Covid-19 has changed the world. What is has also changed is how investors need to approach valuations of potential investments. Dr Peter Stanbury and Quentin Anderson examine how the investment world has changed.


A recent article by members of the Private Equity Practice at Bain Consulting published an assessment of the Covid-19 outbreak on the PE sector. As well as looking at the impacts so far – for example on returns and exits – the piece also speculated about the future. According to Bain “funds most prepared to weather this crisis—and the next one”, will be those who recognise that “sector expertise will become more critical than ever”, and that “the scope of due diligence will change.”

We at DVC, have been helping clients with what then-US Secretary of Defense, Donald Rumsfeld once famously called ‘unknown unknowns’ – the things we didn’t know we didn’t know – since 1995. Whilst we cannot claim to have anticipated the Coronavirus outbreak, through our LOAF methodology – Leadership and Organisation in Anarchic Flux – we have literally decades in advising organisations facing change and disruption.

A key lesson we have learned over the years is that bad decisions are often taken because people do not pause to examine the evidence in front of them. During times of violent change and disruption management teams can face information overload, and the situation with Covid-19 is no different.

This article examines whether Bain’s analysis is correct by looking in particular at the ramifications of Covid-19 for the agricultural commodities sector, which includes palm oil, cocoa, rubber, cotton and coffee. Companies in this sector include growers such as Sime Darby and Golden Agri; traders such as Cargill; and brand companies such as Nestle and Mondelez.

The real significance of Covid-19

It is rare that a mathematical theory makes it into the awareness of the general public. One exception, a number of years ago, was Chaos Theory. However sceptical some might have been at the idea that ‘a butterfly flapping its wings in China can cause a hurricane in Texas’, the current Coronavirus outbreak clearly demonstrates the notion that apparently small events in one place can cause much larger ones elsewhere.

Although we don’t know for certain, “scientists suspect that Covid-19 may have come from a market in Wuhan when a diseased animal was consumed or butchered”, thus allowing a previously animal-borne disease to pass into humans. Whether this turns out to be accurate, or whether the outbreak started elsewhere, coronaviruses are zoonotic in nature. Therefore a small act in urban China, where imports of species such as pangolins has skyrocketed in recent years, has now led to the shut-down of much of the world.

However, such links are not new. The Ebola outbreak in West Africa in 2014-15 is believed to have originated in bats, and then transferred to human beings, initially in Guinea. Whilst this outbreak has not had the global impact of Covid-19, Ebola’s much higher mortality rate, and the fact that the disease struck in countries with very weak healthcare systems meant that the impact on Liberia, Guinea and Sierra Leone was devastating. SARS – which hit Asia in 2003 – is also believed to have originated in bats, and spread to humans through civet cats. The Middle Eastern Respiratory Syndrome – another coronavirus – is believed to have passed to humans via camels.

What all these outbreaks therefore have in common is that they were not random happenstances: they all could have been anticipated if anyone had bothered to look. Chaos Theory has demonstrated its power: that apparently small, and localised events can have huge and disruptive effects elsewhere.

And this, perhaps is the most important lesson that the business world needs to learn from the Covid-19 outbreak: that there are issues companies face which are complex and difficult, but which are vital to address if the risk of future pandemics is to be reduced.

The challenges for agribusiness.

The first is illegal deforestation which plays a significant role, not just in global warming and biodiversity loss, but also in the development of zoonotic diseases like Coronavirus and Ebola.

According to the World Health Organisation (WHO) the origin of the 2014 Ebola outbreak was a small village in the Gueckedou District of Guinea. In the words of the WHO, “much of the surrounding forest area has been destroyed by foreign mining and timber operations. Some evidence suggests that the resulting forest loss, estimated at more than 80%, brought potentially infected wild animals, and the bat species thought to be the virus’ natural reservoir, into closer contact with human settlements.”

The same warning was repeated in a recent article in The New York Times, which argued that “we invade tropical forests …we cut the trees …and we shake viruses loose from their natural hosts. When that happens, they need a new host. Often, we are it.” The need to tackle illegal deforestation is not new for companies, but the Covid-19 outbreak demonstrates all the more clearly the need for urgency on this issue.

This leads us to the second issue which companies need urgently to grasp – to support enforcement of laws in countries where they operate. Frequently, on issues like deforestation, countries have laws in place, but these are only erratically enforced. An article last Autumn in the journal Forest Policy and Economics considered the case of Indonesia, for example. The authors concluded that despite commitments by the government “to reduce emissions from deforestation and forest degradation. …, the country suffers from one of the most significant illegal logging and illegal land clearing conditions in the world. … Indonesia does not have … a strategic approach to forest law enforcement.”

