Investment products and practices that seek to benefit from rising agricultural prices are under increasing scrutiny as the food crisis rages in poor countries.
Mutual funds and structured products are being launched either to buy the stocks of food-related companies, or to take bets on soft commodities such as grain and corn.
Some funds have gone further and set out to purchase farms, cattle stations or even just vacant land.
Two new agricultural investment products were launched in Australia yesterday: JP Morgan set up Trio, a vehicle that among other things exposes investors to the JP Morgan Commodity Curve Index, an agricultural benchmark; and Macquarie added an agribusiness mutual fund, the DWS Global Equity Agribusiness Fund, to its Fusion Funds range.
Opinion is divided on the impact. “I think it is certainly making it worse,” said Shane Oliver, head of investment strategy and chief economist at AMP Capital Investors.
Alongside the impact of weather, crop failures, food for fuel and rising income levels, he believes speculation and investment approaches are significant impacts. “Speculative activity in food markets has become particularly evident in the last six to 12 months fuelled by strong fundamentals for food prices and uncertain equity, credit and property markets,” he says.
“Basically traders and speculators flocked to commodities, including food, this year. It was one of the few investments still providing solid returns.”
He said the emergence of food as an asset class “will provide a strong structural underpinning for food prices – which is not good for people living in emerging countries”.
The allure from an investment perspective is clear. “The demand for soft commodities is really just beginning to increase and we believe the opportunities here are quite considerable,” Chris Larsen, managing director of DWS Investments, said.
“Including agricultural investments in a portfolio can provide benefits including increasing its growth potential and lowering risk through diversity.”
The DWS fund invests in listed securities such as Archer Daniels Midland, Syngenta and Monsanto, an approach less likely to push up food prices than food stocks. But other funds make direct investments in farms.
In June Macquarie Bank launched the Macquarie Pastoral Fund, which owns and operates beef cattle and sheep production properties in Australia.
Tim Hornibrook at Macquarie said the fund would exploit increasing disposable incomes in Asia that are likely to translate into more consumption of red meat and therefore higher prices for beef exports.
Hedge funds including UK-based Odey Asset Management, US commodity fund Ospraie Management have bought farms, while a Agriculture Fund launched by Blackrock has purchased a large area of land in Norfolk, UK, all of it likely to contribute to an upward momentum in food or agricultural land prices.