equal to about 23 million cubic kilometers). However, groundwater is being depleted faster than it is being replenished due to a rapidly increasing population and increasing urbanization. Data from NASA’s Gravity Recovery and Climate Experiment (GRACE) satellites indicate that 13 of the world’s 37 biggest aquifers are being depleted due to irrigation, industrial usage and human consumption (groundwater supplies about 50% of all drinking water worldwide) faster than they are being replenished by rainfall. Climate change has affected rainfall patterns and as a consequence, the availability of groundwater resources will be impacted in the decades to come.

Of the 13 aquifers, eight aquifer systems are “overstressed” which means water is being withdrawn faster than it is being naturally recharged. The most overstressed aquifer is the Arabian aquifer system which lies underneath Saudi Arabia and Yemen. Other overstressed aquifers are the Indus Basin in Pakistan and India, and the Murzu-Djado Basin in Africa. The other five aquifer systems are “extremely” or “highly” stressed, which means they are being recharged by some rainfall but not enough to enough to offset withdrawals. California’s Central Valley is one of the five aquifer systems under this category.

The result has been a steady decline in the volume of renewable water resources per capita from 28,377 m3 per person per year in 1992 to 19,804 m3 per person per year in 2014, which corresponds to a roughly 30% decline over the last 22 years according to data from Aquastat.

Addressing the world’s impending water crisis demands better water management practices such as through the adoption of water recycling as is done in Singapore and Israel and to make water intensive sectors more efficient. This opens considerable opportunities for entrepreneurs and investors in the global water sector. A report by investment firm RobecoSAM expects market opportunities related to the water sector to reach US$ 1 trillion by 2025.

Smart irrigation

Global annual ground water withdrawals are estimated at 982 cubic kilometers a year according to estimates by the National Groundwater Association. By sector, agriculture is the largest user of groundwater, accounting for about 70% of groundwater withdrawals. Household use accounts for about 10% of groundwater withdrawals.

By country, India is the largest user of groundwater in the world, China is the second largest and the United States is third.

Bar chart showing the top 15 countries with the largest estimated groundwater extractions in 2010, breakdown by sector (%): agriculture, domestic use and industrial use . The top 15 countries are (in order), India, China, United States, Pakistan, Iran, Bangladesh, Mexico, Saudi Arabia, Indonesia, Turkey, Russia, Syria, Japan, Thailand, and Italy. Data from the National Groundwater Association.

The world’s growing population will lead to growing water usage while rising urbanization will increase per capita water and food consumption, particularly meat consumption. Food production is water intensive and meat-based products are among the most water-intensive sectors in the food industry. About 15,400 liters of water is required to produce one kilogram of beef and 5,988 liters to produce one kilogram of pork. By comparison just about 2,500 liters of water is required to produce one kilogram of rice.

As incomes rise and meat consumption sees a corresponding increase for the one billion plus population in India and China, which are already the world’s largest groundwater using nations, the water demand-supply mismatch will widen. This suggests the global demand for water will increase exponentially in the decades to come. Without improved water-use efficiency measures, agricultural water consumption is expected to grow by about 20% globally by 2050.

Smart irrigation solutions for agriculture are expected to help increase efficiency in water intensive sectors such as agriculture. Driven by expanding farming operations, an increasing need to increase farm profit, and government initiatives to promote water conservation, smart irrigation, which is a branch of the broader agtech sector, holds considerable growth potential particularly in India, China and the United States where over 50% of extracted groundwater is used by the agriculture sector.

92% of groundwater extraction from India’s overstressed Indus Basin is from the agriculture sector according to analysis by Earth Security Group.

Israeli agtech startup CropX offers a cloud-based smart irrigation solution for agriculture. The integrated software and hardware platform helps farmers increase yields by saving water and energy. On-field purpose-made sensors monitor soil moisture and gather data which is sent to CropX’s cloud platform where it is analyzed by CropX software which then updates the farmer through a mobile app on the farmer’s smartphone.  The farmer is then able to control the amount of water to each plant eliminating the need to water the whole field at one time thereby preventing water wastage through over watering and improving crop yields by maintaining optimal soil moisture levels.

Smart water solutions

Household consumption accounts for 10% of global groundwater withdrawals, the volume of which is likely to increase in the years ahead drive by population growth and urbanization. Smart water solutions for domestic use are expected to help optimize household water consumption such as by reducing wastage of water.

About 30% of global water supply is lost through leakage costing water utilities US$ 14 billion annually according to the World Bank. Wasted water, which is called non-revenue water (NRW), is a problem not just in developing countries but in developed ones too. London loses 25% of water through leakage, Hong Kong wastes 32.5%, Norway loses 32%, and the United States loses 14%-18%.

Such losses are avoidable. Countries that have comparatively better rates of water loss include Tokyo which loses about 2%, and Singapore which loses about 5%.

Consequently, the market for smart water solutions which monitor, detect and reduce leakage is a potential growth opportunity.

Research firm MarketsandMarkets projects the global smart water management market will grow from US$ 8.46 billion in 2016 to US$ 20.10 billion in 2021, representing a CAGR of 18.9% driven by a growing need to reduce NRW losses, sustainable use of energy, regulatory compliance and smart city projects.

Boston-based Inkwood Research projects the global smart water management market will expand at a CGAR of approximately 20.6% during the period 2017 – 2026 driven by smart city projects, aging water infrastructure and increasing need to reduce water loss. North America is expected to be the largest market. However Asia Pacific is expected to be the fastest growing market driven by countries such as China, India and Japan.

China and India, already the top two groundwater extracting nations in the world as illustrated in the chart above are likely to see greater water demand and water stress in the years ahead due to rising per capita income, increasing urbanization and industrialization. This is particularly true in China where water demand has been rapidly increasing and water supply has been rapidly dwindling, a situation that has been getting worse over the years; about one-fifth of China’s groundwater extraction is used for domestic purposes and according to research from the World Resources Institute, the percentage of land area in China facing high and extremely high water stress increased from 28% in 2001 to 20% in 2010.

The over-extraction of groundwater is impacting China not just through growing water scarcity risk but also increasing ground subsidence, i.e., sinking of land caused by the excessive removal of oil, natural gas or in China’s case, groundwater. According to a report released in 2012, more than 50 Chinese cities suffer ground subsidence issues.

Israeli startup TakaDu offers a cloud-based water management software-as-a-service (SaaS) solution that uses IoT, big data analytics and algorithms to help utility companies cut NRW losses by reducing leakage and supply interruptions, and anomaly detection  and automatic early warning anomalies.

TakaDu has deployed Water Network Monitoring solutions for a number of water utility companies including Portuguese water utility Águas de Cascais (AdC), Australian water company Hunter Water Corporation, and Chilean to water supplier Aguas de Antofagasta.

Industrial water treatment and recycling

About 20% of global water consumption is for industrial use and roughly 75% of industrial water withdrawals are used for energy production according to the United Nations World Water Development Report 2014.

Certain types of fuels require more water to produce than others. For instance, coal is among the most water-intensive fuels while natural gas is among the least water intensive. Coal production requires 10 times more water per ton of oil equivalent than natural gas production. Shale gas production requires 10 times more water per ton of oil equivalent than conventional natural gas production.

Coal extraction and refining is a very water intensive process and in China the world’s largest coal producer, the impact of coal production on the country’s water resources is already evident. China’s overstressed North China Aquifer serves 11% of the country’s population, 13% of the country’s agricultural production and a whopping 70% of the country’s coal production.

Yet, with coal accounting for about 40% of the world’s generated energy, it is likely to continue playing a role in the world’s energy mix going forward, particularly in China, India, the United States and Australia which are the world’s largest, second-largest, third-largest and fourth-largest coal producing nations respectively, and all four of which face water shortage issues; the Indus Basin in northwestern India and Pakistan is the second-most overstressed in the world while California’s Central Valley aquifer has been labeled as “highly stressed” according to studies led by the University of California using data from NASA’s GRACE satellites.

According to the U.S. Government Accountability Office, water managers in 40 out of 50 U.S. states expect water shortages in some portions of their states in the next decade.

This opens opportunities for industrial water treatment solutions. The industrial water treatment and recycling market is projected to grow by over 50% from around US$ 7billion in 2015 to US$ 11 billion in 2020 according to a report by Global Water Intelligence.

Much of today’s wastewater treatment involves treating wastewater, or effluent, and returning the treated effluent to groundwater or aquifers. Water reuse or water recycling however, sees the treated water being reused rather than being returned to the environment. Water reuse tends to be practiced in water-stressed countries such as Israel and Australia. Israel, the world’s leader in water recycling, over 70% of treated wastewater is reused.

Bar chart showing the percentage of treated wastewater reused, in 2015. Israel reuses 70% of all its treated wastewater. Australia reuses 19%, North America 4% and Brazil 1%.

It is likely that as water shortage issues grow, the market increasingly moves from water treatment to water reuse.

Much of reused water is currently used for agricultural purposes according to data from Global Water Intelligence and with agriculture accounting for 70% of global water withdrawals, the opportunity for water reuse technologies is evident particularly in countries such as India, China and the United States which are the world’s top three largest groundwater extracting nations and agriculture accounts for over half of water withdrawals in all three countries.

Pie chart showing global treated wastewater reuse, market share by application. 32% of the world's treated wastewater was reused for agricultural irrigation, 20% for landscape irrigation, 19.3% for industrial use, 8.3% for non-potable urban uses, 8% for environmental enhancements, 6.4% for recreational purposes, 2.3% for indirect potable reuse, 2.1% for groundwater recharge and 1.5% for other purposes.

