MacquarieAGRICULTURAL FUNDS MANAGEMENTSEPTEMBER 2010The case forinvestmentin grains andoilseeds
Contents      Executive summary                                                                                           ...
Executive summaryThe recent surge in global wheat prices driven by fears of exportshortage, coming from the drought in Rus...
Executive summary      In many areas which may have the available             Through identifying parts of the world with ...
What are grains and oilseedsWheat                                                                 Over the past 50 years, ...
What are grains and oilseeds      of pasta. Different varieties such as Hard Red                                The major ...
Corn is the most widely grown crop in the world,                 In recent years, corn has increasingly been usedwith almo...
What are grains and oilseeds      Global soybean trade forecasts 1999 – 2019f                         60000               ...
Canola                                               Like soybeans, canola can be crushed to                              ...
Demand side     The international demand for grains and oilseeds       base of 6.1 billion people, is projected to rise   ...
IncomeMany developing countries have continued to maintain strong GDP growth. For example, over thecourse of the Global Fi...
Demand side     urban areas by 202031. As people move to cities,        World food consumption of grains in 2010     a num...
As per capita incomes trend upwards globally,       Compared to most developing nations, dairyone of the major impacts wil...
Demand side     Biofuels are now mandated for use in around 41 countries38. The growth in biofuels has been due to     a n...
forecast to be made up largely of cellulosic             and the UK, while biodiesel powered planes haveethanol44. However...
Demand side     address environmental and community concerns         heat. As such, wheat gluten can be useful for     for...
Why China needs soybeans?It can be easy to forget how quickly the Chinese economy has changed. From the strict communistec...
Supply side      Acreage required to meet demand by 2050                                                  nutrients in the...
Large scale available land                            Flattening yieldsTo gain increasing productivity and profitability  ...
Supply side      to a point of sale. For this reason, in regions       price rises are short term, and the market returns ...
Where to produceIn order to determine the optimum location                age of farmers now over 6069, and with manyin wh...
Where to produce      States where these laws exist include Iowa,                                 This is compared to Braz...
Infrastructure risk                                     of water for farmers continues to place question                  ...
Why invest in grains and oilseeds      Investing in grains and oilseed producing farms              is likely to occur reg...
■    Exposure to an asset that has low                   ■   Exposure to a sector where only a few     correlation to trad...
Mafm the case for investment in grains and oilseeds
Mafm the case for investment in grains and oilseeds
Mafm the case for investment in grains and oilseeds
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Mafm the case for investment in grains and oilseeds

  1. 1. MacquarieAGRICULTURAL FUNDS MANAGEMENTSEPTEMBER 2010The case forinvestmentin grains andoilseeds
  2. 2. Contents Executive summary 01 What are grains and oilseeds 03 Demand side 08 Supply side 16 Where to produce 19 Why invest in grains and oilseeds 22 The future for grains and oilseeds 24 Disclaimer This document does not constitute financial product advice and should not be relied upon as such. The information in this document is for discussion purposes only and is not an offer or solicitation to purchase or sell any securities or financial product. None of the information in this document takes into account any person’s personal objectives, financial situation or needs and you must determine whether the information is appropriate in terms of your particular circumstances. We recommend you obtain financial, legal and taxation advice before making any financial investment decision. The information contained in this document is strictly confidential. If you are not the intended recipient, you may not disclose or use the information in this document in any way. No liability is accepted for any unauthorised use of the information contained in this document. This document is not to be distributed to any person or corporation by the recipient. Macquarie Group Limited is the owner of the copyright material in this document unless otherwise specified. Macquarie Group Limited and its worldwide affiliates and subsidiaries accept no liability whatsoever for any direct, indirect, consequential or other loss arising from any use of this document and/or further communication in relation to this document. This document has been prepared based on information believed to be accurate at the time of the preparation of this document. Subsequent changes in circumstances may occur at any time and may impact the accuracy of the information in this document. Some of the information in this document and the figures that have been quoted, and or used within it, have yet to be confirmed and finalised and consent has not been obtained from all relevant stakeholders. It is important to note that to this extent the document may not be accurate or complete and some of the information could be subject to amendments. Any forecasts contained in this document are predictive in character and therefore no undue reliance should be placed on the forecast information. Whilst every effort has been taken to ensure that the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties. The actual results may differ substantially from the forecasts and some facts and opinions may change without notice on the basis of changing market conditions. Past performance is no indication of future performance. Other than Macquarie Bank Limited ABN 46 008 583 542 (MBL), no Macquarie Group entity mentioned in this document is an authorised deposit-taking institution for the purposes of the Banking Act 1959 (Cth) and their obligations do not represent deposits or other liabilities of MBL. MBL does not guarantee2 or otherwise provide assurance in respect of the obligations of the Macquarie Group entities mentioned in this document.
