1. Annual Meeting Istanbul October Fund investments in Food and Agribusiness Recent trends in ECA

2. Outline of Presentation
Key investment drivers
What’s being said about investment in agriculture
Ways to invest in agriculture
Investment structures
Fund Investment process
Target markets
Broad classification of funds investing
Funds active in ECA – overview
Funds – illustrative examples
Farmland funds – current issues/revised strategies/ outlook
Impact of farmland funds
Additionality of funds/ private equity expertise
Examples of other fund strategies
Future trends/ issues

3. Key Investment Drivers - Food Sector 1/2
BASIC PREMISE
“A looming imbalance in the supply and demand of food commodities will result in a prolonged period of higher food commodity prices”
Factors affecting DEMAND
POPULATION GROWTH
Global population increase - from 6.5 BLN to 9.0 BLN by 2050
Middle class increase - from 430 MLN to 1.15 BLN by 2030
CHANGING GLOBAL FOOD CONSUMPTION TRENDS - as incomes rise
Esp. in China and India
Switch from starch-rich to protein-rich diets
Professionalization of meat industries will demand more grain
Move towards processed/ branded foods offers higher profit margins and adds further impetus to investments

4. Key Investment Drivers - Food Sector 2/2
Factors affecting SUPPLY
SUPPLY CONSTRAINTS:
PRODUCTION LIMITS: Industrialization, urbanization, water limitations, climate change
SLOWING PRODUCTIVITY GAINS: GMO acceptance low … only corn (USA) and soya (USA/ South America)
IMPACT OF BIOFUELS
Diversion of crops and farmland
Though impact less than initially anticipated

5. HJ Heinz Company Anticipated growth in Emerging Markets
“Emerging Markets are on track to deliver at least 20% of our total sales by 2013, more than double their contribution of just five years ago,” Mr. Johnson said. “Heinz is already well-established in Emerging Markets like China, India, Indonesia, Latin America and Russia, where we have strong brands, local marketing expertise and the infrastructure necessary to sustain strong growth.”
“Emerging Markets are key to unlocking future growth because their economies are growing at a significantly higher rate than developed markets; the middle-class in Emerging Markets will eventually outnumber the combined populations of the U.S. and Europe; and per capita consumption of packaged foods in Emerging Markets has significant upside.”
William R. Johnson, Chairman, President and CEO,
H.J. Heinz Company, Pittsburgh, 31 August 2010

6. Key Investment Drivers - Farmland
Perception that farmland is fundamentally UNDERVALUED
Gains to be achieved from:
CAPITAL APPRECIATION (Russia ~ $700/ha vs Brazil ~ $3500/ ha)
PRODUCTIVITY IMPROVEMENTS (e.g. wheat yields 2.5t to 5.0t+)
LONG TERM HIGHER COMMODITY PRICES
Farmland an UNCORRELATED/ COUNTER-CYCLICAL ASSET
Farmland an INFLATION HEDGE
FSU has 13% of global arable land – up to 30 million hectares may be idle
[Farmland is second oldest form of investment – after the family cave]

7. What’s being said about investment in agriculture
Jim Rogers, the hedge fund manager who predicted the start of the commodity rally in 1999, said global warming will hinder crops and has advised purchasing farmland for at least a decade. ``Because of the disruptions, agricultural prices will go through the roof,'' he told reporters in Melbourne on 7 February 2007 ``I am extremely bullish on agriculture.’’
“The race is on not only to feed the world, but also to produce more quality food to meet the changing nutritional needs of an increasingly affluent population.” Bill Barbour, Investment Specialist at DWS Investments.
"Sell banks, buy cheese," Crispin Odey, Odey Asset Management. Financial Times 25 April 2008
“My boss wants to create the first Exxon Mobil of the farming sector”. Joe Calvin, Altima One World Agriculture Fund

