London Investment Firm Bullish on Olive Oil

Many in the olive oil busi­ness would agree, get­ting a return on invest­ment can be elu­sive. But a London-based insti­tu­tional investor is bull­ish on the sec­tor and has plunked down the cash to prove it.

ADM Capital Europe, a pri­vate equity and invest­ment firm, said it had acquired a con­trol­ling inter­est in one of Europe’s largest olive oil pro­duc­ers, Innoliva, a mostly bulk olive oil sup­plier to large bot­tling com­pa­nies with high-den­sity groves in Spain and Portugal. Innoliva’s own branded Arbequina was a 2017 NYIOOC Gold Award win­ner.

Innoliva was founded in Navarra, Spain in 2006 and has grown to become a major player, pro­duc­ing up to 9,000 tons of extra vir­gin olive oil annu­ally. Ninety-eight per­cent of its 9 mil­lion trees are Arbequina and the remain­ing are Arbosana and Koroneiki vari­eties. ADM Capital bought its con­trol­ling stake from the Del Pino fam­ily. Rafael del Pino y Moreno founded the con­struc­tion com­pany Ferrovial in 1952, which became one of Spain’s largest builders.

ADM Capital acquired Innoliva through its Cibus fund, which seeks com­pa­nies that take a ​“proac­tive approach in green­house gas reduc­tion, water effi­ciency, soil preser­va­tion, ani­mal wel­fare, ocean wel­fare, pol­lu­tion reduc­tion and poverty mit­i­ga­tion,” accord­ing to the fund’s web­site.

In an exclu­sive inter­view, we asked ADM Capital part­ner Gavin Sasson about sus­tain­abil­ity, adding value and his com­pa­ny’s entree into the olive oil busi­ness.

How does the acqui­si­tion fit in with ADM’s ​‘eco­log­i­cal’ mis­sion?

Ethical, sus­tain­able and respon­si­ble invest­ing has always been at the core of ADM Capital’s mis­sion. Since its cre­ation 20 years ago, ADM Capital has deployed over $3 bil­lion via equity, debt and hybrid struc­tures into com­pa­nies around the world that, wher­ever pos­si­ble, uphold strict prin­ci­ples of best prac­tice. ADM Capital was one of the first asset man­agers to sign up to the UN Principles for Responsible Investment and has worked with var­i­ous devel­op­ment finance insti­tu­tions who have val­ued ADM Capital’s insti­tu­tion­al­ized adher­ence to strong ESG and Regulatory Compliance prin­ci­ples and report­ing. IFC, Asian Development Bank, Netherlands Development Finance Company, European Investment Fund and European Bank for Reconstruction and Development among other Development Finance Institution have invested in ADM Capital’s var­i­ous funds.

As fur­ther evi­dence of its com­mit­ment to uphold the high­est stan­dards of eth­i­cal invest­ing, in 2006 the found­ing part­ners of ADM Capital cre­ated the ADM Capital Foundation as a means of demon­strat­ing how progress can be made through the part­ner­ship between pub­lic and pri­vate cap­i­tal. ADM Capital’s focus on eth­i­cal invest­ing has not affected its invest­ment returns. Indeed, in 2016 ADM Capital deliv­ered an aver­age net IRR 18% to its insti­tu­tional investors, many of which include uni­ver­sity endow­ments and pen­sion funds.

ADM Capital’s acqui­si­tion of Innoliva was made through the Cibus Fund, the newest of ADM Capital’s seven funds. The Cibus Fund aims to gen­er­ate attrac­tive invest­ment returns by invest­ing in high-value food pro­duc­tion and pro­cess­ing com­pa­nies in Europe, the US and else­where. The Fund’s ESG and Sustainability Policy stip­u­lates that, wher­ever pos­si­ble, projects be man­aged to IFC Performance Standards and towards Social and Environmental Sustainability. The Cibus Fund also intends to cap­ture pos­i­tive ben­e­fit from projects includ­ing in areas such as resource effi­ciency, pol­lu­tion reduc­tion, soil preser­va­tion, green­house gas reduc­tion, ani­mal and ocean wel­fare, good labor prac­tices, as well as respon­si­ble han­dling of waste and pro­duc­tion by-prod­ucts.

Innoliva’s own prac­tices are, where applic­a­ble, con­sis­tent with these prin­ci­ples. The company’s Super High Density olive groves are entirely irri­gated by sur­face and cap­tured rain­wa­ter – the Company does not use ground­wa­ter. The groves in Portugal are irri­gated with water from the Alqueva dam sys­tem, which is fed by the Alqueva, one of Europe’s largest arti­fi­cial lakes, and its groves in Spain are irri­gated with water sourced from sur­face rivers.