  3. 3. Executive summaryThe recent surge in global wheat prices driven by fears of exportshortage, coming from the drought in Russia, has served as a starkreminder of the new levels of volatility that are likely to continue to be apart of the global agricultural sector.Although food supply shocks have occurred Grains and oilseeds were historically seenthroughout history, these were mostly seen as primarily a food – perhaps the world’sas a concern of the developing world. When fundamental food – to be used for producinga crop failed in a major producing country, it bread, flour, pasta, oils and many other staples.was assumed that adequate supplies could be And while this demand continues to strengthen,sourced elsewhere. So long as there was food on global population growth combined with athe table, and no concern that this could change, general decline in arable farming land per capita,consumers and governments accepted supply as means that serious attention must be given toa given. how the world’s food needs can be met in the long term.Given the abundance of agricultural productionworldwide, little thought was given to assisting But the demands on grains and oilseeds gothe world’s farmers with adequate capital to well beyond food. The citizens of the world’sfund the research and development required developing nations, by far the majority of theto improve productivity, or to encourage the global population, have an increasing appetite fordevelopment of large scale agriculture to animal protein, as a result of their rising incomesincrease efficiency. and demographic changes. As such, vast volumes of grains and oilseeds are needed toThe events of the last four years have made it feed the animals providing this protein.abundantly clear that the era of complacencytowards agriculture is over, and that the volatility In addition, demand from biofuels continuesin the sector, in terms of prices and supply, is to increase. The grains and oilseeds which arehere to stay. In no part of agriculture is this more used as feed stocks for ethanol and biodiesel arerelevant than with the grains and oilseeds sector. coming out of the food and feed chain, making supply even tighter. On top of this, the use ofFrom 2006 to 2008, the global price of most grains and oilseeds in industrial products, fromgrains and oilseeds climbed to record highs glue to furniture, continues to grow.driven by a number of different supply anddemand factors. Drought in key growing regions, While global demand for grains and oilseeds bothnew demand from biofuels, panic hoarding and increases and broadens, questions on the world’strade restrictions by governments, and, to some ability to supply this need increasingly requireextent, speculative investment, all contributed to answers.unprecedented price increases in the sector. Many of the world’s grain and oilseed producingImportantly, these events have focused the regions face environmental challenges in theirattention of governments, the media and long term ability to produce adequate crops.consumers to agriculture, and generated an They are seeing agricultural land continuallyawareness that grains and oilseeds can no longer degraded by pollution and growing cities, whilebe taken for granted. water shortages have affected both developed and developing nations. 1
  4. 4. Executive summary In many areas which may have the available Through identifying parts of the world with the space to grow crops on a large scale, factors best combination of factors for growing grains such as political instability or inadequate and oilseeds, and through establishing highly infrastructure make it an unviable option. The vital efficient agricultural operations, particularly efficiency gains needed to increase grain and through building on the efficiencies of scale, it oilseed production are hampered by factors such is clear that immense opportunities exist in this as disincentivising government support programs previously overlooked, but essential, sector. or the difficulties caused by having a multitude This paper provides an overview of what we of small landholders, rather than large efficient believe are the main grains and oilseeds that the operators. In addition, overvalued land can world will increasingly demand, and considers provide a further deterrent to investment. the main drivers of demand– food, animal feed, In the wake of the events of 2008, and biofuel, and industrial products. The paper re-enforced by the price shocks of 2010, it will also examine the factors limiting supply of is clear that as demand increases, the most the world’s grains and oilseeds, and consider effective and efficient grain and oilseeds the specific issues impacting the major crop producers will be in a prime position to take producing countries. Finally, it will look to the advantage of this new scenario. future possibilities in this essential sector.2
  5. 5. What are grains and oilseedsWheat Over the past 50 years, global wheat production has continued to rise steadily, from around 200 million metric tonnes in 1960 to almost 700 million tonnes in 20102. The major global producers of wheat are the EU, China, India, the US and Russia, who account for around 67 percent of global production3. Around 20 percent of wheat produced is exported4. The major exporters, the US, the EU, Australia, Canada and Russia account for around 75 percent of global exports5. The main importers of wheat are mostly regions which lack the acreage or natural resources required to grow adequate volumes or qualities of wheat for their requirements. Globally, demand for wheat is fairly widespread, with no oneWheat is the main cereal grain crop for food country having major market power. For example,consumption in most of the world. Wheat is the largest five importers of wheat – Egypt,also one of the oldest harvested grains, having Brazil, the EU, Indonesia and Japan – accountknown to have been grown since 10,000 BC. for only 26 percent of global wheat importsIt is thought to have originated in the NileDelta, but to have been first domesticated between Turkey. In using wheat to bake bread, the Wheat is grown in a number of varietals, and isearly Egyptians formed one of the earliest food often classified in different ways – for example,production industries1. spring wheat vs. winter wheat, red wheat vs.Food is the primary use of wheat, as it is widely white wheat, hard wheat vs. soft wheat.utilised as flour for producing bread. Wheat The most widely grown wheat is common wheatforms a fundamental component of the diets of or bread wheat, while the second most commondeveloping countries. species, durum wheat, is used in the productionMajor global wheat producers – percent of production exported 2008/09 80 70 60 50 Percent 40 30 20 10 0 -10 Australia Canada United States Russia World Ave. EU China India Pakistan Source: USDA 20101 Jared Diamond, Guns, Germs and Steel2 USDA PSD3 USDA PSD4 USDA5 USDA6 USDA 3
  6. 6. What are grains and oilseeds of pasta. Different varieties such as Hard Red The major uses for barley are as an animal feed Spring, Hard Red Winter, Soft Red Winter and and for producing malt for beer production. In the Hard White are often used for different varieties US, where it is grown in 27 states, over half of all of foods, including breads, biscuits, pastries and barley grown is used as an animal feed10. Barley other baked goods. They are also often traded is also used in a wide range of breads, soups on different exchanges. and flours, and is increasingly seen as important health food. Ideal wheat production conditions vary on the region and the climate. In some countries, Barley is a tough crop, relatively tolerant to particularly in the developing world, increased drought and able to cope with greater levels of usage of fertiliser has raised yields. Fertiliser salinity than wheat. It is often grown as a summer usage in the developing world has increased by crop, or as a winter crop in warmer areas11. As 25 times over the past four decades7. In places it has a short growing season, it is a relatively like Australia’s southern areas, despite a relatively drought tolerant crop. low rainfall, farmers have used increased rotation An increasing global consumption of animal cropping (planting wheat alternatively with other protein, particularly in developing countries, will crops) to increase their yields. continue to be one of the main drivers of barley demand. In addition, rapidly expanding beer Barley production, particularly in the developing world, will increase the demand for malting barley. Corn Like wheat, barley was one of the earliest domestically grown crops. Early barley harvests have been traced to the Middle and Near East region, with crops having first been grown around Corn, known as maize in some parts of the 10,000 years ago8. Today, barley is grown in world, is a cereal grain which has been grown around 100 countries, with the EU, Russia, since prehistoric times. Corn was thought to Ukraine, Canada and Australia accounting for have been cultivated by the Aztecs and Mayans around three quarters of global production of in southern Mexico, before gradually spreading 150 million tonnes9 in 2009/10. through the Americas, then in the 16th century to Europe12. 7 Cropscience 8 Washington University in St Louis 9 USDA 10 Barleyfacts 11 McGee, Harold (1986). On Food and Cooking: The Science and Lore of the Kitchen4 12