Water desalination

Historically, desalination plants were concentrated in Gulf regions which have little alternatives for water supply. However, depleting water supplies and increasing water demand has forced countries outside the Gulf such as Australia, China, Japan, and the United States to build desalination plants to address impending water shortages. Desalination is in practice in more than 150 countries.

Yet, with increasing pollution, climate change, population growth and rising urbanization expected to drive water demand amid stagnant or falling water supplies, the demand for desalination technologies are expected to increase in the coming years. According to Hexa Research, the water desalination market is expected to grow to US$ 26.81 billion by 2025 driven by reverse osmosis.

There are two primary water desalination technologies; multi-stage flash distillation and reverse osmosis.  Flash distillation involves boiling seawater at low pressures (which requires less heat) and then condensing the resulting steam into salt-free water. This technology has been the most commonly used method for desalination over the past few decades and still remains so. According to Hexa Research, the market for multi-stage flash distillation is expected to grow at an 8,4% CAGR between 2014-2025.

Reverse osmosis, on the other hand, uses a membrane to filter salts from seawater to produce salt-free water. The technology was commercialized in the 1970s but was considerably costlier compared to multi-stage flash distillation; the membranes were not as effective in filtering salts and the membranes tended to wear out quickly.

However, over the past few years, there have been significant improvements that have helped increase its competitiveness and the fact that reverse osmosis consumes less energy than flash distillation (which has helped drive down desalination costs over the past few years) makes the technology more attractive. Consequently, new desalination plants are increasingly being built with membrane technology; according to the International Desalination Association (IDA), as much as 90% of new desalination capacity worldwide uses RO as opposed to distillation technologies. For instance in 2017, membrane technology accounted for 2.2 million m3/d of annual contracted desalination capacity while distillation technologies accounted for just 0.1 million m3/d.

The momentum is expected to continue; reverse osmosis is expected to be the fastest growing desalination technology going forward with Hexa Research predicting the market will be valued at US$ 15.43 billion in 2025. This could be a growth opportunity for companies such as Tetra Tech (NASDAQ:TTEK) and Veolia Environnement (EPA:VIE). Tetra Tech provides consulting, engineering, and technical services for the water sector while Paris-based Veolia Environment has been in the water business for over a century, designing and operating desalination plants for municipalities and industry around the world.

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These Are The Companies Profiting From China’s Belt And Road Initiative

"One Belt, One Road" map showing the Silk Road Economic Belt and the Maritime Silk Road under China's One Belt, One Road (aka Belt and Road) Initiative.

China’s Belt and Road Initiative (BRI) also known as the One Belt and One Road Initiative (OBOR), is an ambitious, trillion-dollar infrastructure project that aims to connect countries along two primary trade routes known as the “Silk Road Economic Belt” and the “Maritime Silk Road” in an effort to enhance connectivity, investment, international trade, and economic development.

The “Silk Road Economic Belt” represents the land-based route, and is named after the ancient trading route known as “Silk Road” which went through China, Central Asia, West Asia, the Middle East and Europe. The “Maritime Silk Road” represents the sea route which, like the original maritime trade route, linked Chinese ports with ports located in Southeast Asia, the Indian subcontinent, the Mediterranean, Europe and Africa.

"One Belt, One Road" map showing the Silk Road Economic Belt and the Maritime Silk Road under China's One Belt, One Road (aka Belt and Road) Initiative.

By various measures, BRI is one of the largest infrastructure and investment projects in history. About 70 countries representing about two-thirds of the world’s population and accounting for about one-third of the global economy are participating in Belt and Road projects. Under the initiative, some US$ 900 billion worth of projects are currently either under way or in detailed planning stages according to data from China Development Bank.

While some projects have encountered roadblocks and delays, numerous others are ongoing. Ongoing projects under the initiative include the Eurasian Railway Program (an 81,000 km railway linking China with Europe), the Colombo Port City (CPC) development project in Sri Lanka, the Khorgos Gateway project in Kazakhstan (a railway linking China with Kazakhstan), the Hungary-Serbia high speed railway (a 350km railway line from Budapest to Belgrade), the Gwadar deep sea port project in Pakistan, the China-Laos Railway (a 414km railway linking Laos with China), the Karot Hydropwer project in Pakistan, the Sino-Oman Industrial City in Oman’s port of Duqm, the Malaysia-China Kuantan Industrial Park in Malaysia, the Kohala hydropower project in Pakistan, the Melaka Gateway in Malaysia, the Yanbu Refinery in Saudi Arabia, and the Kunming-Singapore High Speed Railway (a 3,000 km railway line connecting China to Southeast Asia) to name a few.

Projects under the BRI initiative fall into one of six economic corridors, namely:

  1. The China-Indochina Peninsula Economic Corridor (CICPEC)
  2. The China-Mongolia-Russia Economic Corridor (CMREC)
  3. The New Eurasian Land Bridge (NELB)
  4. The China-Central Asia-West Asia Economic Corridor (CCWAEC)
  5. The China-Pakistan Economic Corridor (CPEC)
  6. The Bangladesh-China-India-Myanmar Economic Corridor (BCIM)

BRI projects that have been successfully completed include the Ethiopia-Djibouti High Speed Rail Link (a 752km railway linking Ethiopia’s capital to the Port of Djibouti), the Amsterdam-Yiwu railway (an 11,000km railway linking  Amsterdam in Netherlands with  Yiwu in China’s Zhejiang province), the Baku-Tbilisi-Kars Railway (an 846km railway linking Baku in Azerbaijan, Tbilisi in Georgia and Kars in Turkey), the Nairobi-Mombasa railway (a US$ 3 billion railway project linking Kenya’s capital Nairobi,  with Kenya’s port city of Mombasa), and the Rudbar Lorestan hydropower station in Iran to name a few.

The initiative is expected to unlock substantial commercial opportunities in the decades to come. With the initiative already having a positive impact on the bottom lines of some companies, many other companies around the world are keen to participate and are positioning themselves for a share of the pie.

Caterpillar (NYSE:CAT)

American heavy-machinery manufacturer Caterpillar which has been investing heavily in China the world’s largest construction and mining equipment market in the world, expects strong sales growth in 2018 boosted by robust business from China’s Belt and Road Initiative. The company said Asia-Pacific sales grew 22% in the fourth quarter of 2017, with half of the increase coming from China alone where contractors buy much of the machinery for BRI projects to take advantage of the initiative’s tax rebates and export them to the relevant countries where the BRI project is being carried out.

The company has also been flexing its finance arm to boost sales, lending to Chinese companies including state-owned enterprises.

Caterpillar is involved in BRI projects in 20 countries such as Kazakhstan, Sri Lanka, and Pakistan supplying heavy machinery such as drills, excavators, and hydraulic mining shovels for BRI projects such as roads, ports, mines, and oil fields.

Although Chinese rivals such as Sany Heavy Industries (SHA:600031) and Zoomlion Heavy Industry Sci & Tch Co Ltd (SHE:000157) dominate the local market and are expanding their international presence, Caterpillar’s advanced technology, superior reputation for quality and reliability, and extensive global dealer network in over 180 countries, (compared with Caterpillar’s key rival Sany Heavy Industries which has dealers in 100 countries) are solid competitive advantages that have put the company in a better position to capture orders for BRI-related projects. Caterpillar’s wider international dealership network is particularly advantageous considering the fact that while both companies maintain active dealerships in developed markets such as the United States and Europe, Caterpillar has a relatively wider footprint in developing markets where much of the Belt and Road projects are being carried out.

For instance, thanks to Caterpillar’s strong brand name and its active, experienced dealer network in Sri Lanka (unlike Sany Heavy Industries which is relatively unknown and has a relatively limited presence in the country), Caterpillar captured a number of equipment orders for the Colombo Port development project in Sri Lanka which required machinery such as hydraulic excavators.

COSCO Group (SHA:601919) (HKG:1919)

 Chinese shipping giant COSCO has been riding on China’s Belt and Road Initiative to aggressively expand and strengthen its global presence helped by a supportive government and access to low-interest loans which enable the company to make more aggressive bids for port assets compared to competitors; loans from Chinese state banks to fund BRI-related initiatives are as low as 2.5%.

In 2017, COSCO acquired APM Terminals Zeebrugge in Belgium, and acquired a 51% equity interest in Spanish port company Noatum Port Holdings which operates terminals at ports such as the Valencia port and railroad terminals in Madrid.

In 2016, the company acquired a 51% stake in Piraeus Port, which is the largest port in Greece, and has launched of a number of projects to upgrade the port to help make it a transshipment hub for expanding trade between Asia and Eastern Europe.

COSCO has signed a 35-year concession agreement with Abu Dhabi Ports (which operates Khalifa Port) that sees COSCO building and operating a new container terminal at Khalifa Port in Abu Dhabi, in an ambitious plan that aims to almost double the container handling capacity at Khalifa Port over the next several years by adding 2.4 million TEUs to  the existing 2.5 million TEUs.

COSCO acquired a stake in the Khorgos Gateway in Kazakhstan, an ambitious BRI project that aims to develop the biggest dry port in the world. The project, which Chinese president Xi Jinping called “the project of the century” connects Kazakhstan to China by rail.