In addi­tion to the company’s respon­si­ble use of water resources, Innoliva has demon­strated remark­able lev­els of envi­ron­men­tal respon­si­bil­ity regard­ing its use and treat­ment of atmos­pheric resources. As evi­dence, the com­pany is one of a small num­ber that has been selected by the European Commission for its abil­ity to sequester atmos­pheric car­bon and the com­pany is an impor­tant mem­ber of the European Commission’s Technical sec­re­tariat for their Product Carbon Footprint project. Finally, the com­pany sources a por­tion of its elec­tric­ity from its own in-house power gen­er­a­tors, fuelled by processed olive stones, and its irri­ga­tion pump­ing equip­ment at its Moura grove is entirely pow­ered by solar cells.

Why is ADM bull­ish on olive oil?

Olive oil has been an impor­tant part of the Mediterranean diet for hun­dreds if not thou­sands of years. However, while per capita con­sump­tion of olive oil in Mediterranean coun­tries is the high­est in the world, total con­sump­tion in Mediterranean coun­tries is not ris­ing. The fastest growth in con­sump­tion of olive oil, in per­cent­age terms, is com­ing from the devel­op­ing regions of Asia where increas­ing wealth gives con­sumers the oppor­tu­nity to develop an inter­est in high-value foods that are not tra­di­tion­ally asso­ci­ated with their national or regional cui­sine.

But absolute lev­els of con­sump­tion in these Asian mar­kets pale by com­par­i­son with US con­sump­tion, which is the third ‑high­est in the world. And, depend­ing on whether one is look­ing at retail con­sump­tion or food ser­vice and indus­trial con­sump­tion, the rate of growth of US con­sump­tion of olive oil comes close to match­ing what we see in Asia. The fact that the US com­bines the world’s third-high­est absolute level of olive oil con­sump­tion with high growth rates that, in cer­tain sec­tors rival what we see in Asia, makes it a com­pelling growth oppor­tu­nity.

The oppor­tu­ni­ties that ADM Capital sees in the US were an influ­en­tial fac­tor in our deci­sion to acquire Innoliva. High lev­els of growth in demand for olive oil in the US are a rel­a­tively new phe­nom­e­non and have unfor­tu­nately given rise to much con­fu­sion, mis­la­belling and out­right fraud in the mar­ket. In recog­ni­tion of the tremen­dous con­sumer inter­est in olive oil from a mar­ket that has hith­erto been unfa­mil­iar with the prod­uct, the United States Department of Agriculture (USDA) estab­lished clear stan­dards for olive oil intended to help con­sumers under­stand the var­i­ous terms that are used to define dif­fer­ent types and grades of olive oil. At the same time, the Food and Drug Administration (FDA) has allowed a state­ment on bot­tles of olive oil that says that cer­tain ​“sci­en­tific evi­dence sug­gests that eat­ing about 2 table­spoons of olive oil daily may reduce the risk of coro­nary heart dis­ease”. The FDA has also been proac­tive in tak­ing action against com­pa­nies that label their prod­uct as Extra Virgin Olive Oil when in fact it isn’t.

These mea­sures have sup­ported a move on the part of many US con­sumers to adopt olive oil in pref­er­ence to more tra­di­tional cook­ing oils such as corn and sun­flower oil. The move towards more healthy eat­ing, includ­ing increased con­sump­tion of sal­ads, has also been behind the remark­able increase in the use of olive oil in the US.

In what ways do you think you can add value to Innoliva?

Innoliva was one of the pio­neers of Super High Density olive cul­ti­va­tion and is an enthu­si­as­tic adopter of advanced crop, soil and mois­ture mon­i­tor­ing tech­nolo­gies. Many mem­bers of its highly expe­ri­enced man­age­ment team have been with the com­pany since its foun­da­tion ten years ago, its pro­duc­tion costs are among the low­est in the indus­try, and it is con­sis­tently and reli­ably able to pro­duce large quan­ti­ties of ultra-low acid­ity extra vir­gin olive oil. With these attrib­utes, ADM Capital has acquired an out­stand­ing pro­fes­sional orga­ni­za­tion with a world-class rep­u­ta­tion for qual­ity, reli­a­bil­ity and trace­abil­ity, the foun­da­tion of whose suc­cess was laid many years ago by the founders’ vision, courage and insight. ADM Capital intends to work with the company’s man­age­ment to build on this legacy. Specific ini­tia­tives include cap­i­tal­iz­ing the com­pany so that it is bet­ter able to take advan­tage of higher oil prices dur­ing cer­tain times of the year, expand­ing the company’s pro­duc­tion foot­print in Europe, and explor­ing new avenues of dis­tri­b­u­tion in new mar­kets.

