[Part One of a Five-Part Message]
Private investment capital has mostly missed or ignored the agricultural sector primarily because investors are either totally unfamiliar with the space, or they commonly think that return prospects are limited. Recent increases however in food prices, from 2007 through 2012, has triggered interest in the sector and opportunities today can be significant.
Abacus Emerging Markets, an independent specialist investment banking firm in London, estimates that investments of approximately US$8 to US$10 trillion are needed to support the global 2050 food production requirements. Because of this, Institutional and Family Office capital has started to accelerate into agricultural opportunities over the past eight years since 2010. This investment focus has been deployed across various parts of the agricultural value chain that meet the styles and needs of the investor – from time horizons to liquidity preferences.
Selecting an agri investment isn’t that much different than selecting an investment in traditional sectors: choosing a particular part of the value chain and the geographical location is what forms the basis. The agricultural value chain are the different ways one can invest, and the geography is the physical location. Most of the global agri-industry production, and production potential, is located in emerging or transitioning economies. While developed economies do play a major role, farmland values are high leaving very small, if any margin for value appreciation.
During the 20th Century, the global population almost quadrupled from 1.65 billion people in 1900, to 6.1 billion people in 2000. In spite of this, the MGI commodity price index experienced a significant decline during that time and price development was driven by productivity gains because of advanced farming techniques, irrigation planning and a major focus on commercial fertilization. What is truly significant, is that it took just over a single decade to totally reverse these price developments. From Q1 2000, to Q1 2014, commodity prices rose by 124 percent.
The astonishing reversal has been driven by the awareness of world population growth and the absolute need for a sizable uplift in both global food production and the changing dietary requirements of up to three billion additional middle-class consumers that are forecast by 2030. This food demand/supply gap is acknowledged as one of the great investment opportunities for the future.
Continue to Part 2 of 5 in this series by clicking here.
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