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Tuesday, November 9, 2010

Private Equity sees 'Buckets of Money' in Water Buys


Water scarcity will generate big returns for the irrigation sector once climate change and population growth take their toll on farming, private equity managers said on Tuesday.

Asked at an agriculture investing conference whether it is possible to make money from water, typically a public good rather than a bankable commodity, Judson Hill of NGP Global Adaptation Partners was unequivocal.

"Buckets, buckets of money," he told the meeting of bankers and investors in Geneva, a leading European hub for commodity trading. "There are many ways to make a very attractive return in the water sector if you know where to go."

Smart irrigation technology will be at a premium in arid regions and places where higher crop yields are needed to meet rising food demand, Hill said, also citing opportunities from water rights in Australia and parts of the United States.

"Irrigation is a big industry and it is growing. I think it's going to grow dramatically," he said, estimating the sector at $3.5 billion today. "In parts of the U.S. we still grow rice in the desert, as crazy as that is. I think that will change."

Gary Taylor, a partner with AgriCura, a fund focused on U.S. corn, soybean, cotton, rice and wheat farming, said water was fundamental to smart agricultural land investments.

"We have done extensive work to understand the aquifer system along the Mississippi river and do believe over the term of our fund that water will become increasingly important," Taylor, a former executive at Cargill, said.

For agricultural equipment manufacturers such as  John Deere, there are also opportunities in tailoring irrigation systems to drought-resistant seeds developed by companies such as Monsanto, Dupont and Syngenta.

"There are very efficient ways to approach irrigation," said Cory Reed, John Deere's director of strategic marketing, describing a need to water certain commodity crops with careful volumes on a fixed schedule.

Hill also named links with communities as critical to gaining traction in the "very, very local" water sector, where investments can involve negotiations with governments amid growing awareness about scarcity risks.

"The water business is very much like the energy business was 20 or 25 years ago," he said. "As the price of water increases we are all going to become better stewards, not because we all become environmentalists but because it will affect our pocketbooks."