  7. 7. Corn is the most widely grown crop in the world, In recent years, corn has increasingly been usedwith almost half the world’s corn produced in the for the production of ethanol. Around 30 percentUS, and around 55 percent of global exports13. of all corn grown in the US is now used forBetween them, the US, China, Brazil, Mexico, ethanol production, more than twice the amountArgentina, India and France produce over three which is exported14.quarters of the world’s corn. SoybeansGlobal corn exports 2009/10 ROTW 10% South Africa 3% Ukraine 6% Brazil 9% United States 56% Argentina 16% Soybeans were known to have been cultivated in China and Korea around 5,000 years ago15, and in an example of early agronomy, they were Source: USDA known for their ability to replenish nitrogen in theCorn’s ability to grow in a wide range of climates soil. Soybeans first arrived in Europe in the earlyplayed a major role in its wide geographic 1700s and in the US around 50 years later.coverage and popularity. The corn plant has a Soybeans are extremely high in protein, a factorshallow root system, and as such prefers moist which makes them an important food for bothsoil. Corn is often grown in rotation with other humans and animals. In addition to their highcrops which provide increased nitrogen to the protein content, soybeans contain a combinationsoil, such as soybeans. of amino acids which allows the body to absorb proteins.Corn is a staple food in many parts of the world,either whole or as cornmeal. It is also processed Unlike most other grains and oilseeds, soybeansinto many forms, including popcorn and breakfast enjoy major global markets for their unprocessedcereal. In the US, by far the largest usage is for form, as well as its two byproducts – soybean oilanimal feed, outstripping human consumption and soy around 40 times. It is used for livestock in When processed, a soybean is broken downthe forms of forage, silage or grain. Corn is also into around 20 percent oil and 50 percent meal.used in other animal foods such as dog food and Soybean oil is used primarily as vegetablefish food. cooking oil or a food ingredient. Soy meal is used mainly for animal feed, particularly for cattle, pigs or poultry.13 USDA14 USDA15 University of Minnesota 5
  8. 8. What are grains and oilseeds Global soybean trade forecasts 1999 – 2019f 60000 40000 20000 000 metric tons 0 -20000 -40000 -60000 -80000 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010f 2011f 2012f 2013f 2014f 2015f 2016f 2017f 2018f 2019f Argentina Brazil China United States, Metric Units Rest of World Source: FAPRI For human usage, soybeans are utilised in mantle in the next few years18. The same three a range of foods, including tofu, yoghurt countries also account for over 80 percent of soy and soymilk. oil exports. Globally, soybean production is quite In terms of soy meal, however, while the same concentrated in a small number of countries. countries account for around 90 percent of Between them, the US, Brazil, Argentina, China exports, Argentina alone exports over half of the and India produce over 90 percent of the world’s world’s supply19. This is primarily due to export soybeans – the first three alone account for over taxes on Argentine soybeans, aimed at protecting 80 percent16. the domestic soybean processing industry. In terms of soybean trade, figures are China is by far the largest importer of soybeans complicated by whether countries import whole globally, accounting for almost 60 percent of soybeans or byproducts. China, for example, all exports. China is also the largest importer mostly imports whole soybeans, and processes of soybean oil, accounting for over a quarter of them domestically. global imports, almost double that of its closest rival, India20. Between them, the US, Brazil and Argentina account for around 90 percent of global soybean The EU remains the world’s largest importer exports17. While the US is currently the largest of soybean meal, accounting for almost half of exporter, it is expected that Brazil will claim this global imports21. 16 USDA 17 USDA 18 FAPRI 19 USDA 20 USDA6 21 USDA
  9. 9. Canola Like soybeans, canola can be crushed to produce oil and a meal. Canola oil is widely used in many foods and cooking processes. It is regarded as “healthier” cooking oil, due to being low in saturated fat and containing a relatively high level of omega-3 fatty acids22. In addition, canola oil is also used in industrial manufacturing, for products such as candles, lipstick, newspaper inks, industrial lubricants and biofuels. Canola meal is used as a high quality animal feed. In measuring global production data, canola and rapeseed are often counted together. As such, in looking at overall rapeseed production, the EU, China, Canada, India and Australia account for around 90 percent of global production. Canada is by far the largest exporter, accounting forCanola is a variety of rapeseed. While rapeseed around 60 percent of global shipments, while theitself has been recorded for hundreds of years, EU, Japan, China and Mexico account for half ofactual canola was first bred from rapeseed in global imports23.Canada in the early 1970s. The name canola wasderived from "Canadian oil, low acid” in 1978.Canola oil is more useable for humanconsumption than traditional rapeseed, while itsreduced levels of toxins also make it more able tobe used as an animal feed than rapeseed.22 Moi Group23 USDA 7
  10. 10. Demand side The international demand for grains and oilseeds base of 6.1 billion people, is projected to rise is increasing due to population growth, increasing to 8.3 billion by 2030 and 9.1 billion by 2050. income, changing diets and urbanisation. In many This would equate to an increase in global food ways, each of these have become interlinked growth of 42 percent by 2030 and 70 percent by – population growth is largely in developing 2050. In addition, by 2050, over 7.5 billion people countries, which are the same areas seeing the will be under the age of 5025. As life expectancies highest increase in relative incomes, and also continue to increase, this translates into further with the greatest shift of consumers from rural to impetus for population growth. urban areas. As a result, these are the regions Many countries that have previously been self which are also seeing the greatest changes in sufficient in their food needs will increasingly population diets, as people move from a grain need to rely on food imports. This is particularly based diet up the scale to one with a greater the case for countries in the Middle East. For degree of animal protein. As result, greater example, Saudi Arabia at one stage grew over volumes of grains and oilseeds are required to 4 million tons of wheat per year, making it at one provide feed for the animals which serve this time the world’s sixth largest wheat exporter. new diet. However, with water shortages becoming a In addition to the increasing demand from food major issue, the country has phased out wheat and feed, the growth in biofuels production production26 and will now import