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Agricultural land rush of investment funds!

After launching products indexed to changes in prices of agricultural products, many banks and investment funds are turning now to the land acquisition...

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Whereas in June 2008, the launch of financial products indexed to the increase in cocoa, coffee, sugar, wheat, corn and soybeans caused a scandal, pushing even more politicians to propose the ban of such products, many banks and funds are reinvesting in agriculture.

According to the FAO (United Nations High Commissioner for Agriculture and Food) to deal with the growing population - equal to more than 2 billion more mouths to feed by 2050 - it will be necessary to increase the worldwide agricultural production by 70%, corresponding to an increase in arable land over 100 million hectares.

Banks and investment funds have already anticipated the trend. For several months, Deutsche Bank and Goldman Sachs have acquired farms and meat factories in China. Morgan Stanley bought several thousand hectares of lands in Ukraine, the pool of cereals in Europe. According to an officer of Morgan Stanley, many other banks are also looking for land.

The information is supported by Barclays Capital, the investment banking division of Barclays. Roger Jones, co-head of commodities at Barclays capital, said "we are considering many options of this type".

Hedge funds and large companies are no exception. The hedge fund Renaissance Capital has also invested in Ukraine and buying 300,000 hectares. The Lithuanian company Agrowill, the Swedish Alpcot Agro and Black Earth Farming investing heavily in Russia. The U.S. investment fund Black Rock has established an agricultural hedge fund worth $ 300 million, of which 30 million are dedicated to land acquisitions. The British Dexio Capital wants to buy 1.2 million hectares of Russian steppes. The French company Louis Dreyfus commodities, with 60,000 hectares in Brazil is currently interested in purchasing or leasing lands in Sub-Saharan Africa. The real estate group Knight Frank International is setting up a fund to buy agricultural land in the UK.

Hedge funds have bought thousands of acres of corn and sugarcane plantations in the united States and Brazil.

"Agriculture will be one of the best areas to make money in the next 10 years", warned Jim Rogers, one of the gurus of the hedge fund industry, in a interview with Reuters in August.

"In many parts of the world, food prices are high and land prices are low, says the NGO grain. We can clearly make money by taking control of the best soils, near water resources. "The investment horizon is 10 years on average and the returns on investments are evaluated between 10 and 40% per year for farms in Europe and can reach 400% in Africa.

In France, Charles Beigbeder also smelled the gravy train. He firstly changed the brokerage industry with the online broker Self Trade, and the electricity with Poweo, he is now heading to agriculture.

At 45, he became president and shareholder of AgroGénération, a grain farmer who currently operates three farms with a total area of 20,000 hectares in Ukraine. It aims to eventually increase this area to almost 500,000 hectares of an annual production of around 2 million tons of wheat.

If speculation, yields and investment diversification are driving banks, companies and hedge funds, it is not the case with most states embarking on the purchase or lease of land away from their borders. They want their people to ensure food security by engaging in cereal production and meat instead of resorting to imports dependent on fluctuations in global assets prices.

The Gulf monarchies, which have very little arable land, want to guarantee the supply of the population in agricultural resources, particularly in wheat. They have more than 3 million hectares in Sudan, Pakistan and Indonesia. Following the increase in food prices on the world market and the fall of the dollar, Gulf countries have seen, in five years, the import bills jump from 8 to 20 billion dollars. Saudi Arabia announced last February its willingness to invest in South Africa and the Philippines to grow bananas, mangoes pineapples, rice, corn and beef. All these commodities are destined for the Saudi market. Qatar and Kuwait are tenants of hundreds of thousands of hectares in Cambodia.

With nearly 2.5 billion people, China and India are home to about one third of the world population. the two countries with a quite low ratio of "population/farmland" are seeking new concessions away from their country.

China has acquired 2.1 million hectares (the equivalent of Slovenia) in South America, Africa, Southeast Asia and Australia. The Middle Kingdom saw its farmland disappear as the country became industrialized.

"Over the next five years, there will be millions of people trying to eat more bread, noodles and drinking coffee... There is no chance that the supply can catch up with the demand, "said Badung Tariono, fund manager for ABN AMRO, based in Amsterdam

And that’s not all. The pressure on arable lands will also come from growing demand for biofuels and grain to feed livestock to provide meat to emerging markets.

Management of agricultural resources is a challenge for all countries in the world. And the risks are huge: In Madagascar, the rental of one million three hundred thousand hectares of land (half of agricultural land available) by the Korean group Daewoo for a period of 99 years, led to a revolt of the population, leading to the cancellation of the sale and the dismissal of the president.

Paul Monthe , October 2009

Article also available in : English EN | français FR

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