Kazakhstan, the world’s largest landlocked country, sits right in the middle of China’s Silk Road Economic Belt. The country’s strategic location makes it a key link in transport routes between markets in Asia and Europe. Overland freight routes pass through Kazakhstan from all directions and with trade expected to grow along the Belt and Road, freight volumes are expected to accelerate in the decades to come making the China-led transportation projects significantly important to landlocked Kazakhstan and other countries in Central Asia such as Azerbaijan.

Volumes of rail freight moving between China and Europe are on the rise; during 2013 and 2016, rail freight volumes grew more than three-fold in just two years to over 300,000 tons in 2016 according to data from aviation consulting firm Seabury Consulting (owned by Accenture).

Bar chart showing China-Europe rail freight volumes ('000 tons) in 2013 and 2016. - LD Investments

China-Europe rail freight volumes registered a CAGR of 65% between 2013 and 2016, far surpassing growth rates in other trade types.

Bar chart showing CAGR of ocean trade, air trade, international express, parcels by mail and the China-Europe rail pre financial crisis and post crisis - LD Investments

Yet, much of China-Europe cargo is still carried by sea and to a lesser extent by air; more than 90% of trade between China and Europe occurs via ocean, while rail accounts for less than 5% of goods moved between China and Europe (most of which is carried through the Trans-Siberian railway).  However, rail is considerably cheaper than air and faster than sea and rail is particularly competitive to transport goods between points located deep inland.

Thus, there is a case for rail freight transport as Chinese manufacturing bases relocate from coastal areas where wages and realty prices are rising, to areas further inland where wages and property prices are more competitive.

China-EU transit volumes transported via Kazakhstan amounted to just about 32,000 TEU in 2015, which is just about 1% of total China-EU container traffic according to data from The Brookings Institution. However, driven by the relocation of manufacturing bases in Western China, and greater trade among Belt and Road countries, there is potential for Kazakhstan to increase the volume of transit container traffic to 240,000 TEU by 2030.

Thus, COSCO is well positioned to profit from expanding trade among Belt and Road countries. According to its 2017 annual results, 62% of the company’s total container shipping capacity was deployed along Belt and Road routes, comprising 180 container vessels with a total capacity of 1.15 million TEU.

China Merchants Port Holdings (HKG:0144)

China’s leading port operator China Merchants Port Holdings (CMPort) is actively involved in China’s Belt and Road initiative which has helped the state-owned conglomerate expand its international presence.

At the end of 2017, the company owns 31 ports in across 16 countries and five continents and the number is likely to grow in the coming years as the company aggressively snaps up terminals worldwide, helped by an encouraging regulatory environment for BRI-related projects and easy access to cheap BRI-financing from state banks (typically funding comes as a loan from the state-owned Export Import Bank of China, which usually have long maturity periods of about 20 years, and low interest rates of about 2%).

The company built and owns a stake in the new Doraleh Multipurpose Port, a US$ 600 million “flagship” project in Djibouti which recently began operations.

The company participated in upgrading the port facilities and the planning and construction of the Djibouti Free Trade Zone.

CMPort owns and operates the Colombo International Container Terminal (CICT) which saw an 18.5% YoY increase in container throughput to 2.39 million TEUs last year, making it one of CMPort’s top performing overseas port facilities in terms of volume growth last year. The boost helped CMPort handle a total container throughput of 102.9 million TEU in 2017 surpassing the 100 million TEU container throughput milestone for the first time.

As of 2017, Colombo was ranked among the top 30 busiest ports in the world in terms of container traffic. Colombo sits at the heart of China’s 21st Century Maritime Silk Road making it a strategically important location on the East-West shipping route.  As trade grows between China and other BRI countries, Colombo is poised to capture some of the increase in container traffic.

CMPort has also acquired an 85% stake in Sri Lanka’s Hambantota International Port Group Ltd which is involved in the Hambantota port development project in Sri Lanka.

Hambantota, located about 200km south of Colombo, holds immense potential to develop into a top container port in its own right. Hambantota’s strategic location coupled with its owner China Merchants Port Holdings’ global clout and commercial relationships with its network of Chinese shippers could help Hambantota emerge as a major port.

In the longer term, CMPort is poised to profit as container throughput grows along with growing trade among Belt and Road countries. The total value of China’s imports and exports to Belt and Road countries reached 7.37 trillion yuan (about US$ 1.14 trillion), a 17.8% increase YoY in 2017 according to Huang Songping, spokesperson for the General Administration of Customs. The value of imports and exports to Belt and Road countries accounted for 26.5% of China’s total imports and exports in 2017.

Alibaba (NYSE:BABA)

China’s new Silk Road is going digital and China’s largest e-commerce platform, Alibaba, is positioning itself to profit from the anticipated increase in trade among Belt and Road countries in the decades to come.

Alibaba’s finance affiliate Ant Financial which owns China’s most popular mobile payment app, Alipay, has been expanding its global reach by rolling out the payment app in countries along the Belt and Road such as Malaysia, Indonesia, Pakistan, Cambodia, Laos, Myanmar, and Vietnam. Ant Financial has also signed a partnership with London-based Standard Chartered Bank to collaborate on enhancing financial inclusion in Belt and Road countries.

Alibaba is also positioning itself as the platform of choice for SMEs in Belt and Road countries looking to capitalize on cross-border trade opportunities as a result of greater trade connectivity the BRI initiative is expected to bring.

Alibaba is leading the charge, together with the Malaysia Digital Economy Cooperation (MDEC) to develop a ‘Digital Free Trade Zone’ in Malaysia, a BRI-project expected to facilitate trade between Chinese and Southeast Asian SMEs. The effort includes a regional e-commerce and logistics “hub” near the Kuala Lumpur International Airport and an electronic World Trade Platform (eWTP) which offers Malaysian SMEs the necessary infrastructure for cross border ecommerce such as order fulfillment, logistics, and centralized customs clearance services. Already more than 1,900 Malaysian businesses have signed up to use the eWTP hub. The e-commerce and logistics “hub”, which is expected to be developed by the end of 2019, will be jointly developed by Malaysia Airports Holdings Berhad (KLSE:AIRPORT) and Cainiao Network (Alibaba’s logistics arm).

Siemens (ETR:SIE)

German industrial giant Siemens has been actively positioning itself to capitalize on business opportunities in China’s Belt and Road projects. The company has set up a Belt and Road office in Beijing and has signed ten cooperation agreements with Chinese companies such as China National Chemical Engineering Group Corp, China Railway Construction Corp (International) Ltd and China Civil Engineering Construction Corp. The agreement covers a wide range of business sectors such as power generation, energy management, building technology and intelligent manufacturing among others for BRI projects in countries such as Indonesia, the Philippines, Nigeria, Mozambique and South America.

 

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5+ Startups Using Blockchain To Transform Our Food Chain

Bar chart showing blockchain investment by industry according to a 2017 survey by PwC

The complexity of today’s food chains has resulted in problems such as food fraud (which is estimated to cost US$ 30 – US$ 40 billion a year according to PwC), food waste (which is estimated to cost US$ 750 billion annually to local food producers according to the United Nations), and food safety problems such as food contamination (which is estimated to result in an estimated 600 million people falling ill and 420,000 deaths every year, resulting in the loss of 33 million healthy life years according to the World Health Organization).

Blockchain, the underlying technology behind Bitcoin is increasingly being considered as a solution to address the above food chain problems. Although the technology is still at its infancy and has several challenges to overcome such as high computing and energy needs, major food corporations such as to name a few, Walmart (NYSE:WMT), Chinese e-commerce giants Alibaba (NYSE:BABA) and JD.com (NASDAQ:JD), French retailer Carrefour (EPA:CA) and UK retailer Sainsbury’s (LON:SBRY) are all testing or have incorporated blockchain technology into their supply chains.

According to a 2017 survey conducted by global consulting firm PwC, just about 1% of companies in the retail and consumer sector are making substantial investments in blockchain today. However, in three years’ time, the number of companies in the sector making substantial investments in blockchain technology rises to 6%.

Bar chart showing blockchain investment by industry according to a 2017 survey by PwC

Food safety concerns and increasing demand for food supply chain transparency are key growth drivers in the food traceability market which uses technologies such as RFID tags, sensors and blockchain to track food products from farm to fork. Market research firm MarketsandMarkets projects the global food traceability market to grow to US$ 14 billion by 2019 and Research and Markets expects the market to reach US$ 16 billion by 2021.

Tech giants including Microsoft, Accenture and notably IBM (NYSE:IBM) have rolled out blockchain solutions. IBM has formed a blockchain collaboration with food companies including Walmart, Dole, Driscoll’s, Golden State Foods, Kroger (NYSE:KR), McCormick and Company, McLane Company, Nestle (NESN:VTX), Tyson Foods (NYSE:TSN), and Unilever (NYSE:UN) (LON:ULVR).

IBM has also partnered with Walmart, China’s Tsinghua University and Chinese e-commerce giant JD.com to form the Blockchain Food Safety Alliance which aims to use blockchain technology to achieve greater food safety, tracking and traceability in China

A Blockchain Enterprise Survey conducted last year by Juniper Research revealed that IBM had the strongest blockchain credentials, while Microsoft (NASDAQ:MSFT) came in second and Accenture (NYSE:ACN) was placed third; amongst enterprises either actively considering, or in the process of deploying blockchain technology, nearly half (43%) ranked IBM first while 20% selected Microsoft (20%).

