Journey the Latin American Agriculture Retail Wave with Lavoro

• Lavoro (Nasdaq: LVRO), Brazil’s biggest fertilizer retailer, began trading March 1 after merging with TPB Acquisition Corp.

• 1st US-listed LatAm ag retail pureplay equity

• Sao Paulo-based firm sells seeds, fertilizers, pesticides and other products used in crop production

• New technologies digital, genome engineering, and biologicals are transforming global agriculture

• Latin America is the fastest-growing and largest global agriculture export market, with major customers including China and EU

• Brazil saw $38 billion in growth at a 16% CAGR between 2017 and 2021

• Lavoro already in Brazil, Colombia and Uruguay, will increase market share in agricultural inputs through retail expansion, operational improvements and takeovers

• CEO Ruy Cunha previously held leadership roles at Santal Equipamentos S.A., AGCO Corp., and was a management consultant at Booz & Co.

• TPB helmed by Silicon Valley billionaire David Friedberg, who remains on Lavoro board

• Favorable 2022 Ebita multiple of 7.1x to comp Nutrien Ag Retail of 8.4x

By Jarrett Banks

Global food supply chains have become unstable due to climate change, COVID-19, and global conflict, emphasizing the urgent need for improved technology adoption to drive productivity.

Latin America is now the key to global food security, as the fastest-growing and largest global agriculture export market. To take part in this trend, savvy investors should know about Lavoro (Nasdaq: LVRO), the first US-listed Latin American ag retail pureplay equity.

Lavoro (Nasdaq: LVRO), Brazil’s biggest fertilizer retailer, began trading March 1 after merging with TPB Acquisition Corp., a special purpose acquisition company helmed by Silicon Valley billionaire David Friedberg, who remains on the board of Lavoro. Major customers include China and the European Union.

The Sao Paulo-based company sells seeds, fertilizers, pesticides and other products used in crop production and now has operations in Brazil, Colombia and Uruguay–with more countries on the horizon.

Story continues

There is a large growing TAM for agricultural inputs across Latin America, with Brazil alone seeing $38 billion in growth at a 16% CAGR between 2017 and 2021. Digital agronomy and biologics will play a significant role in increasing yield while reducing costs, land, water and carbon. Moreover, the small farmer productivity of Latin America is an essential part of the solution, with 65% of Brazilian farmland managed by farmers.

To unlock technology adoption across farms, ag retail is the key. In Brazil, 41% of total ag inputs are sold through independent retailers.

The Latin American agriculture market growth is at an inflection point, driven by new technologies transforming global agriculture. Farmers are poised to adopt and are already benefiting from emerging agricultural technologies, offering more integrated services than the North American market.

This is all being driven three major technology trends: digital, genome engineering, and biologicals — driving extensive change in global agriculture by maximizing productivity, improving sustainability and reducing costs.

Digital technology is transforming agriculture, with wireless sensors everywhere enabled by ubiquitous wireless internet, cheap data transmission, storage and computing. Predictive models and precision agronomic recommendations are delivering higher yields to farmers.

This translates to productivity gains, generating data, predicting outcomes, delivering recommendations and executing with equipment for Lavoro.

There is also an accelerated transition from analog to digital breeding, with molecular breeding and targeted edits enabled by low-cost DNA sequencing, precision gene editing technologies and computational biology. Biologicals, such as microbes or microbial proteins, can also improve agricultural outcomes by transforming nearly every crop input market.

Importantly, Lavoro is in pole position to capitalize on strong demographics and a strong investment cycle, with Brazilian farmers being able to invest more and more quickly than US farmers due to growing adoption of crop insurance and credit availability.

There is now an urgency in Latin America to adopt new technologies to drive productivity, improve sustainability and reduce costs. With the region’s growing need for agricultural inputs, small farmer productivity, and ag retail key to unlocking technology adoption, Lavoro is looking ahead to a transformational growth period.

Lavoro also has outstanding leadership: CEO Ruy Cunha previously held leadership roles at Santal Equipamentos S.A., AGCO Corp., and was a management consultant at Booz & Co. Meanwhile TPB will support the introduction and development of emerging technologies and biologics.

While a comp like Nutrien Ag Retail, the third largest ag retailer in the region, has done some large acquisitions, Lavoro has a favorable 2022 Ebita multiple of 7.1x compared to Nutrien Ag Retail of 8.4x.

Smart investors will see a company in Lavoro that can combine technology with services as it continues to invest in its own product portfolio. It also has built trust through relationships on the ground to partner with farmers and companies. And with the post-merger cash to finance organic expansion and M&A, Lavoro looks to take center stage in Latin America.

 

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