Agriculture investments growing rapidly and expecting to double
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Worldwide investors are looking at South America for growing more feed grains, corn and soybeans, as rising global meat consumption propels prices, said Chris Erickson, managing director of Boston-based farm consultancy HighQuest.
“What we are seeing right now is a lot of interest from institutional investors, private capital, pensions and endowment foundations to invest in real assets,” he told on an industry seminar in Singapore.
Inflows of private capital in agriculture worldwide are expected to more than double to around $5 to $7 billion in two years as rising food prices spur investments in farm land and production facilities.
Private capital investment in farming in expected to more than double to around $5-$7 billion in the next couple of years from an estimated $2.5-$3.0 billion invested in the last couple of years, he said. “Farmland today globally provides a very interesting investment scenario based on global supply and demand fundamentals.”
The benchmark U.S. corn prices climbed to an all-time high earlier this month as strong demand across the livestock, ethanol, export and investment sectors faced the tightest stocks since the 1930s. Although soybean futures have been largely unchanged this year because of a temporary slowdown in imports by China, the world’s top importer, the market is expected get a boost in the months ahead as farmers in the U.S. plant more corn and Beijing lifts purchases.
South America is likely to lead the global expansion in agriculture with surplus land and existence of large-scale farm operations in the region, even though investors are also looking at Africa for growth, Erickson said.
The current global setting is simulative for those economies with greater real linkages to the more dynamic emerging economies, and for those likely to be most attractive to foreign investors. Most commodity-exporting countries of South America are facing highly favorable conditions—particularly those with stronger fundamentals, who have easiest access to external financing and stand to benefit the most from low global interest rates.
“Where people are seeing the expansion to handle rising demand from China and Southeast Asia, is mostly Brazil and other countries in South America,” he said in an interview. “The biggest area is South America which has the most potential. Africa too, but with South America the difference is that you already have large-scale farm operations occurring there.”
South America is the biggest producer of soybeans in the world with Brazil and Argentina the second- and thirdlargest soy exporter after the United States. Argentina is also the world No. 1 soymeal and soyoil supplier. “It (agriculture) is attracting foreign capital and you have some very large groups that have basically emerged from nowhere,” he said.
Foreign direct investment in the eleven economies of the region increased almost 20% during the first half of 2010 compared to the same period a year ago. The increase can be explained because of the stability and economic growth shown by the majority of countries in the region. In South America, the strong prices for commodities have continued to stimulate investments in mining and the hydrocarbons industries and to this must be added the recovery of world trade and improved prospects of international financial markets.
“In South America, El Tejar was farming around 200,000 hectares in 2006 and today they are farming close to 800,000 hectares.” Foreign investors such as Argentina-based El Tejar and George Soros’s Adecoagro have snapped up land even in the sparsely populated Uruguay, one of the region’s most stable.
South American real estate is rousing considerable interest as a stable and profitable investment option. Property markets, on the whole, are not contaminated with bad debt and distressed assets, as the relatively underdeveloped lending markets insulated the region from the worst of the global credit crunch.
Thousands of foreign companies seeking to expand their global footprint, while obtaining needed commodities to sustain growing food demand, recognize the strong potential for growth in the region. Furthermore, many governments, like China, India, Russia and Kuwait, are encouraging movement into South America through the signing of multiple regional Free Trade Agreements. India is currently a member of Mercosur.
Contact the Gateway to South America team to learn about the best investment opportunities in the region. The company is a benchmark for foreign investors wishing to invest in Argentina, Brazil, Uruguay and Chile, providing expert advice on property acquisition and investment tours.
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