While major tech companies grab headlines with their blockchain solutions, a number of startups are also vying for a share of the food blockchain market. Here is a list of noteworthy startups to watch.

 

bext360

Colorado-based startup bext360 is on a mission to re-invent today’s coffee supply chain using technology such as artificial intelligence, the Internet of Things (IoT) and blockchain to introduce greater transparency, improve coffee quality and better compensate coffee farmers.

bext360 has partnered with Great Lakes Coffee (a Uganda-based coffee sourcing, milling and exporting company) and Coda Coffee (a Denver-based to conduct a pilot program using bext360’s “bextmachine”, a mobile kiosk that uses machine learning and artificial intelligence to evaluate coffee cherries and beans from farmers, and grade them based on quality. Coffee farmers can view the grading results using a mobile app, accept payment offers and receive payment electronically immediately. This a revolutionary change from the current status quo in which coffee farmers would deliver their coffee crop to buyers that would manually inspect and grade the beans, and pay farmers days or sometimes months later.

The system then follows the coffee’s journey to the end consumer, tracking relevant data along the way. The bext360 platform uses blockchain to store an immutable record of transactions in real time, which all actors in the supply chain such as coffee farmers, coffee roasters and consumers can view.

bext360 has also partnered with Moyee Coffee, the world’s first FairChain coffee brand to launch a full-scale revenue generating program to trace coffee from Ethiopia to Amsterdam as well as payments made to coffee farmers in Ethiopia using the startup’s bext-to-brew platform which is built on Stellar.org’s blockchain technology.

The partnership makes Moyee Coffee Europe’s first blockchain-traceable coffee brand. Moyee Coffee fans will gain an unprecedented level of transparency, gaining access to verified data such as the origin of the coffee, while Moyee Coffee gains by being able to reduce overheads as the bext360 system eliminates the requirement for time-consuming, error-prone documentation etc.

The opportunity is substantial. The global coffee market is worth US$ 81 billion and growing. However, while global coffee revenues jumped from US$ 30 billion in 1991 to US$ 81 billion in 2016, small-scale coffee farmers who make up the majority of the world’s coffee producers, saw their incomes drop from 40% to under 10% during the same period, according to Fairtrade International. Most of the farmers’ families live on less than US$ 2 a day.

The winds are changing. Millenials and other coffee drinkers are increasingly seeking greater transparency fueling growth in the fair trade coffee market. According to the Tropical Commodity Coalition, ethically certified coffees accounted for 6% of worldwide coffee production in 2008, up from just 1% in 2002. And retail sales of Fairtrade coffee beans have soared 250% in the decade from 2004 to 2014.

 

Ripe.io

Californian startup Ripe.io says it is building the “Blockchain of Food”, a food supply chain solution that uses the Internet of Things (IoT) and blockchain to provide real time monitoring and collection of crop data such as location, environmental conditions and quality factors such as ripeness and taste.

The solution aims to solve food supply chain problems such as transparency, wastage and food quality by providing food supply chain participants a historical record of validated crop data which could be used for analytical purposes; farmers for instance could use the data to decide when a plant is ready to be harvested and once the plant has been harvested based when it reached optimal ripeness, this information can be communicated to participants along the supply chain.

The startup conducted a pilot project with Ward’s Berry Farm in Massachusetts, placing tomatoes on the blockchain to track their ripeness, color, PH levels, sugar content which is used to assess the quality of the tomatoes in an effort to reduce spoilage and deliver verified higher quality and more flavorful produce for the farm’s customers such as fast-casual salad chain Sweetgreen which participated in the pilot program.

 

ZhongAn Technology

Innovative Chinese startup ZhongAn Technology, which is the technology unit of Alibaba-and-Tencent-backed Chinese insurtech giant ZhongAn Online Property & Casualty Insurance (HKG: 6060), which made headlines as the world’s first insurtech IPO when it filed for a listing in Hong Kong last year, has developed a blockchain-based technology to track chickens, recording important information such as the age of the individual bird, its location, the food it eats and how much exercise it gets daily. Each chicken wears an anklet since the day of its birth which connects wirelessly to a blockhain-based network that records and stores data on a blockchain ledger in real time about the chicken. Customers can download a smartphone app that enables them to track the chicken’s journey along the supply chain.

Known as Gogochicken, the technology offers a solution for customers to validate chicken producers’ claims such as “hormone free chicken”, “free-range chicken” and “cage-free chicken”. For chicken farmers, the technology allows them to sell free-range, hormone free chicken at higher prices which consumers are able to pay a premium for but are hesitant due to a general lack of trust in locally produced food and the inability to validate claims on product labels.

As of September last year, ZhongAn has worked with 200 farms. By 2020, the company expects to increase the number over ten-fold to 2,500. The startup believes its technology could be expanded to pigs, cows and other livestock. The opportunity for the startup’s solution is substantial. Food safety is a key concern for consumers in China which is the world’s second largest poultry market, and the world’s largest pork consumer, importer and producer.

 

Advanced Research Cryptography Ltd (Arc-net)

Founded in 2014, Northern Irish startup Advanced Research Cryptography Ltd (Arc-net) offers a cloud-based traceability solution through its arc-net platform which uses blockchain technology to enable food corporations to validate the authenticity and provenance of food products as it moves along the supply chain thereby empowering the food industry to tackle food fraud.

The startup has teamed up with Scottish distillery Adelphi Ardnamurchan Distillery to place their new Ardnamurchan 2017AD spirit on Arc-net’s platform which would securely store information on the product’s production process from seed to bottle thereby allowing the brand as well as the brand’s customers to trace the product’s journey across the food chain; each bottle of limited edition Ardnamurchan Spirit 2017 AD features a unique QR code which, using blockchain technology, links to a digital, validated record of the bottle’s history, providing information such as the origin of the barley used to produce the spirit, the bottler and when the contents were bottled. This would help the distillery prevent or at least mitigate counterfeit products from stealing sales and diluting the brand’s reputation.

The tie-up could be just the tip of the iceberg for Arc-net. Counterfeit alcohol is a serious global problem; according to a news report by Interpol, in a joint Interpol-Europol operation conducted between 1 December 2016 and 31 March 2017 targeting counterfeit food and drink around the world, counterfeit alcohol was the most seized product, followed by meat and seafood.

Arc-net has also been selected as a technology partner in a £10 million pound EU-China food safety program. As part of the program, Arc-net is working with UK food producer Cranswick PLC (LON:SWK) to track pigs being exported to China. This could be a major revenue stream for the startup given that China is the world’s largest pork importer. The country’s pork imports are expected to grow 6% this year, according to Rabobank’s Pork Quarterly Q1 Report, and with China considering a 25% tariff on US pork imports, imports of European pork could potentially increase. In 2017, America exported US$ 1.1 billion of pork products to China and Hong Kong, making it the third biggest market by value. Arc-net has also partnered with global consulting firm PwC to help fight food fraud.

 

EZ Lab

Italian startup EZ Lab has partnered with management consulting firm EY to create a “Wine Blockchain”, a blockchain-based traceability system for Italy’s wine supply chain. Data on the entire wine making process such as the location of the vineyards and cultivation of the grapes, the process of producing wine and its distribution, and information related to the final product such as organoleptic characteristics are recorded on the system which can be viewed by all actors along the supply chain from the wine producer to the customer. Using their smartphones, customers scan a QR code on the wine bottle to retrieve the data.

The first wine to be tracked using “Wine Blockchain” is Falanghina Wine, which is produced by Cantina Volpone.

The solution is timely for Italy’s wine industry; according to a 2016 report by the European Union Intellectual Property Office (EUIPO) Italy’s wine and spirits manufacturers lose an estimated €162 million annually (equal to approximately 2.7% of the Italian wine and spirits market) as a result of counterfeiting and an additional €18 million is lost each year in excise duties.

Most of Italy’s prized culinary specialties such as Parmigiano-Reggiano cheese, traditional Italian balsamic vinegar, and Italian wine are certified by the Italian government for authenticity and quality. In the case of wines, certifications such as “D.O.C.G.” – Denominazione di Origine Controllata e Garantita (controlled and guaranteed designation of origin) and “D.O.C.” – Denominazione di Origine Controllata (controlled designation of origin) are awarded by Italian government-licensed committees and these wines tend to command extremely high prices. However, their high prices make them an attractive target for counterfeiters. EZ Lab’s “Wine Blockchain” solution is expected to help Italian wine producers (particularly those with such certifications), protect their brands and fight counterfeit products. 

The solution is also a boon for Italy’s wine connoisseurs; reportedly nine out of 10 consumers said they would like to have more information about Italian wine, their certification criteria and origin and more than 70% are willing to pay a premium for a guarantee of certification and origin. 

Italy is the world’s leading wine producer and with the country’s wine industry on an upward trend, EZ Lab looks positioned to ride on this growth too with its “Wine Blockchain” solution. Italian wine exports have increased 74% between 2006 and 2016 and the momentum shows no sign of slowing down; Italian wine exports grew by 7% in 2017, reaching a record high of around €6 billion, according to Italian agricultural organization Coldiretti. 

 

Everledger

London-based blockchain technology startup Everledger rose to prominence with its blockchain solution which tracks the provenance of diamonds to fight counterfeits in the diamond industry. Since 2015, Everledger has placed more than 1.6 million diamonds on its blockchain solution and the company is adding other luxury goods to its platform such as fine art and fine wine.

