'Crop doctors' could deliver rich harvest for shareholders

ANALYSIS:"CROP DOCTORS", or agronomists to give them their proper title, are good people to know. Agrigroup Origin Enterprises certainly thought so when it hoovered up Masstock, the agronomic advisers to 10,000 large-scale farms in Britain and Poland, in an €80 million deal completed last month.

With global demand for food set to double by 2050 but soil erosion shrinking the world's cropland by more than 10 million hectares a year, the importance of efficient, sustainable, high-yield farming is growing faster than grass in summer.

For Origin chief executive Tom O'Mahony, there is no better time to invest in smart farming techniques. Instead of living off subsidies and selling at deflated prices, farming is beginning to generate commercial returns "probably for the first time in living memory", he says. "Farmers will be less and less influenced by the cheque in the post, but by what they can yield from their produce."

Origin's influence on how they do this will now come through Masstock, which advises farmers on crop selection, protection and yields, prescribing the range of nutrition inputs needed for the soil to produce as much food (or biofuel) as possible. Origin handily happens to sell feed and fertiliser, the two key inputs that improve farm efficiency, which is why O'Mahony describes the €340 million Masstock business as "complementary" and "transformational".

The agribusiness spin-off from food group IAWS, Origin started looking at Masstock in mid-2007, around the same time that it conducted a successful initial public offering (IPO), which raised €100 million and allowed it to take on a €350 million debt facility. This gave it the finance it needed to make the acquisitions it could not have afforded as just one, rather ignored, division within IAWS, a group that had become increasingly focused on "lifestyle food" (bagels, croissants, doughnuts).

IAWS still owns 71 per cent of Origin, but the separation has come at the right time. Although milling group Odlums and food brands Shamrock and Roma also come under the auspices of Origin, it seems likely that future acquisitions will be along Masstock lines.

As Teagasc and some co-ops already provide the Masstock-type services in Ireland, O'Mahony is eyeing expansion in the under-producing farmlands of Eastern Europe and South America.

Masstock was founded in the 1970s by Irish brothers Alistair and Paddy McGuckian. It now advises on 25 per cent of the UK cereal crop - the equivalent of around 22 million tonnes of cereal - but there is still room for growth in the UK, O'Mahony believes.

Farm consolidation and efficiency improvements are predicted for Poland, where Masstock has a hand in 20 per cent of the crop output. "Poland produces the same level of crops from 10 million hectares as the UK does from six million hectares," says O'Mahony.

Global wheat stocks last year fell to their lowest point in 30 years, with just 65 days' supply left in the silos. Demand is predicted to exceed supply again in 2008, inspiring warnings about global food shortages and speculative trades in soft commodity futures.

"We're losing the buffers," says O'Mahony. "There is certainly speculative activity, no doubt, but the reality is that food is going to become more expensive."