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Economy
Wednesday, September 2, 2015 - 02:16
Fields of hope

Old Mutual Investment Group’s Director of Strategic Projects, Craig Chambers, refers to the emergence of the agricultural sector as “a viable asset class amidst the low interest rate environment we’ve been seeing globally recently.

“South African farmland has yielded 22.1% over 15 years (to end December 2013) compared to the FTSE/JSE Index at 18.2% over the same period. It has also yielded consistently higher return than international equity (MSCI World), local bond (ALBI BEASSA) and local real estate (IPD) indices over the medium- to long-term.”
In addition, when it comes to the rest of Africa, Chambers points out that over 60% of the world’s arable land is situated on the continent, which makes for a very compelling Africa Agricultural investment case. This context presents a significant investment opportunity for institutional investors looking for a good capital preservation tool in Africa that is also a reliable inflation hedge and has low to negative correlations with traditional asset classes.
“Agriculture is also a vital economic driver given a number of socio-economic factors, including population growth, poverty and unemployment,” adds Chambers. “These factors present acute challenges and make unlocking our agricultural potential not just an attractive option but a necessity. The United Nations Conference on Trade and Development (UNCTAD) has estimated agriculture’s annual investment gap for the 2015-2030 period at US$260 billion in the developing world.”
However, still the most urgent rationale for agricultural investment remains food security. Chambers says that a 70% total increase in agriculture production is needed to feed the more than nine billion people expected worldwide in 2050 – of which 25% will be in Africa. “An important point to note is that Africa presently spends in excess of US$25 billion annually on food imports.
“Retailers and traders are increasingly looking to secure their supply lines and the balance of power is moving upstream to the supplier of food, i.e. the farmer. Therefore, food independence for Africa can be supported by local institutional investment. Due to the availability of low-valued, premium farmland and agribusinesses on the continent, as well as the shortage of locally available capital and skills for agricultural development, agriculture is a particularly viable opportunity for investors seeking capital stability and higher risk-adjusted returns.”
 

Copyright © Insurance Times and Investments® Vol:28.9 1st September, 2015
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