The startup has partnered with renowned wine expert Maureen Downey to jointly create Chai Wine Vault, a blockchain-based solution that uses Maureen Downey’s TCM (The Chai Method) wine authentication method to track the authenticity and provenance of fine wines. Downey’s method of wine authentication involves collecting more than 90 data points on a bottle in addition to high-resolution photographs and records of the bottle’s ownership and storage which are permanently and securely recorded in Everledger’s blockchain platform to create a permanent, verified digital record of the wine bottle which can be accessed throughout the bottle’s lifetime to verify its legitimacy, thereby securing the investment value of the wine asset for centuries. The first bottle to be certified on the Chai Wine Vault is a bottle of 2001 Margaux. 

The solution is aimed at combating counterfeit wine which Downey estimates accounts for much as 20% of wine sold globally.

FoodLogiQ

American food traceability startup FoodLogiQ offers a Software-as-a-Service (SaaS) solution which uses blockchain to provide services such as food traceability, food safety, and supply chain transparency solutions on a single platform to participants in the food industry such as food distributors, food importers, growers, restaurant operators, grocers and food retailers.

The startup is reportedly among the leading vendors of food safety, traceability, and supply chain transparency software, having racked up an enviable customer list which includes names such as Amazon.com Inc, Whole Foods, Buffalo Wild Wings, Chipotle Mexican Grill Inc, CKE Restaurants, Jac Vandenberg and Nature’s Finest to name a few, and the company has launched a blockhain pilot program in partnership with AgBiome Innovations, Subway/Independent Purchasing Cooperative, Tyson Foods, and Testo (the last two of which are also investors in FoodLogiQ) to conduct a pilot program FoodLogiQ operates in a market that is ripe for disruption; consumers are increasingly demanding greater transparency and visibility into the origin and processing of their food and FDA regulations are becoming increasingly stringent, compelling players in the food supply chain to seek and  invest in technologies that facilitate compliance and satisfy consumer demand while protecting their bottom lines.

An effective traceability system could help reduce liability costs, reduce product waste, improve food recall efficiencies, and improve consumer confidence.

According to forecasts from BIS Research, the global food traceability market is expected to grow from US$ 11.63 billion in 2016 to reach US$ 16.09 billion by 2022, representing a CAGR of 5.56% from 2016 and 2022 driven by increasing concern about food safety and quality, thereby triggering greater demand for food traceability solutions.

IndustryARC projects the global food traceability market to grow at 8.1% CAGR between 2017-2023, reaching US$ 17.05 billion by 2023. Although Asia-Pacific is expected to be the fastest growing market, North America is expected to remain as the biggest market for food traceability solutions. While barcodes are the dominant technology in the global food traceability market, blockchain-based solutions such as those offered by FoodLogicQ could emerge as an alternative option given its merits such as its ability to produce and store a chain of immutable records.

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Southeast Asia: Emerging Wave Of Opportunities In Booming Digital Economy

Bar chart showing people aged 0-24 (number., and percentage of the country's population) in Southeast Asian countries namely Indonesia, Philippines, Vietnam, Myanmar, Thailand, Malaysia, Cambodia, Laos, Singapore, Timor Leste, and Brunei.

Venture capital funding into Southeast Asian startups tripled in 2017 from US$ 2.52 billion in 2016 to US$ 7.86 billion in 2017 according to data from Tech in Asia.

The flurry of activity in Southeast Asia’s startup scene is not surprising; the 11-country region has a population of about 650 million, about 42% of which are aged 24 and below according to data from the CIA World Factbook, and about 51% of the total population (equal to about 260 million) are active internet users with about 90% of them accessing the internet using their smartphones according to a report by Google and Temasek.

Bar chart showing people aged 0-24 (number., and percentage of the country's population) in Southeast Asian countries namely Indonesia, Philippines, Vietnam, Myanmar, Thailand, Malaysia, Cambodia, Laos, Singapore, Timor Leste, and Brunei.

HSBC revealed that Southeast Asia is the world’s fastest growing internet region with nearly four million users coming online for the next five years, representing a user base of 480 million by 2020.

Southeast Asians are also growing increasingly wealthy; in 2012, Southeast Asia’s middle class population (people with disposable income of $16-$100 a day) was estimated at 190 million people. According to Nielsen, by 2020, the figure is expected to more than double to 400 million.

With a youthful, increasingly digitally savvy population along with rising disposable incomes, Southeast Asia has the ingredients to fuel a major expansion of its digital economy over the next few years thereby triggering a wave of investment opportunities, making the region an attractive location for investors and entrepreneurs exploring opportunities in the digital space.

The digital revolution has already given birth to a number of homegrown unicorns such as Alibaba-backed Lazada (Southeast Asia’s e-commerce leader), Google-and-Tencent-backed-Go-Jek, Grab, Razer, Tokopedia, Traveloka and Sea to name a few however the region’s blossoming startup ecosystem is in good position to produce numerous more in the coming years. A report by Google and Singapore’s sovereign wealth fund Temasek found that that Southeast Asia’s digital economy is growing at a CAGR of 27% and is expected to expand four-fold from about US$ 50 billion in 2017 to US$ 200 billion by 2025.

By destination, Singapore and Indonesia raked in the lion’s share of 2017 funding dollars, while by sector, fintech, e-commerce and gaming took in the most investments according to Tech in Asia. However, there are untapped opportunities in other countries within the bloc and in other sectors.

 

Education

Education is big business in Southeast Asia and private education is on the rise partly thanks to an expanding middle class. Private education spend in Southeast Asia is estimated to have reached nearly US$ 60 billion in 2015 according to a report by global advisory firm EY. Education technology or “edtech” has tremendous potential in the region; London-based consultancy firm IBIS Capital estimates the global edtech market will expand three-fold between 2013 and 2020 to reach $252 billion in 2020. During that time, it is expected that the Asia-Pacific region will see its edtech market go from 46% of the global market to 54%.

Much of the growth is likely to stem from India and China which have the world’s largest and second-largest youth population i.e. those aged 10-24 (India has 356 million and China has 269 million people aged between 10-24).

However, Southeast Asia is also poised to ride the opportunity driven partly by Indonesia which is home to 67 million 10-24 year olds, the world’s third largest youth population. And unlike the hyper-competitive markets of ride-hailing, e-commerce, travel, food delivery and mobile payments, Southeast Asia’s “edtech” market is a relatively uncontested territory; while China and India both have an edtech startup to their list of homegrown unicorns (China has Yuanfudao and India has Byju’s), Southeast Asia has yet to find its own. There are however a few startups worth watching. One of them is Indonesian edtech startup Ruangguru (literally means “teacher’s room” in Indonesian) which is reportedly the largest marketplace for private tutoring in Indonesia, a country which despite having the world’s third largest youth population, ranks relatively poorly education-wise; a study commissioned by the Network for Education Watch Indonesia (JPPI) reveals that the index of education services in Indonesia in 2016 is at the same level as Honduras and Nigeria but lower than the Philippines and Ethiopia.

 

Health

Southeast Asian’s healthcare market is a growth opportunity supported by solid fundamentals; a growing population along with the rise of an increasingly affluent middle class is leading to an increase in Non-Communicable Diseases (NCD) such as diabetes, heart disease and cancer. According to the World Health Organization, 55% of deaths in the region are due to NCDs. This is creating an increased demand for healthcare however in terms of supply, the availability of medical facilities, equipment and manpower is relatively inadequate with the exception of Singapore; a ranking of 191 countries by the World Health Organizations of the world’s health systems ranks Singapore in 6th position while other Southeast Asian countries appear down the list; Brunei is 40th, Thailand is 47th, Malaysia 49th, Philippines is 60th, Indonesia is 92nd, Vietnam is 160th, Laos is 165th, Cambodia is 174th, and Myanmar is 190th.

Singaporean startup DocDoc is a healthcare platform that enables patients to find and schedule appointments with healthcare professionals overseas. The platform holds promise as a solution to connect affluent patients in Southeast Asia (Indonesia is a priority for the startup) seeking quality treatment in neighboring countries.

Go-Jek-backed Indonesian e-health startup Halodoc has taken a more holistic view in tackling Indonesia’s healthcare system; founded by the son of the founder of Mensa Group, one of Indonesia’s largest healthcare companies, HaloDoc has built a network of nearly 20,000 licensed doctors and about 1,000 certified pharmacies, and forged partnerships with service providers such as Go-Med (a medicine delivery service owned by Indonesian ride-hailing startup Go-Jek) and ApotikAntar (a medicine delivery service) to offer  an integrated healthcare solution for patients.

 

Home Services

Asia Pacific is the fastest growing region in the world for sales of home improvement products according to Euromonitor International.

While China is the biggest market in the region, Southeast Asia is positioned to account for a significant share of the market driven by strong housing demand (a survey by PropertyGuru found that home ownership is a major aspiration for Southeast Asian consumers), and rising disposable incomes.

The opportunity is a boon not just for sales of home improvement products but also for home improvement services as time-strapped, middle class home owners turn to service providers for their home improvement needs.

However, as much of these service providers are small businesses and individuals, they often have little to no brand recognition and are often hard to locate which means customers are forced to find such professionals through referrals from friends and co-workers.

Malaysian startups Kaodim, ServisHero and Recommend.my are aiming to capitalize on the opportunity.

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China’s Geely: A Formidable Global Automaker In The Making?

