ADM Capital Europe is the home of Cibus Fund, a London-based investor in the agribusiness and sustainable food processing sectors. Founded in 2017, the firm oversees both PE and VC funds, called Cibus Fund and the Cibus Enterprise Fund, respectively.
The agtech sector includes innovations aimed at increasing crop yields and reducing emissions, and the space has grown in importance as the world faces new pressures impacting the global supply chain. We spoke with Rob Appleby, Cibus Fund founder and ADM's chief investment officer, about the sector's renewed importance and some of the challenges it faces.
This interview has been condensed and edited for clarity.
PitchBook: Tell us how you came to launch Cibus Fund
Cibus Fund founder Rob Appleby (Courtesy of Cibus Fund)
Appleby: We started thinking about this long before the creation of a fund, which was seven years ago. And we've been investing long before others sort of woke up. And then where we see value and can continue to see value is in Europe.
How has the market changed since you first entered it?
What's happened since is everyone's woken up and today the competition is greater in Europe, for the land, the companies and so on. So, whereas I was looking at 20% to 25% IRR on my investments previously, I'm finding it harder to find investments that give us the same risk and return, and that's because more people are looking.
How has the macroeconomic backdrop changed?
We've got a lot of challenges in global investing right now: the pandemic, the war in Ukraine, the price of inputs, inflation—and what's happening in public markets has not gone unnoticed.
Land is a hedge against many of the shorter-term market movements that we would see. If you have a land-based investment, the farm has operating cash flow coming off that, and you can make the case that it's one of the soundest investments in a world that is quite complicated to understand. Getting this non-correlated element, I would argue it's an inflation hedge of some sort.
Land is fraught with challenges, and one of the challenges is inflation. And then with that, there's commodity inflation, largely linked to the petrochemical chemical complex, and also labor inflation. Wages are going up and availability of labor is becoming a real problem, not just in this country, for obvious reasons such as Brexit, but everywhere.
And we've made investments in robotic companies, anticipating that this problem around labor shortage and the cost of labor is not going to go away. And [ADM portfolio company] Burro is one of our best investments. I think it's early days, but it's going in the right direction. It is the cheapest agricultural robot in the marketplace, and because of that, everybody wants it.
What does Burro do?
It's a robot that sells for over $12,000 a unit and they also have a SaaS package on top of it. So it's a smart robot. The smartness can be upgraded every so often, and you pay per annum something like $2,000. The margins are incredible, even for a cheap robot. The robot reduces the cost for grape growers as it mechanizes the grape picking process.
Indoor farming is an area of agtech that has had a lot of attention. Have you invested in this sector?
We invested in a Dutch company called ISO [ADM portfolio company] last December. They make robots for indoor farming. Indoor farming is a big deal because you're seeing this natural migration. If you grow a tomato or cucumber or melon outdoors, you've got to deal with, once again, labor, which doesn't want to be outside. The weather, disease, the birds, the slopes, you name it—you've got everything eating your vegetables.
Are there any other innovations you are looking at?
What I'm seeing happening is, one, a continuation of the same regarding indoor farming, and now you're seeing something called permanent row crops. This is not growing wheat or canola or corn in a big field. This is what we call highest and best use per hectare. You might get £400 (about $425) to £600 off your corn crop. But you're getting £5,000 for growing olives. Or you're getting £12,000 for growing almonds, while you're receiving £60,000 If you're growing kiwi fruits.
How has climate change impacted the agribusiness space?
We do a lot of modeling. Before we do any investment in this sort of stuff, on climate change, on weather patterns and particularly with permanent crops—they require a very careful transition from spring to summer. That's when pollination happens, and that's when it's got to be the perfect and ideal temperature. These things typically need a "chill zone," meaning it's cold enough to allow the fruit to set. It cannot be so cold that it freezes. And then as you go through the spring, you've got to have a week or two weeks, depending on the crop, that is ideal for pollination.
I think if you're in farming, unlike bonds or equities, you have additional risks, and they are climate and disease. But quite often, you can't hedge against those additional risks. What you've got to do is when you go in and look at planting olives, you might think about doing that in your backyard. You have to do the diligence around what the temperatures are going to be like in the next 20 years because this is not an annual crop.
Are there any ways to mitigate the risks?
What's happening these days is that the whole industry is being taken over by technology. So you're getting smart farms. Whereas runners might use Fitbits to measure their heart rate while exercising, there is technology to measure how crops are doing—they're called dendrometers. Smart farming is becoming smarter every day because you have powers to predict.
The more you know, the more power is gifted to you. [ADM portfolio company] M2I Life Sciences is a French company that makes pheromones. For insects, pheromones are vital. It's called a semiotic chemical. "Semios" is the Greek word for communication, and that is the way insects communicate. This company is really smart because it has created specific pheromones for specific pest insects.
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