Agribusiness due diligence: Preventing crises before they happen

Due diligence is the process of identifying key risks and information gaps involved in a transaction. It provides clarity to key stakeholders. By conducting due diligence, food and agribusinesses can make informed decisions, identify potential risks or red flags, optimise operations, and ensure that their latest investments are ethical and sustainable.

It can be easy for investors to get caught up in the excitement of an acquisition and proceed without a full understanding of their investment. There have been several recent high profile cases that serve as a stark reminder of potential liabilities and the need for agribusiness due diligence. The tragic events reported recently at a well-known pineapple plantation in Kenya represent one of many such instances. In that case, it is alleged that violence and misconduct from security guards led to a life being lost. This triggered a public backlash and the brand has been pulled from several supermarket chains.

Numerous examples of misconduct within the food and agribusiness industry have had similar consequences. In Mexico, two leading tomato producers were accused of abusing farmworkers and had their exports subsequently blocked by the US. Also, sexual exploitation has been uncovered on tea plantations that supply major global tea brands. Naturally, these cases raise serious questions. However, thorough independent operational assessments or audits and appropriate due diligence could have identified and rectified these issues before they became crises.

Due diligence is crucial to inform and ensure successful and responsible investment decisions, and it should be given considerable attention throughout the entire investment process. Due diligence should be holistic and integrative in nature. This includes looking at all technical, operational, commercial and ESG factors and not just at historical financial performance or legal aspects of the transaction

Technical due diligence involves an in-depth evaluation of infrastructure, equipment, and technologies used in a business’ operations. By assessing the efficiency and level of obsolescence of these assets, businesses can identify potential technical risks such as outdated machinery and inefficient production practices, as well as estimate remaining useful life and headroom capacity. With technical due diligence, investors ensure that acquisition targets are equipped with modern and reliable tools, safeguarding them from future operational disruptions.

Operational due diligence scrutinises key processes such as supply chain management, quality control, process flow and controls, capacity utilisation, and regulatory compliance. It also provides a thorough evaluation of the workforce to identify skills, productivity, and experience.

This process covers any potential legal, operational, or reputational risks that are associated with poor workplace practice. Through operational due diligence, sellers and buyers can evaluate critical business elements such as resilience, efficiency, and scalability, and optimise their processes accordingly.

This process evaluates the environmental and resource impact, social responsibility, and governance practices of a target. It examines factors like resource consumption, waste management, labour conditions, and stakeholder engagement. With growing awareness of sustainability and ethical practices, ESG due diligence has gained prominence in food and agribusiness transactions. Applied correctly, independent ESG due diligence, or audits, could have identified and resolved several of the unfortunate instances mentioned previously and prevented the ensuing reputational crises.

Failing to protect workers’ rights, delivering unsafe products, or causing ecological damage can quickly threaten the sustainability and reputation of any business. Where issues arise, food and agribusinesses need to quickly and actively address their root causes in a sustainable and responsible way. These steps are both ethical and strategic. Businesses which fail to look beyond the pursuit of profitability or take into account their societal and environmental impact inherently take on greater risks.

This process assesses the commercial aspects of a business or investment opportunity. It reveals market trends, identifies potential avenues for growth, and assesses the viability of a transaction. By conducting reviews on products, customers, finances, and legal compliance, commercial due diligence identifies risks that could affect operations and future profitability while ensuring a fair valuation.

At Farrelly Mitchell, we believe it is imperative to conduct food & agribusiness due diligence in order to make informed decisions. Failing to identify risks, evaluate processes, or improve sustainability can prove fatally short sighted. Without assessing all aspects of an investment, agribusinesses limit their chances of success.

We provide tailored investment services that dig deeper than just the figures at hand. These services include technical, commercial, operational and ESG due diligence, as well risk analysis & management and feasibility and financial modelling. Our expert agribusiness due diligence team provide independent, unbiased red flag reports with clear go/no-go recommendations to buyers, while our ESG team help clients tackle environmental challenges, and embrace sustainable practices.

We also provide a range of additional commercial supports for food and agribusinesses. With our market intelligence, value creation, and strategic services, you can plan, analyse and execute your next venture with confidence.