Bar chart showing the world's top 10 fastest growing car brands in 2017 (by YoY sales volume growth %).

Chinese automaker Geely (HKG: 0175) (OTCMKTS: GELYF) is on a hot streak. The company reported record sales in 2017 selling 1.24 million units, a 63% year-on-year increase, emerging as the world’s second-fastest growing automaker by sales volume in 2017.

Bar chart showing the world's top 10 fastest growing car brands in 2017 (by YoY sales volume growth %).

Much of Geely’s sales were concentrated in its home country China, the world’s largest passenger car market, which accounted for over 99% of the brand’s sales volume in 2017 according to data from its annual report. Geely’s strong sales performance in China helped boost its market share to 5.06% of China’s passenger car market in 2017, an increase of 1/75% from the previous year.

Outside China, Geely’s subsidiary Volvo Cars which Zhejiang Geely Holding Group acquired in 2010 is also on a run, reporting its fourth straight year of record sales; revenues grew 17% in 2017 to 210.9 billion Swedish crowns while operating profit rose jumped 28% to 14.1 billion ($1.76 billion) from 11.0 billion in 2016. Volvo sold 571,577 Volvo cars globally last year, up 7% thanks to strong sales in China its biggest market, which accounted for 20% of Volvo’s sales in 2017.

After years of lackluster performance under the Ford Motor Co umbrella, the upscale Sweden-based Volvo Cars is now a success story, enjoying a remarkable turnaround under Geely’s ownership.

Global expansion

For Geely, already a major automaker in China, Volvo’s success could be a sign of bigger things to come as Geely sets its sights on going global. The company has been aggressively amassing a formidable portfolio of international car brands thereby expanding its geographical reach and broadening it technical expertise; the company gained an avenue into Europe through its acquisition of Volvo Cars while its 49.9% stake in Malaysia’s Proton Holdings Bhd gives it an inroad into Southeast Asia.

Geely’s 51% stake in British sports car maker Lotus Cars will give the company a presence in the sports car segment while its acquisition of American flying-car startup Terrafugia gives it access to the nascent flying car industry. The investments may also play a part in uplifting the brand’s image going forward; having started life as a cheap, low-cost, no-frills car brand, Geely has already come a long way since its inception boasting four design studios around the world (specifically in Los Angeles, Barcelona, Gothenburg and Shanghai) employing over 500 designers (headed by Geely’s chief designer Peter Horbury who formerly worked at Volvo and Ford), and four R&D centers (in Hangzhou Bay, Ningbo, Coventry and Gothenburg) employing nearly 7,000 full-time engineers.

With average e-x-factory selling prices of its vehicles steadily climbing from RMB 47,872 per unit in 2012 to RMB 73,550 per unit in 2017 according to its latest annual report, the company is now making inroads into the midscale auto segment with its new car brand Lynk & Co which is being developed with technology from Gothenburg-based Volvo.

“Born global and connected”, the millennial-aimed Lynk & Co car brand which made headlines as the “most connected car ever” (a ‘smartphone on wheels’) is unique in several aspects; the company’s cars can be purchased outright, or they could be leased, or they could be subscribed to via the company’s subscription model, or they could just be borrowed via the car’s unique ‘sharing’ feature. The company’s focus on mobility rather than car ownership means it fills a niche that taxi companies, ride-sharing solutions such as Uber, and traditional auto companies such as Honda do not fulfill. Lynk & Co is also differentiating itself by building a direct-to-consumer sales model, allowing customers to purchase a car online thereby bypassing traditional dealer networks.

Geely’s new marque holds promise; in November last year, Lynk & Co held a three-day sales campaign in China for the brand’s ‘01’ SUV model. In just over two minutes, the stock of 6,000 vehicles was sold out.

However, while the Geely brand is expected to continue its goal of being a leading automotive brand in China, Lynk & Co which is European designed and engineered, aspires to be a global auto brand, competing against global car giants such as Volkswagen and Ford. Lynk & Co plans to launch sales of its cars in Europe in 2019 and in the United States in 2020. The brand is aiming to sell 500,000 cars globally by 2021.

Over in Southeast Asia, Geely has been busy trying to turn-around struggling Malaysian car company Proton, which it acquired last year. Established in 1983, Proton reached its zenith in 1996 when the company accounted for 64% of Malaysia’s car sales, and exported its cars to over 50 countries including Australia, Ireland, New Zealand, Sri Lanka and Brunei. That was also the year Proton acquired sports car brand Lotus Cars.

Fast forward to today, Proton’s market share has dwindled to less than 15% with sales dropping to 70,991 last year from 72,291 units in 2016. Meanwhile local rival Perodua, and Japanese car company Honda are flying high in the country with market leader Perodua’s sales exceeding 200,000 units and Honda notching record-breaking sales of 109,511 last year.

Bar chart showing Malaysia passenger car sales (number of units) by car brand, 2016 and 2017.

Determined to regain lost ground, Proton is now on an aggressive transformation path with CEO Dr Li Chunrong introducing multiple changes for Proton dealerships and service centers in the country aimed at strengthening the brand and improving customer experience, as well as tapping into Geely’s technical know-how and expertise to help Proton expand its current model lineup to include SUVs (Proton is reportedly developing its first SUV model from Geely’s best selling SUV model the “Boyue”), and move up from producing fossil fuel vehicles to plug-in hybrid and electric vehicles. Malaysia is Southeast Asia’s third largest automotive market after Thailand and Indonesia, and if Geely could repeat its Volvo turnaround success story with the currently loss-making Proton, Geely could be sitting on a potentially profitable investment as well as a platform to develop a beachhead in Southeast Asia.

Under its former owner Proton, iconic British sports car brand Lotus Cars struggled due to lack of funds and currently offers a handful of models dating back several years. However under its new deep-pocketed owner, Geely, it could be light at the end of the tunnel for Lotus Cars as Geely could do for Lotus Cars what it did for Volvo; offer much-needed financial support along with a relatively hands-off management to allow Lotus Cars to unlock its full potential.

The partnership could also result in a cross-pollination of technology, know-how and possibly other resources as well such as suppliers and distribution networks among Geely’s portfolio of automotive marques similar to the way the Geely-Volvo tie-up gave birth to Lynk & Co which uses technology jointly developed by the two companies. Volvo and Lotus Cars are reportedly exploring options on sharing their technologies (Lotus Cars is renowned for lightweight engineering while Volvo is known for safety features and hybrid drivetrains).  The resulting partnerships could generate significant cost savings such as through shared development costs and procurement costs.

Eye on costs 

While Geely’s global aspirations could boost top-line growth, such international expansion plans are expensive and hence if unchecked could negatively impact bottom-line performance resulting in poor investment returns. However, Geely seems to have its eye on costs as well. Geely’s new marque Lynk & Co is reportedly aiming for success by being “brutally simple” by limiting model variations that rotate seasonally and offering limited options which the management believes is not only cost effective since production costs are lower but also offers a better, less-complex customer experience since Lynk & Co cars will be sold at a flat rate throughout Europe so buyers won’t have the trouble of haggling for a discount.

Although the car companies under Geely’s umbrella operate independently and maintain their own unique identity, they are forging close ties to cut costs. Volvo is deepening links with Geely and Lynk & Co to cut electric car development costs for instance by sharing knowledge and thereby cutting costs on developing expensive new technologies.

Volvo is also exploring ways to share technology with Lotus Cars for mutual benefit while Proton is depending on know-how from Geely to develop its first SUV.

Lynk & Co meanwhile has tapped into Volvo and Geely’s jointly developed CMA platform (Compact Modular Architecture platform), a cost-effective move, particularly since the new CMA platform was developed to be highly scalable, allowing multiple models to be developed using the same platform.

Geely’s global ambitions are clear and how far the company gets remains to be seen, however the company is worth watching.

 

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Reliance Industries: India’s Answer To Amazon, Alibaba?

Amazon, Alibaba and Reliance Industries have wide business ecosystems - LD Investments

Amazon (NASDAQ:AMZN) and Alibaba (NYSE:BABA) are two of the world’s biggest e-commerce companies, each boasting a market value of about half a trillion dollars (specifically speaking, Amazon is more than half a trillion dollars while Alibaba is slightly less).

Both companies boast top-line figures that surpass the Gross Domestic Product of entire countries – Amazon raked in US$ 178 billion in revenues in 2017 while Alibaba earned CNY 250.3 billion or about US$ 40 billion for the year ended March 2018, higher than the 2017 GDP figures of countries such as Estonia (US$ 26 billion), Iceland (US$ 24 billion), Cyprus (US$ 21.6 billion), Afghanistan (US$ 20.8 billion), Jamaica (US$ 14 billion), Brunei (US$ 12.1 billion), Fiji (US$ 5 billion), and Maldives (US$ 4.5 billion) according to data from the World Bank.

Both companies also serve sizeable user bases the number of which is larger than the population of entire countries; Alibaba’s over 600 million monthly active users would make it the third most populous country in the world after China and India, while Amazon’s over 300 million monthly active users would make it the fourth most populous country in the world after China, India and the United States.

Both companies owe much of their initial success to the rapid growth of e-commerce in their respective home countries which make up the world’s two biggest e-commerce markets; Alibaba in China (the world’s biggest e-commerce market) and Amazon in the United States (the world’s second biggest e-commerce market).

Both companies continue to dominate their respective home markets, with Amazon holding a market share of nearly 40% in 2017 while Alibaba commanded a market share of about 55%.