much of its further increases the demand for grains and grain needs. oilseeds, particularly for ethanol derived from Population growth is expected to take place corn and biodiesel derived from oilseeds. mostly in less developed countries, concentrated Finally, it is important to also be aware of the in urban areas27. The strongest growth in increasing usage of grains and oilseeds in demand is expected to be from Asian economies, industrial products. particularly China and India. It is important to examine each of these drivers Population growth remains the fundamental in more detail, and then to look at the main four base for growth in demand for gains and areas of grain and oilseed usage, to further realise oilseeds. While an economic slowdown may how the strong long term growth in demand for cause consumers to re-evaluate spending on grains and oilseeds is evolving. discretionary items such as clothing, cars and housing, they will continue to buy food. Population Throughout previous economic slowdowns, Population growth is the most basic factor driving consumption of key agricultural commodities has the increase in consumption for agricultural continued to grow steadily. products. Every year, the global population In particular, wheat has been shown to be increases by around 80 million people24 – the relatively inelastic to both income and price over a rough equivalent of adding one new Germany sustained period. Consumption figures for wheat or Ethiopia. have been largely unaffected by either the price The global population has grown substantially of wheat or the price of potential substitutes, over the past few decades, and from its current such as corn, oats or rice. 24 CIA World Factbook 25 26 New York Times8 27 UNFPA
  11. 11. IncomeMany developing countries have continued to maintain strong GDP growth. For example, over thecourse of the Global Financial Crisis, China and India were among the least affected countries,continuing to maintain GDP growth in 2008 of 8.7 percent and 5.7 percent respectively28.Developing world looking to strong GDP growth in 2011 2.5% Egypt 2.0% Nigeria Australia Pakistan 1.5% Bangladesh India Population Growth Rate Brazil Mexico 1.0% Iran Indonesia US China Canada 0.5% 0.0% Japan -0.5% Russia Germany -1.0% 0% 2% 4% 6% 8% 10% 12% GDP Growth 2011 Bubble size = relative population Source: IMF, UN, CIA FactbookIn general, growth in incomes translates into As mentioned in the previous section, therising per capita food demand. Typically, population increase tends to be seen in urbanconsumers move up from a lower value staple areas. The urbanisation trend will lead to a shiftfood to an alternative, such as transitioning from in dietary patterns, related to the continuedrice to wheat. In turn, as people continue to expansion of worker incomes in the developingbecome wealthier, they move on to consuming world and more reliance on purchased food, asproducts such as meat, fish, dairy products, and opposed to self-sufficiency.fruit and vegetables. In addition, they will also For example, a one-time increase in the urbanincrease their consumption of products such as population from 1/4 to 2/3 of the nationalvegetable oils and processed foods. For example, population of China would result in a 10 percentstudies by the American Soybean Association increase in per capita demand for meat, fish, andshow that when a developing populations family dairy products30.income rises above US$1000/year chicken entersthe diet; as it rises above US$3000/year other On current forecasts, in the Asia Pacific regionmeats enter the diet29. alone, 600 million people will move from rural to28 IMF29 Justfood.com30 IFPRI 9
  12. 12. Demand side urban areas by 202031. As people move to cities, World food consumption of grains in 2010 a number of structural shifts in food demand is forecast to remain unchanged from the patterns occur: previous season, at around 193 million ■ a wider choice of food is available in tonnes. This forecast is slightly higher than urban markets was anticipated at the start of the season but with improvements in production prospects, ■ enhanced levels of infrastructure and food consumption estimates have also been revised storage facilities aid the greater choice up. At the current forecast levels, global food in foodstuffs consumption of grains on a per capita basis is ■ people are increasingly exposed to dietary expected to average around 28 kg, similar to the patterns from foreign cultures previous season, with generally steady levels of consumption regionwide35. ■ urban citizens seek foods that take less time to prepare. Feed A major component in this dietary shift is an increasing demand for animal proteins. This Ironically, as consumers globally increasingly in turn triggers a multiplier effect on grain and switch their diets from grains and oilseeds to oilseeds consumption, as these are needed to animal protein products, overall consumption provide feed for livestock. of grains and oilseeds will increase markedly. Consumers will increase their consumption not Food just of meats, including beef, pork, poultry, sheep and goats, but also of milk. To provide this meat Around 41 percent of grains produced globally will require enhanced quantity and quality of feed. are for direct human consumption32. The percentage of particular grains and oilseeds Global meat demand 1985 – 2025f used for human consumption varies markedly. For example, around 70 percent of all wheat that 450 ■ Sheep Meat is produced globally, or 450 million tonnes, is 400 ■ Poultry for food33. Demand for food wheat continues to ■ Pork 350 ■ Beef increase in emerging markets, where populations are growing and incomes are increasing. In many 300 million metric tons of these markets, wheat based products are still considered a luxury item. In the higher income 250 areas of emerging markets, consumption of 200 wheat based products such as bread, bakery and noodles continues to rise. 150 Cereals – including rice – represent 100 55-70 percent of the total calories of food 50 in developing countries and 40 percent in developed countries34. 0 1985 1995 2005 2015f 2025f Only a small fraction of oilseeds are consumed for food. Source: FAO, FAPRI, OECD, USDA 31 ADB 32 IFAP 33 USDA 34 IFAP10 35 FAO
  13. 13. As per capita incomes trend upwards globally, Compared to most developing nations, dairyone of the major impacts will continue to be a products are already an established componentrising demand for meat, as consumers find it of the Indian diet. According to some forecasts,more affordable, and as they seek new dietary dairy consumption in India could treble over thechoices. Rising per capita meat consumption next four years37. Although India is the largestis also linked to other demographic trends, producer of milk in the world, over 50 percent ofparticularly the move of people in developing production is still via the unorganised, or informalcountries from rural to urban areas, where they small scale, sector and so domestic productionare likely to earn higher wages and find exposure will be challenged to increase quickly enough toto more “Western” food options. In the least meet this growing demand.developed countries, consumers are likely to Soybean meal is one of the major sources ofsubstitute between lower-priced products within animal feed. Demand for feed has been drivena food group as their incomes change, such by different factors in different regions. In theas from corn to wheat. However, in developing developing world, particularly China, risingcountries, consumers are more likely to switch incomes over the past few decades have seenfrom products outside subsistence foods, such steady growth in meat consumption. In mostas cereals, to meat or vegetables. parts of the world, animals raised for meat areThe relationship between per capita income and reared indoors for some or all of the year, due toconsumption of meat, dairy and vegetable oils is factors such as a lack of available pasture land,more intense at lower income levels. As a result, or seasonally unsuitable conditions, such asit appears likely that volume growth of more extreme cold.expensive foods will be most prominent over In developed countries, demand for animal feedthe next two