8. What’s being said about farmland
"I'm convinced that farmland is going to be one of the best investments of our time. Eventually, of course, food prices will get high enough that the market probably will be flooded with supply through development of new land or technology or both, and the bull market will end. But that's a long ways away yet." - George Soros, June 2009
"People are obsessed with real assets now. They want things they can touch," said Olivier Combastet, founder of Paris-based Pergam Finance, which has $1 billion in assets and two years ago formed Campos Orientales, a fund that buys farmland in Argentina and Uruguay. ``Three years ago people were skeptical about investing in farmland …. (now) it's become much more sexy.'’ – Reuters, 22 June 2009
“Corn Farms Replace New York Lofts as Hottest Property” - Bloomberg 20 Feb 2007

9. Ways to invest in agriculture
Agricultural commodities (futures, options, ETFs)
Direct investment in agricultural equities
Publicly quoted
Private equity
Direct farmland investment
Collective investment funds

10. Example: Investment Structures
Funding Sources
Investment Manager
FUND
Investments
Example: Alpcot Agro
Funding Sources
Investment Manager
Investments
Examples: Trigon Agri, Black Earth Farming
Funding sources – may include private equity, sovereign wealth funds, high net worth individuals, family offices, other institutional investors, etc

11. Fund Investment Process
Optional structures: special purpose fund vs direct investment
Returns created through one or combination of three factors:
debt repayment, or cash accumulation through cash flows from operations
operational improvements that increase earnings over life of investment
multiple expansion - selling investments for higher multiple of earnings than originally paid
Fund investments typically realized after some period of time, varies depending on the investment strategy (farmland 5- 7, now up to 12 years ?)
Investments typically realized through:
Initial Public Offering (IPO)
Merger or acquisition
Recapitalization

12. Typical fund investment structure

13. Target markets - Global
SEGMENTS/ SECTORS
Land and crops
Food processing
Agri-sector linkages (fertilizer, logistics, other inputs)
Commodities (ETFs etc)
GEOGRAPHIC FOCUS
DEVELOPED MARKETS
USA/ Canada
Australia/ New Zealand EU
EMERGING MARKETS
ECA (Russia, Ukraine, new EU countries)
Latin America (Brazil, Argentina, Uruguay, Paraguay)
Asia (India/ China)
South Africa
FRONTIER MARKETS
Africa (Sudan, DRC, Angola)

14. Target Markets - ECA LAND AND CROPS
Russia and Ukraine – large scale farming
Farming in Romania, Slovakia, Bulgaria (e.g. AgroTerra North) – target opportunity to exploit EU subsidies
Bulgaria REITs (e.g. Advance Terrafund) (IFC an investor)
Latvia, Lithuania (existing agro holdings)
GENERAL FOOD AND AGRIBUSINESS
Russia and Ukraine, listed equities (no specific region-focused funds)
New EU countries (e.g. REEEP fund – partially targets food companies)
CENTRAL ASIA/ CAUCASUS
Generally only SEAF funds
Recent example: East Capital Explorer investing in Georgian food retail chain Populi

15. Broad Classification of funds Typical Defining Features
BY MANDATE
Direct Mandate (private equity funds)
Discretionary (e.g. SEAF) how to describe REEEP
BY STRUCTURE
Fund structure
Direct investments (through investment manager)
BY INVESTMENT FOCUS
Land and crops
Equities – listed/ unlisted
Combinations (listed/ unlisted equities, or physical assets)
REITs/ only farmland
BY GEOGRAPHIC FOCUS
Country/region specific
Global
BY DEVELOPMENT FOCUS: SEAF

16. Funds active in ECA – General Food and Agri funds
Examples of GENERAL FUNDS targeting food and agri in ECA (and globally):
GAIA – invests in “up-stream farming companies, farmland, equipment and technology, and related businesses in emerging regions where scale and costs offer competitive advantages and growth rates are high”
Altima One World Agriculture Fund – invests “primarily in farmland and in world class farm operators ("agro champions" with strong franchise value), both in listed and unlisted investments” [IFC invested $75m]
Pharos Miro Fund – creates returns “through acquiring agricultural land, supporting infrastructure assets, and distressed operational farm holdings”
Trigon Emerging Sector Agri Fund – invests in listed food and agri coys
DWS Global Agribusiness Fund - a managed portfolio of global agribusiness companies (currently 2.6% in Ukraine)
There are no dedicated geographic/ thematic funds in food sector in ECA, so far