With India emerging as e-commerce’s next major opportunity (Morgan Stanley estimates India’s e-commerce market will grow from US$ 15 billion in 2016 to US$ 200 billion in 2026, representing at a CAGR of nearly 30% between 2017 and 2026), could the South Asian nation join China and the United States in producing its own e-commerce juggernaut?

India’s crowded e-commerce landscape boasts its own share of homegrown online retailers notable examples include Flipkart, Snapdeal, Alibaba-backed Paytm Mall (the e-commerce arm of India’s top digital payment firm Paytm) and ShopClues. With Reliance Industries (RIL) (NSE:RELIANCE) (BOM:500325) and Future Group planning on entering India’s e-commerce sector, competition is set to intensify in an already hyper-competitive market where the majority of players are yet to show profits.

For instance, India’s second-biggest online retailer and e-commerce veteran Amazon’s loss from its international business jumped nearly 30% to US$ 3 billion in 2017 from US$ 1.28 billion in 2016, with much of it due to massive investments in India. Meanwhile India’s leading homegrown e-commerce player, Flipkart saw its losses balloon by 68% during the fiscal year ended March 2018.

With e-commerce making up just 3%-4% of India’s US$ 670 billion retail sector, it is still early days for India’s e-commerce market which is undergoing rapid change. Founded in 2010, local competitor Snapdeal, at one time was India’s number two e-commerce platform after Flipkart, while Amazon India stood at number three. By mid-2016, Snapdeal found itself dislodged from its second-placed position by deep pocketed Amazon India, which began life a couple of years after Snapdeal. With current market leader Flipkart holding retaining its crown (with a market share of 39.5%, ahead of Amazon’s 31% share) the market has so far evolved to be a two-horse race with Flipkart (which was bought up by Walmart this year) and Amazon fighting tooth and nail for gold while ShopClues, Snapdeal and Alibaba-backed PayTM Mall battle for bronze.

Although late to the party, oil-to-telecom conglomerate Reliance Industries possesses several competitive advantages from an extensive brick-and-mortar network to a wide eco-system of businesses which could help it emerge as a formidable player in India’s e-commerce war.

Deep Pockets

Amid stiffening competition, e-commerce platforms are investing substantial sums and burning money heavily as they vie for a slice of India’s promising e-commerce market. Aiming for dominance, Amazon, the world’s largest e-taiiler, has a massive US$ 5 billion war chest while local rival and current market leader Flipkart managed to add nearly US$ 4 billion to its kitty thanks to a funding round from investors such as Softbank, Tencent, Microsoft and eBay last year. The company reduced its burn to just US$ 17-18 million a month while arch rival Amazon continues to burn twice that amount estimated at over US$ 40 million. Against this backdrop, it is likely that smaller, cash-strapped rivals will gradually find themselves edged out by deep-pocketed players. Reliance Industries Ltd being a Fortune 500 company and India’s biggest private sector corporation could have the financial wherewithal to compete against the incumbents similar to the manner in which its telecom arm, Reliance Jio disrupted India’s telecom sector in less than two years of operation to emerge as India’s fourth largest telco after Bharti Airtel, Vodafone and Idea Cellular.

Extensive brick-and-mortar store network

Omnichannel retail experiences (offering customers a seamless online and offline shopping experience) are increasingly becoming commonplace in mature retail markets such as China and the United States. India is expected to follow suit and retailers such as Pepperfry, Adidas, Urban Ladder, FirstCry and Nykaa are among the few in India to have already incorporated click-and-mortar shopping experiences.

Unsurprisingly, Amazon and Flipkart have also been busy plotting their own omnichannel retail strategies; last year, Amazon made its first investment in an offline retailer in India when it picked up a 5% stake in Shoppers Stop, a Mumbai-based department store chain for INR 179.24 crore (about US$ 28 million).

Under the partnership, the duo will conduct “joint marketing” initiatives which will see Amazon open Amazon Experience Centres showcasing Amazon’s products across all 80 Shoppers Stop outlets located in 38 cities in India.

Not wanting to be outdone, Flipkart is reportedly in talks to acquire a 8%-10& stake in Future Lifestyle Fashions Ltd (NSE:FLFL), the listed fashion company owned by Future Group, one of India’s largest retail companies with a presence in grocery, electronics, home furnishings and furniture with over 17 million square feet of retail space in more than 240 cities.

Future Lifestyle is one of India’s largest branded apparel retailers in India with a total retail space of over 5 million sq ft across 400 stores in 90 cities.

Flipkart claims to have a 70% market share in India’s online fashion retail space. A deal with Future Lifestyle Fashions could open an avenue for Flipkart to establish an offline presence in India’s fashion retail sector thereby helping it solidify its market leading position as India’s leading online fashion retailer.

While the e-commerce giants have bolstering their offline presence, Reliance Retail already has an extensive brick and mortar store network throughout India which the company can leverage as part of an omnichannel retail strategy. Similar to Future Group which was founded in 1997, Reliance Retail which was founded nearly a decade later in 2006 is one of India’s largest retail enterprises with a presence in grocery, electronics, furniture and fashion. The company boasts a store network of over 3,700 stores across 750 cities with an area of over 14.5 million square feet of retail space according to the company’s December 2017 quarterly report.

Reliance Jio

There has been a noticeable trend in developed markets where media companies such as Google, Amazon and Alibaba which deliver copious amounts of video and other content are increasingly morphing into telecom companies and telecom companies such as AT&T and Verizon are morphing into media companies.

In other words, the “pipe” owners i.e., the telecom companies are increasingly taking control of the content that flows through their “pipes” while the content owners i.e., the media companies, are increasingly evolving into pipe owners.

Google offers high-speed internet service through its subsidiary Google Fiber, Amazon has reportedly been considering the prospect of becoming an ISP in Europe, and Alibaba is reportedly looking at expanding into the telecom sector.

AT&T, America’s second-largest wireless carrier merged with Time Warner while Verizon, America’s largest wireless carrier, scooped up AOL in 2015 and Yahoo last year, and then clubbed the two companies together to launch its digital content subsidiary Oath Inc with the goal building a media business that could compete with the likes Google and Facebook.

Over in India, a similar trend has been unfolding and Reliance Industries has made its moves. Reliance Industries owns the “pipes” via its telecom arm Reliance Jio and the company also offers its own unique content via its plethora of content apps such as JioCinema, JioMusic etc.

In response to rising net neutrality concerns, the Telecom Regulatory Authority of India (TRAI) last year proposed guidelines in favor of net neutrality; however, Content Delivery Networks (CDNs) or “content “edge” providers (a network of computer servers set up inside an ISP which can deliver digital content faster to end users) do not fall under the proposed regulations and thus integrated operators such as Reliance Jio and Bharti Airtel are poised to benefit as they could leverage this CDN exemption and offer their content at lower prices to their subscribers.

Content Delivery Networks are often built and owned by third-party companies such as Akamai Technologies Inc and Cloudflare, however, some deep-pocketed content providers such as Google, Facebook, Netflix, Amazon, Microsoft and Alibaba have built their own private CDNs. The net neutrality debate focuses on ISPs (Internet Service Providers) and not CDNs.

Wide ecosystem of businesses

Amazon, Alibaba and Reliance Industries have wide business ecosystems - LD Investments

With businesses spanning cloud computing to video streaming Amazon and Alibaba are much more than just e-commerce companies. Interestingly, Indian stalwart Reliance Industries also boasts a highly diversified ecosystem of businesses which combined could prove to be a powerful force.

In brick-and-mortar retailing, Amazon owns the Whole Foods grocery chain, Alibaba owns Hema Supermarkets (盒马) while Reliance has Reliance Retail.

All three companies have logistics arms – Amazon with Amazon Logistics, Alibaba with its Cainiao and Reliance Industries with Reliance Logistics.

In video streaming, Amazon has Amazon Video while Alibaba has video hosting platform Youku Tudou. Relince has JioCinema.

In music streaming, Aamzon has Amazon Music, Alibaba has Ali Music and Reliance Industries has JioMusic.

All three companies have ventured into production of digital video content; Amazon through Amazon Studios, Alibaba through Alibaba Pictures and Reliance Industries via its partnership with Roy Kapur Films (RKF) which will produce original digital video content as “Jio Originals”.

In the mobile wallet space, Amazon has Amazon Pay, Alibaba has Alipay and Reliance has Jio Money.

In messaging apps, Amazon has Amazon Chime, Alibaba has DingTalk and Reliance Industries has JioChat,

All three companies have their feet in the cloud business as well with Amazon offering cloud services through AWS, Alibaba through Alibaba Cloud and Reliance through JioCloud.

All three companies have a direct or indirect involvement in media as well, with Amazon founder Jeff Bezos owning the Washington Post, Alibaba founder Jack Ma owning the South China Morning Post and Reliance Industries holding Network 18.

Such a wide eco-system has several advantages; the businesses will reinforce each other as existing consumers and companies become more likely to use their platforms which not only generate diverse sources of revenue but vast quantities of consumer and business data as well, which ultimately could be used towards further business expansion.

RIL Chairman Mukesh Ambani famously said, “Data is the new oil and India does not need to import it”.

While Reliance Industries is a latecomer to India’s e-commerce arena and the company’s success depends on several factors such as execution, Reliance’s entry into e-commerce cannot be taken lightly; the Indian giant could be a formidable competitor, disrupting the current status quo similar to the manner in which it reshaped the Indian telecom sector within a few years of operation.

