How to Profit From Rising Food Prices
Whenever the world has faced a food crisis before today, there have been opportunities to increase production to meet growing demand and deflate food prices. In the 1970' the Green Revolution gave farmers the ability to increase yield per hectare, before that in the 1930's there was ample unused land that could be developed and cultivated. For the first time in history we face a growing demand for food from a population that is expanding at the fastest pace in history, and at the same time yield increases have all but vanished and there is very little suitable virgin land left to bring under agricultural cultivation.
The impact of sever climatic events in in Australia and Russia, and poor yields in China have led to food prices increasing sharply since July 2010. In fact, food price are at the highest level measured since the U.N. Food and Agricultural Organization (FAO) introduced it food price index in 1990.
Current U.N. projections for population growth - up to 9 billion people by 2050 - indicate that global food production needs to increase by 70% to meet future demand. The problem is compounded as developing nations become wealthier and demand more meat protein requiring high levels of grain input (7kg of grain to 1kg of meat), and also the increasing use of biofuels generated from agricultural crops as global oil reserves continue to diminish.
Long-term appreciation in food prices is captured in the capital value of the underlying asset, farmland, and many investors are positioning them to benefit from the fundamental trends by investing in farmland both in emerging and developed economies. Investors have been particularly interested in investing in farmland in developing economies where investment in technology and infrastructure can increase yield and productivity, leading to a greater upside potential for the investor looking to cash in on record commodity prices.
Yield increases through the application of technology such as the use of fertilisers is diminishing, requiring huge inputs of chemicals to achieve only small yield benefits. The majority of value in farmland investments therefore is in the development of what little unused land remains. In South America particularly, the majority of productivity increases have come from the development of unused land into productive farmland as the region enjoys more good quality unfarmed land than any other global region. Argentine in particular offers investors ample opportunity to add value to farmland investments, with the largest grain producing group in China recently committing $1.5 billion to a farmland development project in Argentina. China supplies technical assistance and irrigation infrastructure as well as logistical infrastructure such as the development of ports for export, whilst the Argentine government supplies 234,000 hectares of quality land for a nominal lease fee.
Foreign direct investment in the eleven economies of the South American region including Argentina and Brazil increased by around 20% up to June 2010 compared to the first six months of 2009, with a large share of this capital allocated to agriculture investments.
The general agricultural conditions in South America, particularly in Brazil, Argentina and Uruguay are very favourable, as soil condition and climate allow for excellent yield, lower volatility, and the opportunity for farmland expansion combined with recent government infrastructure investments make for an ideal investing environment for those looking to profit from long-term demographic trends which drive food price inflation.
David Garner is Partner at boutique alternative investment boutique DGC Asset Management Limited.
Download the agriculture investment and forestry investment reports at: http://www.dgcassetmanagement.com
The impact of sever climatic events in in Australia and Russia, and poor yields in China have led to food prices increasing sharply since July 2010. In fact, food price are at the highest level measured since the U.N. Food and Agricultural Organization (FAO) introduced it food price index in 1990.
Current U.N. projections for population growth - up to 9 billion people by 2050 - indicate that global food production needs to increase by 70% to meet future demand. The problem is compounded as developing nations become wealthier and demand more meat protein requiring high levels of grain input (7kg of grain to 1kg of meat), and also the increasing use of biofuels generated from agricultural crops as global oil reserves continue to diminish.
Long-term appreciation in food prices is captured in the capital value of the underlying asset, farmland, and many investors are positioning them to benefit from the fundamental trends by investing in farmland both in emerging and developed economies. Investors have been particularly interested in investing in farmland in developing economies where investment in technology and infrastructure can increase yield and productivity, leading to a greater upside potential for the investor looking to cash in on record commodity prices.
Yield increases through the application of technology such as the use of fertilisers is diminishing, requiring huge inputs of chemicals to achieve only small yield benefits. The majority of value in farmland investments therefore is in the development of what little unused land remains. In South America particularly, the majority of productivity increases have come from the development of unused land into productive farmland as the region enjoys more good quality unfarmed land than any other global region. Argentine in particular offers investors ample opportunity to add value to farmland investments, with the largest grain producing group in China recently committing $1.5 billion to a farmland development project in Argentina. China supplies technical assistance and irrigation infrastructure as well as logistical infrastructure such as the development of ports for export, whilst the Argentine government supplies 234,000 hectares of quality land for a nominal lease fee.
Foreign direct investment in the eleven economies of the South American region including Argentina and Brazil increased by around 20% up to June 2010 compared to the first six months of 2009, with a large share of this capital allocated to agriculture investments.
The general agricultural conditions in South America, particularly in Brazil, Argentina and Uruguay are very favourable, as soil condition and climate allow for excellent yield, lower volatility, and the opportunity for farmland expansion combined with recent government infrastructure investments make for an ideal investing environment for those looking to profit from long-term demographic trends which drive food price inflation.
David Garner is Partner at boutique alternative investment boutique DGC Asset Management Limited.
Download the agriculture investment and forestry investment reports at: http://www.dgcassetmanagement.com
0 Response to "How to Profit From Rising Food Prices"
Post a Comment