decades as the major developing can be shaped by other factors. For example,countries experience significant and sustained as European farmers have banned the import ofincome growth across their population bases. genetically modified soybeans, they have reliedThe switch from grain based protein to meat on the import of Brazil’s non-GM soybeans toprotein will result in growing demand for grain meet their demands.and oilseeds, to provide feed for the animals In addition, the BSE epidemic, also known asserving the new meat needs. This demand will mad cow disease, in Britain was seen by manybe proportional, as the conversion ratios of feed as being caused by the use of animal bones into meat is not one to one and thus demand for livestock feed. Following this, European farmersgrains and oilseeds is increased more as meat sought to access a non-animal based, proteindemand increase. rich feed for livestock, with soy meal providing anThe switch across food groups is most marked excellent the world’s major markets. In China forexample, per capita grain consumption has Fuelfallen 40 percent over the last 15 years while An increasingly important factor in the demandmeat consumption has increased more than for grains and oilseeds has been the growth of250 percent36. biofuels. Biofuels fall primarily into two categoriesIn India meat consumption has increased – ethanol and biodiesel. In many countries, the40 percent over the last 15 years, even though main feed stock for producing these is corn forhalf of all Indian households are vegetarian. ethanol and vegetable oil for biodiesel. The majorFor India, however, the major driver of feed exception is Brazil, where ethanol is producedconsumption is likely to be dairy growth. from sugar.36 FAO37 Nestle 11
  14. 14. Demand side Biofuels are now mandated for use in around 41 countries38. The growth in biofuels has been due to a number of factors. Biofuels are increasingly seen as more environmentally friendly than fossil fuels, in producing lower greenhouse gas emissions. For countries seeking to reduce their dependence on imported oil, biofuels provide a domestically produced alternative. Ethanol is produced primarily from corn. Around 30 percent of all corn grown in the US is now used for ethanol feedstock39. US corn consumption categories 1999 – 2019f 100 80 US Corn Consumption 60 40 20 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010f 2011f 2012f 2013f 2014f 2015f 2106f 2017f 2018f 2019f Other (inc seed and starch) Feed Exports Food (inc HFCS, glucose, etc) Ethanol Source: FAPRI Ethanol has long been used as a fuel for least 10 percent ethanol, although there is a push automobiles – the original Model T Ford could from ethanol lobby groups to have this increased be adapted to run on ethanol. Ethanol produced to 15 percent42. from other feedstocks, particularly corn In the US, the level of biofuel production is stover or woodchips, is commonly known as established under the Renewable Fuels Schedule cellulosic ethanol. (RFS). The RFS was originally put in place by the Biodiesel is largely produced from vegetable Bush administration in 2007, and re-enforced by oils, particularly palm and soybean oil. Around the Obama administration in 2010. Under the 90 percent of all biodiesel in the US is produced RFS, the US commits to producing a gradually from soy oil40. Soybeans and canola both increasing volume of biofuels from 2008 to 2022. produce around 100 gallons of biodiesel For ethanol, this figure is set at 9 billion gallons in per acre41. 2008, rising to 36 billion gallons in 202243. Globally, the US is both the major producer and Under the legislation, the level of ethanol to be consumer of ethanol. Within the US, a Federal produced from corn was capped at 15 billion mandate stipulates that all gasoline will contain at gallons. The remainder of the ethanol was 38 39 FAPRI 40 Farm and Ranch Guide 41 Seattle Times 42 Reuters12 43 US Environmental Protection Authority
  15. 15. forecast to be made up largely of cellulosic and the UK, while biodiesel powered planes haveethanol44. However, recent announcements already successfully flown48.from the EPA have seen forecasts for cellulosic While biodiesel usage seems set to continueethanol cut dramatically, from 100 million gallons growing, it may well be with far greater levelsto 6.5 million, due to the both the technology and of soybean oil as a feedstock than previouslythe economics of producing cellulosic ethanol used. The growth of palm oil in natural habitatsbeing well behind initial forecasts45. As a result, it continues to create controversy and it isseems increasingly likely that increased levels of foreseeable that ongoing palm oil developmentcorn will be required as feedstock to meet future will flatten or decline. As a result, it is likely thatethanol demands. biodiesel processors will seek to utilise greaterThe events of 2010 in the Gulf of Louisiana have levels of soybean oil, further raising demand foronly served to strengthen the outlook for ethanol global soybean the US. On one hand, ethanol’s environmental Overall, it is important to remember that biofuelscredentials have only been enhanced. In addition, currently take up only around 1.5 percent ofsubsequent restrictions on drilling for oil look global grain and oilseed supplies49. However, onlikely to increase the role that ethanol will play in a global basis, this accounts for major volume ofUS energy supplies. grains and oilseeds. As a flow on, it means thatSuch a scenario would have a number of these grains and oilseeds are being removedimpacts on the grain and oilseed sector. In terms from other areas, particularly exports, puttingof supply, an increased amount of corn being upward pressure on export prices. For usesutilised for ethanol would draw even further such as animal feed, it means that other grainsvolumes out of US domestic and export supply, and oilseeds, such as wheat, now need to feedincreasing the competition for other grains. the gap filled by the loss of these feedstocks.Secondly, increasing biofuel demand for corn In terms of production, the result is that fewerwould likely place upward pressure on corn acres are available for growing crops for foodprices, leading to an increase in corn acreage, and the expense of other crops. This level ofcompetition, which would particularly impactUS wheat supplies, would have an impact of Industrialreducing supplies of corn’s competing crops. While not as well known as food, feed and fuel, the use of grains and oilseeds in industrialBiodiesel is increasingly used across a range products will play an increasing role in theof transport modes. In Europe, at present, the demand of these commodities going forward.European diesel fuel allows biodiesel to beblended at up to and including 5 percent by A number of factors are behind the push to usevolume, with moves to lift this to 10 percent46. more grains and oilseeds in industrial products.Some national standards in EU countries allow As with biofuels, societies are increasinglybiodiesel to be distributed as a stand-alone seeking to replace petrochemical feed stocksfuel, notably in Germany, for specially adapted with renewable resources. In addition, newvehicles47. Progress is continuing to run trains on industrial products need greater specifity andup to 100 percent biodiesel, particularly in the US complexity. Finally, the increased need to44 Ethanol.org45 Reuters46 EU47 EU48 UPI49 World Bank 13
