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Farmland Institutional Investment May Rise $4B-$5B/Year (12.6.2011)
by Sameer Mohindru, Dow Jones - Dec. 5, 2011

 SINGAPORE (Dow Jones)--Institutional investment globally in acquiring and developing farmlands is likely to increase by around $4.0 billion-$5.0 billion annually for the next few years as investors seek relatively safer asset classes due to the economic recession and the eurozone crisis, an industry analyst said Monday.

"Our research shows that around $20 billion has been committed in the last five years to acquire farmland and finance agricultural infrastructure projects globally and the momentum is expected to continue," Philippe de Laperouse, managing director of Boston-based consultancy HighQuest Partners, said on the sidelines of an agriculture conference here. 

He said these estimates don't include strategic investment in food processing such as fruit, vegetables and milling of agricultural crops. 

De Laperouse said institutional investors such as pension funds, hedge funds, insurance companies and university endowment funds are investing in agricultural land because they perceive it as a legitimate asset class where reasonable returns can be expected at a time when the overall global economic climate is uncertain. 

Farmlands are being sought as a tool for diversification of investment portfolios and risk management by even the sovereign wealth funds, he said. 

In the past, wealthy families from Western Europe put their money in farmlands in the U.S. and South America but now such investments are getting more professionalized, he noted. 

Special funds have been created to specifically invest in agricultural land because the supply of most crops have tightened and prices have hit a record high in recent years, De Laperouse said. 

The risk of adverse weather hitting the investment will always remain but still money is being put into farmlands because they provides continuous returns without selling of the underlying asset, unlike commodities such as gold, he said.

Past trends indicate that investment in well established agricultural farmlands of the U.S. will yield annual returns of around 5%-8% but it is projected to be 15%-22% in less developed markets such as South America and Africa, he noted. 

South America, Africa, Eastern Europe are among the regions attracting large-scale agricultural investment, with private funds taking land on lease for several decades.

The potential exists for investing $80 billion-$140 billion or even higher in acquisition of farmlands in Brazil alone over the next several years, though the government there has now tightened regulations for such investments, De Laperouse said. 

"Our projections for a basket of seven key crops--wheat, corn, soybeans, cotton, rapeseed, sugarcane and oil palm--show that a minimum of 75 million hectares of additional land will need to be brought into cultivation by 2015 globally to meet demand," he said. 

De Laperouse said this is going to be difficult because less than 24 million hectares were brought into cultivation during the 1995-2005 period and tight supply and higher prices may boost returns for the investors.

-By Sameer Mohindru, Dow Jones Newswires; +(65) 9455-2449; sameer.mohindru@dowjones.com

 Dow Jones Newswires 

December 05, 2011 09:08 ET (14:08 GMT) 

Copyright (c) 2011 Dow Jones & Company, Inc.


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