17. Funds/PE active in ECA - Land and Crops
Examples of funds active in LAND AND CROPS in ECA:
NCH (Russia/ Ukraine). FUND. ~ 425,000 ha +. Unlisted
Black Earth Farming (Russia). DIRECT. ~ 330,000 ha. Listed FirstNorth
Rencap (UAFL) (Ukraine). DIRECT. ~ 330,000 ha. Unlisted
Alpcot Agro (Russia/ Ukr). FUND. ~ 175,000ha. Listed FirstNorth.
Trigon Agri (Russia/ Ukraine). DIRECT. 169,000 ha. Listed FirstNorth
Landkom (Ukraine). DIRECT. ~ 74,000 ha. Listed AIM.
Volga Farming (Russia). DIRECT. ~ 60,000 ha. Unlisted
Agro Generation (Ukraine). DIRECT. ~ 50,000 ha. Unlisted
First Farms (Slovakia/ Romania). DIRECT. ~ 15,400 ha. Listed FirstNorth.
Northbridge (France/ Romania). FUND of FUNDS. ~ 550 ha. Unlisted
Bulgaria REITs (6 funds). FUNDS. ~ 50,000 ha. [Ceres Agrigrowth Investment Fund listed on Bulgaria Stock Exchange (IFC an investor)]

18. Context of land holdings by funds within Russia and Ukraine
Total arable land in Russia: 121 million ha (45m ha grains)
Total arable land in Ukraine: 32 million ha
Total land acquired by funds: ~ 1,7 million ha (~1.1% of total)
Top 10 Russian agro holdings control ~ 3.5 million ha +
Largest fund/PE investor: Black Earth Farming (~323,000 ha)
Largest land holder in Russia ~ 570,000 ha (Prodimex)
Largest land holder in CIS ~ 1.1 million ha (Ivolga)
Definitions of land in control and land in ownership:
Land in control is registered land and land where a subsidiary of the company, either itself or in the name of agents, has registered a lease agreement or is in the process of registering a lease agreement with local authorities.
Land in ownership is registered land and the indirect ownership of land within the Russian Pai system. The Pais can be registered either in the company's subsidiary's name or in the name of an agent acquiring Pais on behalf of the company's subsidiary within the framework of legally binding contracts, or is in the process of entry into the land register with local authorities.

19. Funds/PE - Illustrative Examples (7)
FARMLAND
Alpcot Agro – Russia and Ukraine
Trigon Agri – Russia and Ukraine
Insight Global Farmland Fund – Global
GENERAL FOOD AND AGRI
AgriSar – Global food and agribusiness
Pictet - Global food and agribusiness
Trigon Emerging Agri-Sector Fund
Resource Eastern European Equity Partners Fund

20. Alpcot Agro Established 2006/7
Six share issues to raise ~ SEK 1.34 billion
Fund Objective “.. to generate an attractive return on invested capital by acquiring and farming agricultural land in Russia and other CIS-states. Operational strategy is to engage in highly efficient integrated agriculture in accordance with Western best practice, in three parts of the value chain: cultivation of the land, storage and sale”.
Alpcot controls
190,000 ha in Russia
9,800 ha in Ukraine
Of this, approx 72,000 ha harvested in 2010
Listed on NASDAQ OMX First North Exchange in Oct 2009

21. Alpcot: investment strategy
Investment opportunities evaluated on:
Quality of the soil and precipitation
Size of farm - at least 10,000 hectares needed to achieve efficient scale
Proximity to urban centers to facilitate recruitment
Proximity and access to infrastructure
Geographical diversification to reduce exposure to local weather
Geographical extension along a north-south axis to extend planting and harvest seasons and enable optimal utilization of machinery
Strong relationships with local decision makers and stakeholders

22. Alpcot: shareholders Example to illustrate shareholders profile
Alpcot had approx. 1,000 shareholders at 31 March 2010

23. Trigon Agri Established in 2006 by Trigon Capital investment group
Integrated cereals and dairy producer, storage and trading
Strategy:
focus on large-scale farming clusters within small geographical areas
clusters between 40,000 and 100,000 ha
develop integrated production and trading by acquiring grain storage
integration enables profit maximization throughout value chain
Operations in Ukraine, Russia and Estonia
Start-up equity capital (€19.6m) from Trigon Capital and Finnish high net worth individuals
Total equity raised €175 million
Current market cap ~ €84 million
Listed on Nasdaq OMX First North exchange - May 2007

