Agrotech company Roots Sustainable Agricultural Technologies Ltd. (ASX:ROO) has signed a distribution contract in China likely to amount to $19 million over five years. The company develops and markets a system that makes it possible to heat and cool crop roots, while consuming very little energy. The agreement is with Israeli agricultural integrator company Dagan. As part of the agreement between the companies, Roots will grant Dagan the exclusive rights to sell its technology in China for three years, with the possibility of a two-year extension. According to a figure attached to Roots' announcement, the Chinese market currently grows 53% of all the vegetables in the world, amounting to 550 million tons.
The agreement also includes an extension option for the inclusion of another of Roots' technologies - condensation irrigation. It is also possible that the parties will decide to extend the exclusive agreement between them to other geographic markets.
The sales targets for the agreement are $3 million in the first three years, $6 million in the fourth year, and $10 million a year in the fifth year. According to the announcement by Roots, the agreement was signed after Dagan made an initial sale of the technology in China for $257,000.
"The significance of the distribution agreement with Dagan for the Chinese market is that Roots will be able to expect substantial expansion of its presence in China, the world's largest agricultural market, "Roots founder and CEO Dr. Sharon Devir said. "While China is power in agricultural produce, it faces many challenges. It needs to feed almost three times as many people per area as the rest of the world.
"There is a growing middle class that is demanding more and more protein in its diet, and there are constraints affecting local resources that make it difficult to increase production.
"We expect to consolidate long-term commercial relations with Dagan as part of our global strategic expansion program."
Roots' share price today responded to the news with a7.3% jump in Australia, but is still short of the peak it reached shortly after the company's IPO last December, in which the company raised A$4 at $A0.20 per share. The share zoomed to A$0.60 a share, reflecting a market cap of A$37 million (NIS 100 million).
The share subsequently subsided, and following today's surge, is currently at A$0.44, reflecting a A$25 million market cap (NIS 68 million).
Published by Globes [online], Israel Business News - www.globes-online.com - on February 6, 2018
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