However, the issue goes further than tackling illegal deforestation: the Covid-19 pandemic illustrates the need also to ensure enforcement of laws relating to the trade in live animals and endangered species. Probably the best-known regulation internationally is CITES – the Convention on the International Trade in Endangered Species.

However, though backed by the UN this convention is only as good as the willingness of individual states to enforce it. As National Geographic put it in an article last summer, “actual enforcement of the CITES regulations is left to the countries themselves—some of which don’t have the resources or political will to enforce regulation.”

Significantly more effort is needed to enforce country-specific regulations as well: with China being a clear case in point. On February 24, the 13th National People’s Congress issued a decision “comprehensively prohibiting the illegal trade of wild animals, eliminating the bad habits of wild animal consumption and protecting the health and safety of the people.”

Yet, as with CITES, this new regulation will only be as effective as the enforcement measures used. A letter in Nature magazine, following China’s announcement, appeared to express scepticism in this regard since “much of this trade is already illegal, stricter enforcement and prosecution measures are needed if the consumption of wild animals is to be brought under control.” This will take time, and encouragement. Business, uncomfortable though firms are at this idea, will need to establish how best they can support governments in all countries where they operate in enforcing key laws and regulations like these.

Demand is one driver of the wildlife trade, the other of which is the supply. This brings us to our third issue: rural poverty, which is a driver both of the wildlife trade and of deforestation. To look first at the former, it is clear that low incomes in rural areas of many countries is a driver for the hunting of so-called bushmeat – wild animals hunted in many developing countries by local people both for their own consumption, and for sale. As The Zoological Society of London observes in relation to the practice in West Africa, bushmeat is crucial for “the food security and livelihoods of those people who use this resource.”

However, the consumption of bushmeat, and the sale of wild animals into markets like the ‘Wet Markets’ of China both carry significant risks of the transfer of zoonotic diseases from animals to people. Improving incomes in rural communities is therefore a vital tool in addressing the practices of deforestation and bushmeat hunting which are driven to a significant degree by poverty.

In relation to deforestation, we know that in the case of both the cocoa and palm oil supply chains, the behaviour of small-scale farmers is a key issue. According to the World Bank, in Ghana “forest degradation and deforestation are driven primarily by cocoa farm expansion.” A report last year by research NGO CIFOR found that an increase in the conversion of peat soils in Borneo Island was caused mainly by smallholder oil palm expansion. Properly addressing rural poverty in emerging economies is therefore vital as part of a strategy to limit the potential for future pandemics.

The fourth and final issue is that of food security. As the reality of Covid-19 took hold, supermarkets in many countries were stripped bare by waves of panic-buying. For example, London’s Evening Standard reported that in just four days in March, Britons made 42 million extra shopping trips than normal, as people feared shortages of that essential food and other supplies. How much greater would the panic have been if these fears had been real, and key goods really were about to run out.

Yet the reality is that supplies of many foodstuffs genuinely are facing an existential risk. Whilst Covid-19 has captured the headlines, it is by no means the only pandemic the world currently faces. The very existence of several key commodities is threatened by diseases which are able to spread with alarming rapidity. A fungus called Fusarium Tropical Race 4 (TR4), long present in banana plantations in Asia has now spread to Latin America, the world’s largest exporter of bananas. As one observer commented last summer, this “deadly fungus is on the verge of wiping out the banana forever.” Whilst some (less attractive to consumers) banana species are resistant, the Cavendish, which is the banana you see in shops, is not. And there is no treatment or cure. Land must be simply quarantined and abandoned for decades, perhaps longer.

Citrus crops – including oranges, lemons, grapefruit and limes – also face an existential threat in the form of Citrus Greening (also known as Huanglongbing (HLB) or yellow dragon disease). According to the US Department of Agriculture, “once a tree is infected, there is no cure…It has devastated millions of acres of citrus crops.” According to the UN’s Food and Agriculture Organisation, the disease is already present in seven of the world’s top citrus-producing countries of the world.

Alarmingly, farmers in Florida are now turning in desperation, to spraying trees with antibiotics. This is of deep concern to public health officials, given the huge risks the world faces from anti-microbial resistance. The United Nations says resistant infections could claim 10 million lives globally by 2050, exceeding deaths from cancer.

Coffee too is under threat. Writing about that industry in Colombia, a BBC analysis concluded that, “coffee rust is a disease with the power to cripple, or even wipe out, the country’s national product.” These contagions are being addressed from the crop science perspective but given the potential for a perfect storm of another human pandemic, and REAL shortages of foodstuffs, still greater action is needed.

Implications for investors

What then does all of this imply for investors? Is Bain’s assertion correct that sector knowledge and improved due diligence will be the keys to PE firms which will be successful in the future. Well, the answer is both yes, and no. Yes, these factors will be critical for successful investing; but no, in that what sector knowledge and due diligence will involve will be entirely different than in the past.

