The Case for Agricultural Investments

The security of the global food supply is one of the key challenges of the twenty-first century.

Population expansion and changing dietary patterns are increasing the demand for basic food crops.

On the supply side, agricultural land in production has barely increased since the mid-1960s whereas the global population continues to rise. Climate change and depletion of natural resources are powerful secular trends that will restrict future food production. In the near term credit restrictions and the growth in bio-fuels are limiting the supply of basic food crops.

The combination of these powerful factors leads us to believe that the prices of basic agricultural commodities will rise over multiple years.

Prime farmland prices in Africa are, in our view, cheap, even based on current commodity food prices. Any longer term uptrend in food prices will make prime farmlands increasingly prized and we would expect their value as a multiple of profits to rise substantially. This implies a multiplied return for investors, not just from profit increases, but from enhancements to land values.

“The observed increase in food prices is not a temporary phenomenon, but likely to persist in the medium term” World Bank

Drivers:

In a volatile price environment, evidence suggests there are seven fundamental pressures whose combined effects have the potential to cause increases in long-term agricultural commodity prices:

Demand Drivers 

• Population growth 
• Meat consumption

Supply Drivers 

• Land restrictions 
• Water limitations 
• Climate change 
• Bio-fuels
• Credit restrictions