24. Insight Global Farmland Fund
Fund of farmland holdings
Established Target $300m
Insight’s view: “Farmland provides the complete thematic exposure”
Target return 15% per annum
Achieve diversification from geographical spread and commodity range
3 components to investment return:
Rising commodity prices
Land value appreciation
Active Alpha
Variety of holdings:
stakes in vehicles incorporated exclusively to hold farmland assets
listed farmland companies
direct ownership of farmland
debt covenants over farmland
stakes in existing farmland funds

25. Sarasin AgriSar Fund Fund launched March 2008. Current AUM - GBP 109m
Global focus across full spectrum of equities, land and commodities
Sarasin & Partners LLP: London-based investment management firm.
Bank Sarasin listed on Swiss Stock Exchange - majority shareholder Rabobank.
Invests at all stages of agricultural production - from land, fertilizer, pest control and seed inputs, through irrigation, mechanization and production technologies, to storage, processing, distribution and consumer
Targets two key trends:
the need to invest to increase productivity (includes supporting infrastructures e.g. seeds, technology, etc)
the growth in volumes throughout the agricultural chain (strategy more sophisticated than protein only – seeks broader consumer patterns, also aspects like branding, obesity, etc)
Not a commodity price play, but rather trends in food consumption

26. Pictet Agriculture Fund
Fund established May 2009.
NAV €126m (~71 positions)
Invests in listed companies operating in agribusiness value chain
Provides investors with a high exposure to pure agriculture
Favors companies operating in production, packaging, and supply, also in manufacture of agricultural equipment
Also addresses resource efficiency (favors companies that produce more food with lower inputs)
Targets 3 key segments:
FARM INPUTS (e.g. Yara fertilizer),
FARM PROFESSIONALIZATION (e.g. Tyson, Nutreco)
SUPPLY CHAIN SERVICES (e.g. Brazil railroads, testing company Neogen)
Invests not restricted to a specific geographical zone
IN ECA: so far, investments in Agroton (Ukraine) and Linas Agro (Lithuania)

27. Trigon Emerging Agri-Sector Fund
Launched May 2008/ fund domicile Estonia
Fund size €15.7m (22 positions)
Trigon Capital is leading CEE investment firm, manages ~ USD 1 billion assets
Trigon Emerging Agri-Sector Fund invests in
listed food and agribusiness companies
in emerging markets with high growth potential and imbalance in supply and demand in agricultural produce
focus on smaller companies
May also invest into developed markets provided these companies have substantial business interests in emerging markets
Fund combines Trigon's operational farming experience with emerging market portfolio management expertise
Investments so far mainly China (Asian Bamboo, Asian Citrus) , Russia (Chergizovo), Ukraine (Kernel), Turkey, Poland

28. Resource Eastern European Equity Partners Fund
NEW FUND: established 2010
Fund target size is €200 million
EBRD and Rabobank each investing €25 million
Focus on mid-cap agribusinesses in Poland and EU countries in Central and South-Eastern Europe, operating in the food processing, manufacturing, retail and logistics sectors "which have been historically underserved by private equity”.

29. Farmland funds – current issues
Most formed since 2005/6
INITIAL MOTIVES: Land appreciation, productivity gains, new crop price paradigm
REALITY HAS SO FAR BEEN DIFFERENT:
Land appreciation expectations scaled back … horizon now up to 12 years ?
Valuations now on DCF/ PE basis, rather than land appreciation
Productivity gains not achieved so far … not as easy as it seemed
Most funds underestimated complexity of investment … esp. working capital requirements and “soil correction cost”
Paradigm on crop prices deferred ... stocks (were) back at record levels
Most funds are trading well below investment value
Many funds have listed – Nasdaq OMX First North is most popular option
IFIs have not invested in farmland funds (except in Bulgaria Agri REIT)
Total investment so far > $1.0 BLN

30. Farmland funds - revised strategies
FOCUS NOW ON:
RETHINKING INVESTMENT MODEL AND KEY ASSUMPTIONS
quality and location of assets/ more selective entry
consolidating land bank
changing structure of land bank/ developing mega clusters
fundamental assumptions on yields and prices
infrastructure like storage and logistics
focus on vertical integration using low price grain (beef, milk, poultry, etc)
developing grain trading to leverage local opportunities
CONSOLIDATING operational competencies and asset synergies
Generally, lowered investment return expectations and longer investment horizons ?

