So the price of food is set to rise? If the price trend is maintained, this is not like the motor car fad, the mobile fad, or the micro-chip fad. This is a pattern that would affect every living animal, never mind just you and I.
Far-reaching consequences? "People are going be forced, either to literally eat less, or find other sources of income," said Angel Gurria, the head of OECD. This on the back of UN reports predicting climbing food prices led by corn rising over 20 per cent, and poultry at over 30 per cent during the next decade. These projections far outstrip inflationary predictions. The main thought for this week: as investors, what do we do about it?
The problem, as financial advisers, is that "gift horses" are generally seen from behind. Investing in food and rising prices isn't a new idea, but it is still reasonably fresh: there are not too many "food funds". So how do we join in the "second man in" syndrome?
Options include: buying stock in food equipment and supply firms. Buying stock in well established food companies. We recently quoted the "Poisonous Pen" (Mondial Money) as recommending Nestle simply because they are a hugely resourced, well managed company that are building their profits on supplying our bellies.
While "food funds" are not easy to find, "Forestry" as a sub-set of the Agri-business is more established in the fund world. Investors might look at the recently formed IPD Forestry Index, a UK concept which represents a genre that grew 20 per cent in 2010.
Ultimately, it will all depend on how involved investors want to be in the food story. For the "passive" investor, finding multi-asset fund managers that take regular tactical decisions is likely to be the "easy way" and non-direct way to benefit from any Agri-upside.
Multi-asset managers will be aware of trends such as the purchase of 100,000 hectares of Zimbabwean farmland by China; the raising of $350 million (Dh1.28 billion) by George Soros to buy farmland in Eastern Europe and obscure pieces of Asia; and the purchases by the governments of South Korea, Saudi Arabia, Kuwait and Qatar into African farmland. Add to this the increasing activity of hedge firms and rich investors into US and European farmland, and you would hope that your multi-asset manager does have their eye on the price of fish!
What about the active investor looking to join the "grain rush"? With "her-in-doors" always looking at UK house prices, and whilst researching this piece, I said "why don't we buy a farm in the UK?" The hope was that "our farm" would have a "gift horse" on it, what with the UK economy not looking that chipper.
Second Man-in syndrome strikes again. UK Farmland has trebled over the last ten years against a doubling of residential real estate. Yup, the time to buy was when nobody wanted it.
Still, second man in, might retain long-term benefits. After dealing with "her-in-doors" objections to milking cows, and other details which the farmer and not the owner might deal with, the fact remains that both historically, and by forecast, farmlands should provide both a yield return hedge against inflation and the potential of capital appreciation. Yes, there are risks, but how many other investment trends stack up so well against the mobile phone and the internet?
From / Gulf News