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Organic Food Market Could Be A Delicious Investment Play

Bar and line graph showing the increase in world organic farmland in millions of hectares between 1999-2015 and the percentage share of organic farmland worldwide.

The global organic food market is growing at a rapid clip and offers significant potential for growth. Currently valued at around US$90 billion according to London-based consultancy firm Ecovia Intelligence (formerly Organic Monitor) the market is poised to expand to over US$ 200 billion by 2020 (representing a CAGR of 15.7% between 2015 and 2020) according to projections by Market Research Globe.

The forecast figures are similar to those from a report by market research firm Technavio which projects the global organic food and beverage market to grow at a rate of 14% from 2017 until 2021.

Organic is the fastest growing sector of the U.S. food industry. Organic food sales in the United States, the world’s largest organic food market, jumped 8.4% in 2016 to reach US$ 43 billion according to the Organic Trade Association.  That compares with a 0.6% increase in overall food market sales in the United States. Much of the demand for organic food is driven by millenials generating about half of U.S. organic food sales.

In Germany which is the world’s second -largest organic food market, organic food sales grew by nearly 10% in 2016, according to the German Federation of the Organic Food Industry (BÖLW).

France’s organic food market grew a whopping 20% in 2016 according to Agence Bio, and Spain’s organic food market grew 12.5% in 2016 (compared to 0.7% growth in conventional food) according to data from Spain’s Ministry of Agriculture and Fisheries, Food and Environment. UK organic food sales expanded by 7% in 2016 according to Soil Association a UK-based organic food and farming charity and certification body.

There is ample potential for the stellar growth numbers to maintain momentum going forward. In the United States, the world’s largest organic food market, organic food sales account for just 5.3% of U.S. food sales.

The situation is the same in Germany, the world’s second biggest organic food market after the United States (the United States, Germany and France together account for about 70% of global organic sales value as of 2017); organic food sales make up just about 5% of Germany’s total food sales.

In Britain, organic food sales make up about 1.5% of the country’s total food sales. In Spain, organic food sales make up just 1.7% of the country’s total food market. This compares with Sweden and Denmark where organic food sales comprise about 8.7% and 10% of the country’s total food sales respectively.

In Asia, organic food sales account for less than 1% of total food sales across Asia offering ample scope for growth. The organic food sector is poised to grow in leaps in bounds in the region, particularly in China and India, two countries which market research firm Ecovia Intelligence reveals are two of the fastest growing Asian markets for organic food products, driven by an expanding and educated middle class who are increasingly willing to pay a premium for organic products which are perceived to be healthier and safer than conventional food products.

In China, Asia’s largest organic food market and the world’s fourth largest, 72% of consumers worry about the safety of their food according to a 2016 survey by McKinsey. This presents an opportunity for the country’s organic food sector which, similar to the United States, is largely driven by a growing number of increasingly health-conscious millenials.

Meanwhile in India which created its first organic state, Sikkim, in 2016 (in Sikkim farmers are 100% organic), market research firm TechSci projects the country’s organic food market to grow at a CAGR of 25% between 2016-2021.

On a country level, Denmark and Bhutan have ambitious plans to be 100% organic by 2020, a positive trend for the global organic food market.

The underlying driving force behind the global organic food revolution is the millennial generation (those born between 1980 to 2000). In the United States, for instance, the world’s biggest organic food market, over 52% of organic food shoppers are millenials according to a survey by the Organic Trade Association. An estimated 25% of American millenials are parents and this figure is expected to increase to 80% over the next 10-15 years. As the percentage of millenials with children grows in the coming years, organic food sales are projected to rise as well.

To meet rising organic food demand, the number of organic food producers and the amount of organic acreage continue to increase globally.

Worldwide, the number of organic food producers increased twelve-fold in sixteen years from 200,000 producers in 1999 to 2.4 million producers in 2015 according to a report by the Research Institute of Organic Agriculture (Forschungsinstitut für biologischen Landbau or FiBL). During the same period, land used for organic farming expanded fivefold from 11 million hectares in 1999 to 50.9 million hectares in 2015. Despite this increase, organic farmland represented just 1.1% of the world’s farmland in 2015 indicating ample room for expansion.

Bar graphic showing the increase in world organic farmland in millions of hectares between 1999-2015 and the percentage share of organic farmland worldwide.

Nearly 45% of the world’s organic farmland is located in Australia, where with 22.7 million hectares makes it the country with the world’s largest area of organic agricultural land by hectare in 2015, way ahead of second-placed Argentina which has just 3.07 million hectares of organic acreage. In third-placed United States which is the world’s biggest organic food market, just 2.03 hectares of land is used for organic farming.

Bar graph shows the top 10 countries in the world with the largest organic farmland in millions of hectares, as of 2015. Pie chart showing percentage distribution of organic farmland around the world.

The global organic food trend has been a boon for Australian food producers. Despite having the largest area of certified organic land in the world, organic food sales account for just 1% of Australia’s total food and beverage sales. Part of this may be due to the fact that most of Australia’s organic farmland is used for cattle farming (which explains why organic beef is Australia’s top organic food export by tonnage) and hence the country’s overall organic food output is relatively low.

However, it may also be due to a growing hunger for Australian organic products from export markets such as the East Asia (which accounted for 38% of Australian organic food exports by tonnage in 2017), North America (29%) and Europe (12%).

China, in particular is a major growth opportunity. Australian organic food exports by tonnage to China jumped 55% between 2016 and 2017 and China’s share of Australian organic food exports by tonnage nearly doubled from 9% in 2016 to 15% in 2017 according to data from the 2018 Australian Organic Market Report.

Much of growth in China’s organic food demand stems from the baby food category, particularly organic infant formula. China is the biggest export market for Australian organic baby food and formulas and Australian organic dairy products.

Bar chart showing the top export markets (by % of tonnage) for selected Australian organic food sectors 2017. The biggest market for organic Australian eggs is Hong Kong (accounting for 100% of Australia’s organic egg exports by tonnage). The United States is the biggest market for Australian organic lamb/sheep meat (accounting for 91% of exports), Australian organic beef (accounting for 90% of exports) and Australian organic fruits and vegetables (accounting for 46% of exports). South Korea is the biggest market for Australian organic soya products (accounting for 90% of exports) and bread and bakery product (accounting for 58% of exports). China is the biggest market for Australian organic baby foods and formula (accounting for 81% of exports) and dairy (accounting for 57% of exports). Netherlands is the biggest market for Australian organic nuts (accounting for 80% of exports). Sweden is the biggest market for Australian organic wine (accounting for 49% of exports).

In China which is the largest market in the world for organic infant formula, it is estimated that 75% of mothers feed their babies with organic infant formula according to London-based market research firm Mintel. Younger mothers i.e., those aged 25-34 are the major driving force with 79% of them using organic infant formula. The abolition of China’s ‘one-child policy’ potentially opens opportunities for expansion in this sector.

Bubs Australia (ASX:BUB) and Bellamy’s Australia (ASX:BAL) are two Australian organic baby food and organic infant formula producers both of which have operations in China and are poised to capitalize on the opportunity. Bellamy’s Australia has seen its share price jump by over 900% since August 2014 while Bubs Australia’s share price has soared over 400% since January 2013.

With Australia boasting nearly half of the world’s certified organic farmland and enjoying strong export demand for its organic food products, Australian producers are well placed to take a big bite out of the world’s growing organic food pie going forward.

A number of organic food companies elsewhere around the world have also benefited from the trend and good prospects have attracted investment into the sector. Organic food grocer Whole Foods (NASDAQ:WFM) was acquired by Amazon (NASDAQ:AMZN) in June last year at a 27% premium to Whole Foods’ stock closing price the day the deal was announced.

French food company Danone (EPA:BN) acquired American organic food company Whitewave Foods Co (NYSE:WWAV) in April last year.

Consumer goods company Unilever (NYSE:UL) acquired UK-based organic herbal tea company Pukka Herbs and Brazilian organic food business Mae Terra last year.

American grocery company Albertsons reported that its line of private-label organic items, O Organics, saw sales grow 15% last year, reaching US$ 1 billion.

Albertsons plans on introducing 500 or more new products to the line which already encompasses a wide array of organic food items including fresh fruits and vegetables, eggs, milk, yogurt, ice cream, meats, bread, coffee, snacks, pasta sauce, and baby food.

Over in Europe, Dutch organic food company Koninklijke Wessanen NV (AMS:WES) which recently acquired Spanish organic food company Biogran, has benefited handsomely from the growing organic food market with its share price appreciating by over 600% from five years ago (in 2013). During the same period,

In Asia, Japanese organic vegetable producer Ariake Japan Co Ltd (TYO:2815) has seen its share price jump over 500% since 2013.

The organic food trend has also been a positive for e-commerce behemoth Amazon which is a relatively new entrant to the US grocery market. A report by data analytics firm Click Retail found that in 2017, organic products fared very well accounting for nearly 25% of all Amazon Fresh sales.

Nestle (VTX:NESN) has been actively re-orienting its business as it struggles with weak sales as a result of changing consumer preferences toward organic, natural food and away from prepared, mass-produced meals which make up bulk of the company’s product portfolio. Last year, Nestle acquired Chameleon Cold Brew – America’s oldest and largest purveyor of organic coffee. This year, Nestle sold its US candy business to Italian confectionery company Ferrero SpA.