Will there be staff reduc­tions at Innoliva?

Innoliva’s senior man­age­ment team includes highly expe­ri­enced indi­vid­u­als, some of whose exper­tise is unmatched in the indus­try. ADM Capital’s inten­tion is to build on this expe­ri­ence and to make sure that the company’s man­age­ment, pro­duc­tion, pro­cess­ing, sales and mar­ket­ing resources are able to take the com­pany into its next excit­ing phase of growth.

The U.S. is obvi­ously a key mar­ket for olive oil exporters, but American olive oil con­sump­tion is not what it should be. What do you think can be done to increase U.S. adop­tion of olive oil and will Innoliva/ADM be a leader in that pur­suit?

Both ADM Capital and Innoliva will indeed be lead­ers in the move to meet increas­ing US demand for olive oil. Furthermore, since March of this year, Innoliva has been work­ing with Harvard University in con­nec­tion with Harvard’s ongo­ing research into the health ben­e­fits asso­ci­ated with reg­u­lar con­sump­tion of mod­er­ate quan­ti­ties of olive oil. Both ADM Capital and Innoliva are reg­u­lar par­tic­i­pants at food indus­try events, and ADM Capital is already present in the US as a sig­nif­i­cant investor in Aerofarms, the world’s lead­ing indoor farm­ing com­pany. Together, Innoliva and ADM Capital will work assid­u­ously with all US mar­kets par­tic­i­pants to help build aware­ness of olive oil.

How con­cerned are your man­agers about cli­mate change and its effect on your farms?

With cli­mate change, we are, of course, see­ing increased volatil­ity in weather. So, while many of the main olive grow­ing regions of Spain have not seen sub­stan­tial rain­fall since July, last year there was more rain­fall in the loca­tion of Innoliva’s Portuguese olive groves than since the 1950s. Innoliva and other olive oil pro­duc­ers, there­fore, need to be able to deal with extremes of both rain­fall and drought, and although irri­ga­tion makes the Innoliva less sus­cep­ti­ble, it is nonethe­less vul­ner­a­ble to extremes of weather — as was shown last year.

The effect of no rain­fall on unir­ri­gated olive groves can be calami­tous, reduc­ing yields to the point where it may not even make com­mer­cial sense to har­vest them. Fortunately, Innoliva is largely unaf­fected by the absence of rain­fall, and has been able to main­tain olive pro­duc­tion at indus­try-lead­ing yield lev­els. The Alqueva dam sys­tem, which irri­gates many of Innoliva’s olive groves, is able to sup­ply unre­stricted irri­ga­tion water to its sur­round­ing area for four years with­out rain­fall. But the broader issue of cli­mate change and its effect on water-inten­sive crops such as olives does need to be tack­led, and Innoliva is at the fore­front of the indus­try in term of its use of devel­op­ing tech­nolo­gies to opti­mise its use of valu­able water resources.

Innoliva makes exten­sive use of soil mois­ture and salin­ity sen­sors and report­ing sys­tems, it deploys water meters in all irri­ga­tion sys­tems and has installed numer­ous cli­mac­tic sta­tions across its groves. The com­pany is also tri­al­ing var­i­ous water treat­ment tech­nolo­gies to see if they reduce vis­cos­ity and improve plant uptake. Other water use effi­ciency ini­tia­tives being tri­aled by the com­pany include the use of the use of Mycogel (Mycorrizas), which is applied at the base of the olive tree to increase the soil’s capac­ity to absorb and hold water and nutri­ents in times of water scarcity. Mycogel treat­ment also aids in the reduc­tion of soil ero­sion.

Both Innoliva and ADM Capital are tremen­dously excited by this acqui­si­tion and see the part­ner­ship between the two organ­i­sa­tions not just as the foun­da­tion for devel­op­ing one of the world’s most impor­tant sup­pli­ers of extra vir­gin olive oil, but as fur­ther evi­dence that when cor­rectly imple­mented, pro­fes­sional insti­tu­tional finan­cial own­er­ship can be a dri­ving fac­tor behind eth­i­cal and respon­si­ble stew­ard­ship of valu­able agri­cul­tural assets.