  16. 16. Demand side address environmental and community concerns heat. As such, wheat gluten can be useful for forms a growing part of product marketing. preparation of adhesives, coatings, polymers One major example is DuPont’s commitment and resins, straw particle board, strengthened to source 20 percent of its products from paper, and adhesives, such as those used on renewable sources50. postage stamps. Industrial products from grains and oilseeds come in an array of forms. An increasing Demand conclusion number of pharmaceuticals are made from Overall, the diversity of uses for grains and crops. Biopolymers, which are used in products oilseeds will result in result in overall demand such as packaging materials, resins, adhesives, continuing to increase strongly. Fundamentally, it biolubricants, can be sourced from starches from is important to note that overall demand growth cereals and oils from oilseeds51. is not dependent on any one factor. The development of BiOH polyols has created a Hypothetically, even if the world were inexplicably potentially large new market for soybeans. BiOH not to get richer, population growth alone polyols use soy based ingredient for flexible foam would still continue to drive demand for grains used in upholstered bedding and furniture, carpet and oilseeds. Or even in the unlikely event backing and automotive seats. Increasingly they that biofuels policies were to change in some are also being used for airport seating around countries, grain and oilseed demand for animal the world. As a soy based product, they replace feed would still increase due to improving diets petroleum ingredients typically used in foam through rising incomes. production52 and are seen as environmentally And even if the demand for grains and oilseeds responsible. to provide the feedstock for a growing range A growing number of cosmetics and sunscreen53 of industrial products were to soften, then the are also using soy oil rather than petroleum strong increase for biofuels, increasingly pushed based products. by environmental concerns, would be a major source of growth. In addition to soybeans, wheat is also being sourced for a number of industrial uses54. Taken as a whole, the combination of these Wheat has the ability to be elastic, bind water factors will continue to see grains and oilseeds and form films that can be stabilised with demand climb well into the future. 50 Dupont 51 HGCA 52 Cargill 53 Sciencedaily.com14 54 Texas Wheat
  17. 17. Why China needs soybeans?It can be easy to forget how quickly the Chinese economy has changed. From the strict communisteconomy of Mao Zedong from the 1940s to the 1970s, it was not until the changes brought in byDeng Xiaoping in the 1980s that China began heading on its current path of being the world’s fastestgrowing economy. At the same time, its per capita incomes have continued to rise.While China is a major producer of many grains, it has severe limitations on the growing capabilitiesof its farmland. China has around 20 percent of the global population, yet its arable land per capitais only half of the world’s average55. Increasingly this land is being taken over by cities and otherinfrastructure, or has its growing capability limited by degradation through increasing pollutants or theloss of water to cities.China soybean imports vs meat and dairy consumption 80000 Soybean balance of trade 60000 Dairy Product Consumption Meat (non fish) consumption 40000 000 metric tons 20000 0 -20000 -40000 -60000 1975/1976 1977/1978 1979/1980 1981/1982 1983/1984 1985/1986 1987/1988 1989/1990 1991/1992 1993/1994 1995/1996 1997/1998 1999/2000 2001/2002 2003*2004 2005/2006 2007/2008 2009/2010 Source: USDABut at the same time as the available arable land is falling, China’s appetite for food continues to grow.As average incomes rise in China, the desire for more meat and dairy, and the ability to afford it, alsoclimbs. China now produces around half the world’s pork, as well as 35 percent of the world’s eggs,65 percent of the world’s duck meat and 94 percent of the world’s goose meat. In addition, China isalso the world’s largest producer of farmed fish and China’s dairy sector produced around 40 milliontonnes of milk in 2009, up almost 400 percent in a decade56.The common feature of each of these industries is the huge level of growth in demand for soybeanmeal they have created. While soybeans actually originated in China, the country has not been selfsufficient in them since the mid 1990s. As such, in 2010/11, China is forecast to import almost60 percent of the world’s soybean supplies57. To process these into soy meal and soy oil, China hasbuilt a massive soybean processing sector.With China’s economy forecast to continue to grow strongly for the foreseeable future, hundreds ofmillions of rural Chinese are likely to cross the income threshold of around $1,000 to $2,000 at whichmeat consumption escalates58. This will only lead to increasing demand for imports of the world’ssoybeans to meet soy meal demands, particularly as the country has almost no ability to open upnew land for domestic soybean production. As a result, and without taking into account increasingdemands from other major importers such as the EU and Japan, the world’s soybean exporters face apromising future.55 Worldwatch Institute56 FAO57 FAPRI58 Business Insider 15
  18. 18. Supply side Acreage required to meet demand by 2050 nutrients in the soil and salinity, or a growing level of salt in the soil. According to some estimates, 450 ■ Required around 23 percent of all useable land on earth is 400 ■ Current now subject to degradation60. 350 As cities continue to expand across the globe, they continue to encroach out onto 300 farmland. The impact of this growth reduces million metric tons 250 the productivity of the soil, and either limits the growth of crops or prevents it altogether. Growing 200 urban areas result in increased sewage flows, 150 run-off and other forms of waste, which in turn cause environmental issues for farmland. 100 In the US alone, total farmland declined by 50 16 million acres between 2002 and 2007, 0 which followed a previous decline of 16 million Corn Rice Soybeans Sugar Wheat acres over the five years prior to that61. Source: Macquarie Research A major factor which will continue to inhibit agricultural productivity is the increasing scarcity Supply of water. Agriculture is the major user of water globally, accounting for around 70 percent of While demand for grains and oilseeds continues water consumption62. Water availability is one to increase, the global supply conditions for of the most fundamental ingredients towards producing the required volumes is hampered by a both growing grains and oilseeds and gradually number of factors. improving their productivity. Without reliable Perhaps the most prominent factor is the area access to water, food producers cannot of land per person available for growing the implement long term projects to improve land, required crops. Between 1961 and 2007, the while food importers cannot expect a producing amount of arable land per person plummeted by region to guarantee reliable supply. almost 50 percent, down to around 0.2 hectares Just as with arable land, the availability of water per head59. This decline was due to several is being jeopardised by population growth, factors, including: urbanisation, rising wealth, resource consumption ■ growing land degradation and climate change. The UN has estimated that ■ rising impact of urbanisation by 2025, two thirds of the world’s population could be subject to water stress63. In terms ■ climate change. of agriculture, it is estimated that the global Degradation of arable land occurs due to agricultural sector will require around 50 percent a number of factors, including chemical more water by 2015, and around 100 percent contamination, soil erosion, and depletion of the more water by 205064. 59 FAO 60 UNEP 61 USDA 62 63 Nupara.com16 64 FAO
