Farmland fund to exploit food price boom

Financial Times | September 15 2008

By Javier Blas in London

The largest fund to invest in European farmland will be launched today, signalling investors' growing appetite for alternative ways to profit from a long-term rise in agricultural commodity demand and prices.

The farmland fund, set up by Germany-based Palmer Capital Partners and UK-based Bidwells, is expected to raise about €300m ($425m) to buy arable land in Poland, Hungary, Romania and the Czech Republic. It will also invest in western Europe.

Palmer Capital and Bidwells said their product was the largest-ever of its kind.

Institutional investors' interest in farmland is the latest sign of how the global food crisis, which saw commodities such as wheat, corn, soyabean and rice reach record prices earlier this year, is reshaping agricultural businesses.

Food prices have more than doubled in the past five years, boosted by strong demand from emerging countries and the biofuel industry and faltering supply, according to the Rome-based United Nations' Food and Agriculture Organisation.

The FAO's food index, a benchmark for global wholesale agricultural commodities prices, is 25 per cent higher than a year ago, although it has fallen back from a record peak set last March.

Investor interest in farmland coincides with a drive by capital-rich countries that import most of their food, such as Saudi Arabia or the United Arab Emirates, to secure fertile land in Africa and central Asia.

The motives of the countries are, however, different from those of investors as they attempt to lock-in food supplies, rather than extract a financial return.

Richard Warburton, head of Bidwells Agribusiness, said that investors' view of how to profit from soaring food prices in the long term was changing. He said their short-term reaction to the food crisis was to buy agricultural commodities futures and listed companies as they were liquid and readily available products.

However, their stance is now shifting. "We are facing a long-term situation and investors are now looking for long-term investments; farmland and companies in the food value-chain, such as processors," Mr Warburton said.

Agriculture industry executives view institutional investment in farming as a way to boost food production because it brings much-needed capital to enhance productivity through investments in technology, irrigation and fertilisers.

The industry, however, is facing obstacles as it struggles to find enough managers capable of running large-extension farms. Fragmentation of ownership, foreign ownership restrictions and difficult legislation are also hurdles, executives said.

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