Meera Patel: Reap the benefits by investing in crops
Saturday 20 March 2010
One of the key trends in the coming decades is the growth in world population, which is predicted to increase from nearly 7 billion today to around 9.5 billion in 2050. With an extra 2.5 billion mouths to feed there will be unprecedented demand for agricultural produce from grains, such as rice and wheat, to livestock and cattle. Against this backdrop the case for agricultural investing is becoming stronger by the day, so a fund like the Eclectica Agriculture Fund, managed by George Lee, could be a valuable addition to your portfolio.
The fund is truly focussed on the theme, aiming to directly benefit from rising crop prices by investing in areas such as food production, farm machinery, irrigation and crop protection, as well as agricultural infrastructure. These areas are even more compelling given that agricultural investing has been out of favour for 30 years, during which time agricultural (or "soft") commodity prices have generally trended sideways. When adjusted for inflation the statistics are staggering. In real terms, agricultural prices have lost 70-80 per cent of their value, making many grains such as corn comparatively cheap, and this is precisely where investors can capture an opportunity.
In an environment where credit is easily available and the western world has been bingeing on debt, farmers have been doing the opposite and deleveraging. At the same time, grain inventories have fallen to 30 year lows and there is now a need for restocking if supply is to meet demand, something that has not been helped by a poor harvest in 2009. In fact, there may soon be shortages of certain agricultural produce such as corn. In 2009 the world produced 798 million tonnes of corn, but consumption rose to 810 million tonnes. Not only do farmers have to make up the shortfall of 12 million tonnes, but they need to produce a further 20 million tonnes just to keep pace with growing demand. In other words, supply of corn has to grow by 4 per cent this year and beyond just to keep up, so there is a danger that shortages will push prices up.
As the pressure on crop prices increases, so does demand for products like fertiliser, agricultural chemicals and machinery, so these are some of the areas where investors might stand to benefit from rising prices. The use of these items is not optional; farmers must keep buying them in order to maintain productivity. According to George Lee, farmers have generally been cautious about making these capital investments in recent years and he anticipates a catch up in demand over the course of 2010, so many agricultural companies have the opportunity to grow their earnings strongly. Indeed, many developing countries like China are also offering heavy subsidies to encourage investment. A further growing demand for soft commodities comes from the use of biofuels as an alternative to traditional sources of fuel and, according to George Lee, 13 per cent of global corn supply goes into ethanol production in the US.
There are approximately 500 agriculture related stocks available to the fund. It is a fairly diverse sector and the largest areas of focus for George Lee are crop nutrition, infrastructure and machinery. The fund is also geographically well spread with US firms making up 32 per cent of the portfolio and the remainder spread mostly across Asia, South America and Canada.
There is very little we can do about global demand for soft commodities trending higher. World population will continue to grow and changes in diets in emerging markets will place an additional strain on supply. Temporary shocks such as extreme weather conditions may also hamper productivity at times. To meet these challenges, there is likely to be significant investment in agriculture across the globe. Given the specialist nature of this fund it is a high risk investment, and will be prone to volatility. However, in my view it offers exposure to an area of the market with exciting long- term growth prospects.
Compare with the Independent: See how much you could save by switching credit cards. Compare now
- 1 Are you turning into your dad? The top ten signs you've embraced dad-ism revealed as survey says 38 is age men turn into their father
- 2 Overheard in Waitrose: documenting the chatter in 'Britain's poshest supermarket'
- 3 Video of British Muslims dancing to Pharrell Williams's hit Happy attacked as 'sinful'
- 4 24 people applied for the 'world's toughest job', here are their interviews
- 5 Grace Dent on TV: Game of Thrones has jumped the shark
The food poverty scandal that shames Britain: Nearly 1m people rely on handouts to eat – and benefit reforms may be to blame
US Navy christens huge $3 billion destroyer ship USS Zumwalt that appears as a fishing boat on enemy radar
Scottish independence: It is the English who should be on their knees, begging the Scots to vote ‘No’
Nigel Farage fatigue? Half of voters ‘immune’ to Ukip’s appeal
Nigel Farage on Have I Got News For You: Ukip leader ridiculed over expenses and party 'fruitcakes'
Nigel Farage: I’m taking on the status quo, and the Establishment’s fighting back
iJobs Money & Business
£150.00 per week: QA Apprenticeships: This company has been providing on site ...
£221.25 per week: QA Apprenticeships: This company is a well established Inter...
£40000 - £50000 per annum: Harrington Starr: Client Relationship Manager - SQL...
£35000 - £50000 per annum: Pro-Recruitment Group: Take your chance to join the...
Day In a Page
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000
This three-bedroom flat within a former textile factory spans the corner of the fourth floor and has a balcony
A charming four-bedroom Oxfordshire cottage with oak floors and chunky-beamed ceilings, £465,000
A beautiful one-bed flat in a sought-after portered block, with access to Norland Square communal gardens
A one-bedroom flat within a Sixties school conversion with high-spec design and open-plan kitchen, close to Lambeth North Tube, £435,000
A 17th century four-bedroom house, with open fireplaces, cellar and pool, £600,000
A three-bedroom, coach house with luxury open-plan living space and contemporary breakfast bar
A newly refurbished one-bedroom flat in the heart of Mayfair, close to Grosvenor Square
A charming four-bedroom house overlooking Burleigh Square Park, close to Thorpe Bay
A three-bedroom farmhouse with a large inglenook fireplace and exposed beams
A boutique mews house, set around a central courtyard, with three bedrooms and a private roof terrace
A four-bedroom farm-conversion with three bathrooms and two reception rooms
A two-bedroom detached house with ensuite bathrooms and a sun-drenched decked terrace, £750,000
A modern and spacious two-bedroom, penthouse flat with two bathrooms in a prestigious development
A beautifully renovated five-bedroom terrace with three reception rooms and a courtyard garden, £700,000
A four-bedroom period house which has been extended to provide almost 2,500sq ft of living space, £675,000
A pretty three-bedroom Georgian home with a 22ft drawing room and a master suite with a balcony, £525,000
A substanstial family home with five bedrooms and landscaped gardens in the much sought-after Branksome Park area
A well-presented three-bedroom house with front and rear gardens, close to White City station, £475,000
A handsome five-bedroom house in a sought-after location close to the city centre
A five-bedroom country home with valley views, equestrian stables and 27 acres of land, £725,000
A six-bedroom farm house with separate, detached cottages and 371 acres of land
A two-bedroom cottage with parquet floors, chunky beams and an open fireplace
A three-bedrrom flat with 2,733sq feet of living space, a beautiful private garden and 15 acres of communal grounds