  19. 19. Large scale available land Flattening yieldsTo gain increasing productivity and profitability As arable land per capita continues to decline,from agricultural land, it is progressively more increasing importance is placed on the need forimportant to be able to build farming operations increasing yields from the world’s major grainwith economies of scale. It is only when farms are and oilseed crops. In the period from the 1950of an optimum size that they are able to take full to the 1970s, global crop yields rose markedly,take advantage of such scale benefits as large as a result of factors including selective breedingmodern machinery and advanced agricultural of higher yielding strains of seeds and improvedtechnology. In addition, scale of an operation plant tolerance to droughts and insects. In recentallows a farm to be run more as a business, with years, however, yield growth from most majordedicated employees devoted to functions such crops has plateaued, as the limits of developmentas finance, agronomics and overall management, with selective breeding are approached66. Whilerather than one farmer covering all bases. further improvements may require increased useIn much of the agricultural world, however, of biotechnology, and the true impacts of thisaggregating this level of scale is impossible. In continue to be under question, the significantmany developing countries, not only are farms of opposition to biotechnology in some parts of thea small scale, but social and political pressures world may see yield growth struggle to grow.means that it would be impossible to changethis. For example, in China, average farm size Protectionist policiesis roughly 0.32 acres65. Any move to aggregatelarge numbers of Chinese farms would lead to Like any business, the top grain and oilseeda rise in unemployed rural workers and potential producers are always seeking to gain greatersocial unrest. As such, in China, as in similar efficiencies. In terms of grain producingcountries, it is highly unlikely that the current countries however, the farmers in countries whostructure will change. are provided with high levels of government support for their industries have less incentive to become efficient, as they will always receivePolitical risk a standard level of support, such as fixed pricesWhile some countries may contain excellent for their crops. For example, in the dairy sector,productive agricultural land, the spectre of the production price of a litre of milk in somepolitical risk makes it an unattractive investment heavily subsidised European countries has beentarget, and as such, unable to receive the capital equivalent to the farm gate price of a litre of milkto help it lift productivity. For example, while in unsubsidised Australia67. In terms of grains andZimbabwe was once known as the bread basket oilseeds, countries with strong subsidies are likelyof Africa, the current government’s nationalisation to see production growth limited.projects have decimated its farming sector.Similarly, while Argentina has a rich agriculturalhistory, the record of its government in Poor infrastructureimposing tariffs and export restrictions have Regardless of how good a crop may be, it is ofserved as a deterrent for vitally needed little use to a potential buyer, and of little saleagricultural investment. value to the grower, if it is unable to be delivered65 UC Davis66 Agricultural and Applied Economics Association67 IFCN Dairy Report 2009 17
  20. 20. Supply side to a point of sale. For this reason, in regions price rises are short term, and the market returns such as Africa where a great deal of transport to normal. The events of 2008, when prices for infrastructure is in great need of modernisation, most grains and oilseeds rose to record levels, the potential increase in grain supply for use both were caused by a range of factors, with low in neighbouring countries and on global export stocks of global grains, the impact of a drought markets is likely to be constrained for years in various major production regions, the emerging to come. demand for corn from biofuels and the role of speculative investors all playing a part. The subsequent export bans and hoarding of grains, Conclusion – supply makes the particularly rice, by some countries, served to short term, demand dictates extend the price rally, though eventually prices fell again. the long term However, what is important to note, is that with The recent events in Russia, where the onset each recent price correction, prices have normally of a drought, and subsequent export bans on fallen to a higher level than where they started68. wheat saw the cost of wheat rise sharply globally, As a result, the prices of all grains and oilseeds have once again emphasised the impact that continue on an upward trend. Ultimately, both supply issues can have on grain and oilseed the increasing divergence of uses for grains and prices in the short term. These supply issues, oilseeds, namely food, feed, fuel and industrial, usually caused by a weather event, are far from combined with the increasing demand from unknown – concerns over floods in Iowa or water each of these areas, will continue to ensure logged crops in Canada for example can lead that demand for grains and oilseeds will only to price rises in the crop affected. Usually, these strengthen in the longer term.18 68 Bloomberg
  21. 21. Where to produceIn order to determine the optimum location age of farmers now over 6069, and with manyin which to achieve the greatest return from farmers still on unprofitable smaller blocks of landproducing grains and oilseeds, it is vital to take provided to returned soldiers after the Secondinto account a wide range of factors. To achieve World War, the opportunities for aggregation arethe maximum possible return from an investment strong. Similarly in Brazil, the changing structurein agricultural land, it is important to have a full of the farming sector, partly brought aboutunderstanding of how a combination of these through the impact of the global financial crisis,factors may ultimately affect the profitability of the has provided further potential for conversionoverall investment. opportunities.The following are some of the key factors that This is in contrast to country such as India, whereshould be considered when evaluating an the average farm is 1.4 hectares70. With overinvestment in an agricultural opportunity: 50 percent of the population being farmers71, it is unlikely that we will see consolidation in theScale near term.The ability to aggregate farmland into a largeoperation is vital in achieving the benefits Foreign directof scale. This is important in farmland, as it investment restrictionsallows the operator to save costs through A number of countries which have reasonableboth economies of scale, as well as improved farming conditions impose restrictions on thebargaining power. For example, as with any large ability to invest in this farmland. For example,business, increased bargaining power allows a countries such as Paraguay prohibit thefarm operator to negotiate lower prices for their ownership of farmland by foreigners. In Canada,inputs, such as fertilisers or seeds. while foreign ownership of farmland is permitted,By creating economies of scale, a farm operator restrictions of the scale of this investment makeis able to extract greater utilisation out of their it an unprofitable option. In the most productivefarm equipment. For example, a new tractor agricultural provinces, ownership restrictions limitused on an aggregated 3,000 hectares provides the number of hectares foreigners can own tolower machinery costs per hectare than the same 40 hectares.tractor used on a 1,000 hectare farm. In contrast, while Australia requires governmentIn addition, creating scale in a farming operation approval for agricultural investments overallows for greater use of advanced technologies. $231 million72, no foreign investment in AustralianFor example, a larger farm will have the agriculture has been turned down.resources to implement advanced fertiliserapplication techniques, using technology which Corporate agricultureis unaffordable for a smaller operation. Throughusing this technology, the larger farm will be able restrictionsto lower its fertiliser costs, increase its yields, and In the US, agricultural land ownership is restrictedimprove the long term environmental sustainability by anti-corporate farming laws in a numberof it operations. of states. These laws, which differ by State,Globally, areas which allow for building scale of generally restrict corporations and institutionalfarmland are limited. In Australia, with the average investors from owning or acquiring farmland.69 ABS70 USDA71 CNN72 ABC 19
