Rabobank: Investing in farmland and food security overseas

Rabobank | 1-7-2009

Today, well over 90 investment funds have emerged that are investing directly in farmland, including Rabobank's recently launched Rabo FARM business which focuses on rural resources and primary production. Over the past few years, agriculture’s attractiveness has captured the interests of the professional investment community.

Food security in farmland

During last year’s commodity boom, food shortages became a global concern, especially among countries dependent on other countries for food. “Highly populated, ‘food insecure’ countries with limited additional farmland capacity have started looking for ways to increase food security and resources,” said Rabobank analyst Brady Sidwell from Hong Kong.

“Thus emerged the recent phenomenon of ‘countries’ investing in other countries' farmland to secure food supply,” said Sidwell.

Overseas land investments

"Countries who are dependent on the rest of the world to satisfy local food security, were forced into action last year,” said Sidwell. “We’re likely to see more overseas land investments going forward as countries aim to avoid the precarious situation of low domestic stock levels amid tight international supplies experienced last year, especially in those countries very dependent on imports.”

Most of the countries being invested in by the major food importing nations on the grounds of food security are either third world or developing nations, such as Madagascar, Ethiopia, Cambodia and Mozambique. In these countries, the food security situation is already dire and the percentage of malnourished citizens is among the highest in the world. It will be interesting to see how these investments play out.

Local level investment

However, such investments can also lead to positive developments at the local level. For example, many parts of Africa are rich in land and water resources. “Yet, a lack of scale, infrastructure and best practices management prevent such resources from being properly utilised. Investments in infrastructure could untap these resources,” said Sidwell.

Making land more farmable and desirable in countries like Mozambique and Tanzania, can provide for both the local needs as well as the international market.

Agricultural transformation

“The agricultural industry will in some ways transform as more investment in agriculture leads to more publicly listed companies and targets of the professional investment community including private equity, hedge funds as well as institutional and retail investors,” said Sidwell.

“However, with so much investment needed in the upstream of the agricultural supply chain, agriculture is the next big thing and there are plenty of opportunities to go around," concluded Sidwell.
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