Wednesday-Night

More on Agriculture & Food

Emergent Asset Management

19 June 2008
Gulf Eyes “Oil-For-Food” Deal With Neighbours
DUBAI - Recent attempts by Gulf countries to invest in farmlands abroad to counter soaring inflation and guarantee long-term food security could prove to be a win-win situation in the short-term for both the oil-rich region and its investment-hungry neighbours, but continued high oil prices may neutralise the gains in the long-run, feel experts.
5 June
Food Is Gold, So Billions Invested in Farming
( NYT The Food Chain) Huge investment funds have already poured hundreds of billions of dollars into booming financial markets for commodities like wheat, corn and soybeans.
But a few big private investors are starting to make bolder and longer-term bets that the world’s need for food will greatly increase — by buying farmland, fertilizer, grain elevators and shipping equipment.
One has bought several ethanol plants, Canadian farmland and enough storage space in the Midwest to hold millions of bushels of grain.
Another is buying more than five dozen grain elevators, nearly that many fertilizer distribution outlets and a fleet of barges and ships.
And three institutional investors, including the giant BlackRock fund group in New York, are separately planning to invest hundreds of millions of dollars in agriculture, chiefly farmland, from sub-Saharan Africa to the English countryside.
“It’s going on big time,” said Brad Cole, president of Cole Partners Asset Management in Chicago, which runs a fund of hedge funds focused on natural resources. “There is considerable interest in what we call ‘owning structure’ — like United States farmland, Argentine farmland, English farmland — wherever the profit picture is improving.”
These new bets by big investors could bolster food production at a time when the world needs more of it.
The investors plan to consolidate small plots of land into more productive large ones, to introduce new technology and to provide capital to modernize and maintain grain elevators and fertilizer supply depots.
But the long-term implications are less clear. Some traditional players in the farm economy, and others who study and shape agriculture policy, say they are concerned these newcomers will focus on profits above all else, and not share the industry’s commitment to farming through good times and bad.
By owning land and other parts of the agricultural business, these new investors are freed from rules aimed at curbing the number of speculative bets that they and other financial investors can make in commodity markets.
Grain elevators, especially, could give these investors new ways to make money, because they can buy or sell the actual bushels of corn or soybeans, rather than buying and selling financial derivatives that are linked to those commodities.
When crop prices are climbing, holding inventory for future sale can yield higher profits than selling to meet current demand, for example. Or if prices diverge in different parts of the world, inventory can be shipped to the more profitable market.
The executives making such bets say that fears about their new role are unfounded, and that their investments will be a plus for farming and, ultimately, for consumers.
Calyx Agro, a division of the giant Louis Dreyfus Commodities, is buying tens of thousands of acres of cropland in Brazil with the backing of big institutional investors, including AIG Investments.
Emergent Asset Management, based near London, is raising $450 million to $750 million to invest in farmland in sub-Saharan Africa, where it plans to consolidate small plots into more productive holdings and introduce better equipment. Emergent also plans to provide clinics and schools for local labor.
One crop and a source of fuel for farming operations will be jatropha, an oil-seed plant useful for biofuels that is grown in sandy soil unsuitable for food production.
The fund chose Africa because “land values are very, very inexpensive, compared to other agriculture-based economies,” she said. “Its microclimates are enticing, allowing a range of different crops. There’s accessible labor. And there’s good logistics — wide open roads, good truck transport, sea transport.”