Sector knowledge

Deep sector knowledge will be critical for PE firms in making investments in a post-Coronavirus world. However, that sector knowledge will need to encompass insights into a much wider set of issues than has been the case hitherto. In the case of the agribusiness sector, Covid-19 has starkly highlighted the negative externalities caused by business structures that had come to be seen as normal. Already the link is being made between the value of companies in this sector and their ability to manage the types of issues set out above.

Yet the same will be true too in almost every sector. The link between business processes and the wider context in which these exist will now be under greatly increased scrutiny. PE firms therefore need to revise what they understand as ‘sector knowledge’ to reflect this.

Expanding due diligence

Once again, it is true that due diligence will continue to be of key importance, but what that due diligence will need to include will be significantly different than before if it is to be effective. Traditional assessments, of things like finance and tax, people and management, and legal compliance will continue to be important.

However, due diligence will now need to include assessments of how well a company understands the wider context in which it operates. In future, agribusinesses which do not address issues such as their potential link to zoonotic diseases will be vulnerable. Investors will need to create processes for ‘societal due diligence’ relevant to each sector. This will need to include considerations such as whether a company has a good understanding of the societies in which it operates and have processes in place to manage these interactions.


To some degree therefore, Bain is correct in its conclusions about what key skills PE firms will need to have in order to be successful in the post-Covid world. However, if they are to be of any use at all, sector knowledge and due diligence processes need to be entirely reconceived in the new world in which we are all living. Covid-19 has made is blindingly clear that companies and business processes are inextricably tied up with the wider social, political and environmental contexts in which these operate. Investors who fail to realise this will fail.

PE firms therefore need to evolve their existing analysis techniques to include consideration these wider contextual factors. To do this will require hiring different people, and taking different advice. Those working in in investment firms typically have backgrounds in finance, commerce and business. These skills-sets remain valid, but other skills are needed. In future, PE firms also need to include others with experience in areas such as political science, development economics and ethnography.

Moreover, there is a need to move away from over-reliance on ‘big data’. Modern investors are used to informing their decisions by the use of enormous databases of information. Yet, big data is only as good as the questions asked of it. As this piece has demonstrated, the types of questions investors need to ask are considerably different from those which might have been relevant as little as two months ago.

The PE industry has successfully navigated previous storms: this is how it can respond to the one caused by Covid-19, and come away from the situation stronger, more resilient, and more insightful.

A way Forward

Given the magnitude of the Covid-19 Pandemic all organisations, be they Governments, NGOs or businesses need to examine their management processes, and explore how these might be evolved to map a process to tackle the unknown unknowns

DVC Consultants’ LOAF (Leadership and Organisation in Anarchic Flux) process helps organisations do precisely this. It as a proprietary consulting process for supporting our clients in being disruptors and challengers, rather than being on the receiving end of companies more innovative. It’s a four-part process designed to identify and analyse a wide range of different perspectives, and then to recommend actions on the back of that;

  • Leadership: To provide leadership you need to learn from many different perspectives — even those you might disagree with. We are expert in a range of fields, including political analysis, branding, economics, technology and financial services.
  • Organisation: Too often companies have the information before them, but key pieces of information are missed. Sometimes this is because people with one mindset are unable or unwilling to accept or understand what others are saying, and why. We are able to ensure that all key insights are kept in view, and synthesised and organised so they reinforce one another.
  • Anarchic: To make sense of anarchy you need to analyse. There is no use in having the information to hand if it is not rigorously analysed and tested. Too often people do things on the basis of what they want to be true, rather than that which evidence suggests is true. We apply proper rigour — following Karl Popper — in analysing the challenges facing our clients.
  • Flux: This needs fixing. Because we have worked in a range of industries, we know and understand how companies work, and the importance of making good ideas operate through day-to-day management structures, We are able, therefore, to support our clients in putting in place actions that will enable them to be the disruptors, not the disrupted.

About the authors

Quentin Anderson is Executive Chairman, DVC Consultants and CEO and Co-Founder of BankTotal. He has decades of experience in advising companies, and for 18 years was a CEO of companies in the WPP group.

Dr Peter Stanbury is Co-Founder of both DVC Consultants and Banktotal. He has worked all over the world for organisations as varied as NATO, The World Bank, Anglo American and the Governments of The Netherlands, UK and Switzerland.

Thought Leadership- Cogitare

Cogitare – Latin for “To Think” – is the collective name for DVC Consultants thoughts, insights and perspectives on a broad and eclectic number of subjects. From Brexit to Global Poverty, Islamic Banking to Subsistence Agriculture, Disruptive Technologies to The World Bank. It reflects the wide range of sectors and issues we consult on. We hope you enjoy reading them.

DVC Consultants: Exploring unknown unknowns since 1995


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