31. Farmland funds – medium term outlook
KEY ISSUES:
Limited access to equity and debt on attractive terms – stopped further land acquisition/ expansion
How will initial investment drivers play out esp. yield and price trends, also land appreciation ?
Infrastructural/ Logistical bottlenecks ?
Political awakening to large foreign land holdings ?
Russia mortgage market developments ... likely impact on land prices ?
Ukraine – land title issue ?
Exit prospects – via IPOs/ strategic sales ?
Operational risks (weather, markets, management) ?
Relatively unproven as an investment opportunity
Fund interest in farmland is now returning .. ?

32. Impact of Farmland Funds
Articulating/ catalyzing opportunities in agriculture
New investors bring in financing, know-how, professional standards
Benefits of scale
Specialized fund management enables more efficient capital allocation in agriculture/ better diversification of risk
Efficiencies from consolidation, scale, capital renovation
Potential for substantial crop yield gains
Driving improvements in land rights processes
Employment, management and other skills development
CREATING NEW ASSET CLASS TO INTERNATIONAL BENCHMARKS

33. Additionality of funds/ private equity expertise
Provide expertise in structuring investments/ unlocking value
Expertise to identify, assess and acquire farmland
Extensive due diligence
Improved strategic focus/ management/ asset utilization
Corporate governance
Investor discipline
Underwrite funding without burden of debt payments
Enhance leverage/ borrowing capacity
Corporate Governance: facilitate development of private/ (often) family run businesses into institutionalized companies
Improves efficiency of market information for farmland
Facilitate exchange of know how between similar businesses
Exit/ liquidity: Prepare the business for IPO/ other exits

34. Ray Goldberg, Harvard University
“ The food system has to be put back together by big global companies that look ahead many years in their planning rather than governments that view the world from one election to the next. These large-scale firms have become quasi-public entities responsible to society in order to survive in a world that holds them accountable for nutrition, food security, food safety and economic development. ”
Professor Ray Goldberg, Harvard University, speech at IFAMA 10 March 2010

35. Examples: other fund strategies
CLIMATE CHANGE CAPITAL LAND FUND - PROPOSED Fund “.. will forecast physical impacts of climate change on land productivity around the world and seek to implement sustainable management practices that increase the land’s capacity to adapt to climate change and maintain or increase productivity ..”
ALTIMA ONE WORLD AGRO FUND targets global agricultural businesses, primarily in farmland and in world class farm operators ("agro champions" with strong franchise value), both in listed and unlisted investments
INDIA AGRIBUSINESS FUND targets all sectors of food and agribusiness and agric-infrastructure, with focus on SMEs and companies in rural areas
AGRO-ECOLOGICAL FARMLAND FUND invests in farmland in New Zealand (also South America, Southern Africa, USA), acquiring conventionally-managed farms and converting them to organic production

36. Future trends/ issues Farmland Funds
consolidating operations/ refining strategy
more operationally focused/ less land bank speculation
further focus on improvements in technology/ infrastructure/ skills
Significant scope for further investments in Russia and Ukraine
Farmland as new asset class/ concept needs to be proven ?
IFIs - future interest in supporting farmland investments ?
Food funds
no specific geographic or thematic food funds so far in ECA
prospects in Russia, Ukraine, other CIS
likely merger and acquisition/ consolidation of strong regional players
Other CIS:
limited or no prospects in farmland?
Maybe Kazakhstan (title issues?)
Belarus (investment climate?)
Other Central Asia/ Caucasus too fragmented/ complex ?
REIT-type consolidations in smaller countries ?

37. Thank you Ian Luyt NOViROST Moscow, Russia ian.luyt@novirost.com