  22. 22. Where to produce States where these laws exist include Iowa, This is compared to Brazil, which has a strong Kansas, Minnesota, Nebraska, Oklahoma, North history of promoting free and activity within its Dakota and South Dakota73, home to some of domestic farming sector. America’s most productive farmland. In Brazil, no such restrictions exist. This situation Subsidy risk allows corporate agricultural investors to utilise In a number of countries, the domestic their enhanced farming and management skills, agricultural sector is supported by a range of as well as taking advantage of their superior government subsidies. As a result of these scale, to maximise returns for their operations. subsidies, such as guaranteed domestic prices, farming sectors in these countries have the Political risk potential to fall behind non-subsidised countries, as they lack the potential to continually become A key component of a successful agricultural more efficient. Even more importantly for the operation is being able to guarantee major investor, the stability of the farming sector customers a level of certainty of supply. For this in subsidised countries is dependent on the reason, countries with a high level of political risk decisions of the government. For example, in the present unattractive investment opportunities, US, which provides subsidies of around ten cents as they are more likely to impose disruptions on in the dollar to farmers74, if the government were supply of crops. For example, while Argentina to make major changes to the country’s Farm Bill, contains reasonably yielding farmland, the actions this could potentially alter the viability of many by the government in recent years in imposing farming operations. export bans or high export tariffs on domestically produced crops provides a major disincentive to In contrast, in Australia, where subsidies customers and a deterrent to investors. are basically negligible, investors in farming operations do not face the risk of a change in Similarly, in many parts of Africa, the potential for a government program affecting the viability of agricultural production is overshadowed by the their operations. specter of potential nationalisation or other form of government intervention in many countries. Producer support estimates 1986/88 vs 2006/08 80 70 60 50 Percent 40 30 20 10 0 New Australia United Mexico Canada Turkey OECD EU Japan Iceland Switzerland Korea Norway Zealand States 1986-88 2006-08 Source: OECD 73 National Agricultural Law Center20 74 OECD
  23. 23. Infrastructure risk of water for farmers continues to place question marks over the long term viability of many partsThe ability to be able to transport agricultural of the state’s farming sector.produce to an export point, such as a port, isvital to maintaining a reputation for reliability of In an area like Brazil, however, the fact that nonesupply from a country. In a region like Africa, of its farmland requires irrigation means that it hasproblems with modern infrastructure present a successfully adopted dry farming techniques. Inmajor impediment to agricultural investment. All having an ample water supply and a consistentlytoo often, crops have major difficulty in being steady rainfall, Brazil enjoys a competitivetransported from the farm to a central point, such water a grain silo, and then on to a port.This is in contrast to countries such as the US, Affordable farmlandCanada or Australia, where modern road and While the productivity of farmland is important,rail networks link the agricultural producing it will still not equate to profitability if farmland isregions with world-leading port facilities, providing overvalued. In the US for example, farmland inmaximum opportunities to fulfill each country’s Iowa, while yielding healthy levels of corn andexport requirements. soybeans, is currently selling for up to US$11,000 per hectare76. This is in contrast to farmland inWater risk Brazil, where land which achieves the same yieldsThe reliable supply of water to a country’s as the US77, and which furthermore can harvestagricultural operations is a vital consideration in two crops per year, sells for up to US$3,000analysing potential areas for investment. In India, per hectare78. Similarly, some of the countriesfor example, up to 40 percent of agricultural of the Former Soviet Union offer comparativelyland is irrigated75, leading to enormous potential well priced land, with arable land in Russia sellingfor water scarcity. Similarly, in California, legal for between US $500 and $700 per hectareproceedings in that state to guarantee supply in 200779.75 Indian National Institute of Hydrology76 Iowa State University77 USDA78 Agrimoney79 USDA, RBS 2009 21
  24. 24. Why invest in grains and oilseeds Investing in grains and oilseed producing farms is likely to occur regularly given the nature of provides a number of attractive advantages. agriculture, intensified demand is likely to see continued upward pressure on prices. ■ Exposure to diverse and fixed demand ■ Exposure to a sector where the products Global population growth results in increasing are inelastic to price movements food demand, while rising incomes in developing countries increases the need Regardless of increases in prices, people for animal feed to fulfill the climbing animal still need to eat, even if they switch between protein demand. On top of this, the increasing different grains and oilseeds. This was production levels of biofuels, as well as the emphasised in 2008, where despite wheat use of natural ingredients in industrial products hitting record prices, consumption levels further increases the rising demand for gains remained strong. Compared to many other and oilseeds to be used as feedstocks in these products, the inelastic nature of grains and processes. oilseeds means that farmers are able to pass on input increases to end consumers. ■ Exposure to a sector where global supply increases will be limited ■ Exposure to a sector that is a hedge against inflation As factors such as urban expansion, land degradation and climate change continue to Food price increases remain a major reduce the amount of arable land per capita, component of overall inflation. As food prices and while yield growth rates for most crops are linked closely to inflationary trends, food have slowed or plateaued, the world’s ability to production provides farmers with a hedge produce enough grains and oilseeds to meet against inflation. While in the US and Europe food accounts for around 15 percent of CPI80, demand will be severely tested. in low and middle income countries the share ■ Exposure to a sector where supply is much higher. will continue to struggle to keep pace In addition, returns from farmland also show a with demand strong correlation with the CPI. For example, Production levels of grains and oilseeds from 1999 to 2009 in the US, the correlation globally are closely aligned with consumption between the NCREIF and CPI has been 0.509. levels. As such, when growing conditions in a Importantly, the return on the NCREIF was major producer are disrupted, an event which higher than the inflation rate each year81. 80 Businessweek22 81 Highquest Partners
  25. 25. ■ Exposure to an asset that has low ■ Exposure to a sector where only a few correlation to traditional asset classes such key areas, i.e. Australia and Brazil, provide as the equities market the range of factors which lead to wider profitability In contrast to the correlation between agricultural investments and inflation, Both Australia and Brazil offer a series of agriculture is largely uncorrelated with agricultural production advantages unmatched traditional asset classes. For example, from by other countries. These include: 1999 to 2009, the correlation between the – reasonably priced, highly productive NCREIF and the Dow Jones Industrial Average agricultural land was only 0.107, while with the Standard and – the ability to secure farms for aggregation Poors 2005 it was just 0.17482. – reliable climactic conditions for agriculture■ Exposure to a sector where managed – diversified input suppliers, as well as farmland provides the best returns diversified markets from agriculture – unsubsidised agricultural sectors, While agricultural futures markets may offer therefore not at risk of withdrawal of liquidity, they are short term and volatile. In government support terms of equities, very few public companies – low political risk and attractive FDI laws. provide exposure to actual production agriculture. An investment in agriculture provides exposure to profit from: – price inflation from crops – land inflation from land ownership – operating margins from farming production – increased value of land as it is transformed to achieve greater agricultural productivity.82 Highquest Partners 23