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/ All categories of countries are / “Enormous potential” for new Agro funds in South America

“Enormous potential” for new Agro funds in South America

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farm-paraguayBuy land, said Mark Twain, they ain’t making it any more. He also observed that one of the secrets of success in life is to eat what you like and let the food fight it out inside. Taken together, these two aphorisms go a long way to explaining the appeal of investment in agriculture.

The world may not be making any more land but it’s certainly making more people, and increasingly many millions of those extra mouths are consuming what they like – and that means protein-rich meat diets of the kind the advanced economies have been enjoying for years.

The world’s population is forecast to increase from seven billion to 9.3 billion over the next 40 years, so food production must increase by at least 70% by the middle of the century.

Such is the challenge that the Global Harvest Initiative, a group of some of the world’s biggest agricultural companies, estimates that agriculture will be called on to produce more food over the next 50 years than it has in the past 10,000 years.

You don’t have to be a financial genius to sense an opportunity here. Confirmation comes from investment guru Jim Rogers, co-founder of the Quantum Fund with George Soros, who says:

“If you want to get rich you should be buying farmland. It’s the farmers, the producers, who are going to be in the captain’s seat when the prices go through the roof.”

Savills’ head of rural research, Ian Bailey, adds a  reason – short supply. “If you go back 50 years we were turning over about 2.5% of all available agricultural land every year, but now it is only about a quarter of 1%. So the market is very tight. And of the land that comes onto the market, some 50% is bought by farm investors wanting to expand their businesses.”

Investor spectrum

Tom Raynham, head of the agricultural investment acquisitions team at estate agent Knight Frank, says land is an asset that attracts a spectrum of investors.

“They include people who might not be able to buy a whole farm, but have money to invest in a fund that will then go out and buy a farm.

Then there are private individuals who are looking either to expand on their own land holdings or just invest into land for the first time. Then there are corporations, family offices, institutions and pension funds.”

An example of a farm asset manager is Manor House Farms, which set up Farm Funds in 2009. It runs farms on behalf of a pool of investors, each of whom becomes a “farmer” with access to the farmland assets and activities.

The system works rather like a racehorse consortium in which part-owners enjoy the asset but leave its management to experts. Among the attractions of land, says Ian Bailey, is the fact that it does well in recessionary times.

“The fundamentals of food production and food security are high on the political agenda. Land may also produce energy with solar cells and wind farms. And you can live on it, enjoy it, and raise your family on it. It’s a very diverse product.”

Buying land is not the only way to invest in agriculture. There are a number of funds that specialise in the food industry. The three main players in the UK  for example are the CF Eclectica Agriculture fund, Sarasin Agrisar and Baring Global Agriculture. In South America there El Tejar, UAG , Cresud, Adecoagro SA (NYSE:AGRO) and a number of smaller players.

You can basically divide the agriculture universe into three broad segments – upstream, midstream and downstream. Upstream are fertiliser, crop and seed protection and machinery companies, as well as plantations and farms.

These companies tend to be positively correlated to soft commodity prices, or at least benefit from strong soft commodity prices.”

Midstream are the processing and distribution companies, which own grain-storage assets as well as processing corn and soybean into things like ethanol. Meat companies, too, fall into the midstream.

The midstream tends to benefit from greater volumes in grains and edible oils and lower crop prices. Finally, the downstream firms include food manufacturers such as Nestlé and Unilever and retailers such as Tesco.

When it comes to investing in food, then, we can discount the words of the economist John Maynard Keynes, who commented that in the long run we are all dead. Without agriculture we would all be dead in the short run.

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, Chile, Paraguay, Peru and Uruguay, providing expert advice on property acquisition and investment tours.


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