Times are tough, but relax … you’re a farmer!

Many global investors are seeing agriculture right now as a blue chip investment.’
Issue date : 21 November 2008

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It’s been a tumultuous time hasn’t it? The political turmoil in the ANC was enough, when along came the global collapse of share prices and then the collapse of the rand. In a New York Times article recently Warren Buffett, US tycoon and chief executive of Berkshire Hathaway, wrote, “A simple rule dictates my buying – be fearful when others are greedy and greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors.” He added, “Investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of many sound companies make no sense.

These businesses will indeed suffer earnings hiccups, as they always have. most major companies will be setting new profit records five, 10 and 20 years from now.” If you’re reading this, chances are that you’re a farmer or involved in some way in food production and all I can say is: “Congratulations, you’ve chosen a business that delivers real value!” So although it might not be a good time to sell your farm, the underlying value is there and as the emotion arising from the market collapse drains, realistic values will once again come to the fore.

In fact, many global investors are seeing agriculture as a blue chip investment right now: S chroders, a global asset management company, recently launched a new London-listed fund which will invest in agricultural land. Schroders points out that the world population will grow by 44% over the next 40 years. Improved diets will double food consumption and as income per capita increases, so does consumption of meat, demanding far higher quantities of grain. Investing in agricultural land at a global level makes great sense to them.

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Smith & Williamson, a leading investment company which manages private clients in the UK and Ireland recently reported that their farmer clients are seeing land values increasing for the first time in 20 years. In the second half of 2007, farmland prices rose by 28% compared with 23% in the first half, the fastest rate in the survey’s 13-year history. The average price of arable land broke the £10 000/ha barrier (R158 000) for the first time in history. Our own JSE-listed Zeder Investments has been actively growing its agricultural interests, accumulating a  R1,6 billion agribusiness portfolio.

Many other investors are piling into land and agricultural commodities. We are seeing the emergence of a range of listed funds focusing on agriculture. E clectica Agriculture Fund, run by Capita Financial Managers in the UK, was launched in June 2007 and increased in value by 40% at its peak before falling back to 18,6% over the past year. uropean giant Allianz RCM established an agri trust in April 2008 denominated in dollars. It has gone up by 13,65% in just three months. anlam recently launched Agri-Vie, a R700 million private equity fund with the aim of investing in the buoyant agribusiness sector across sub-Saharan Africa. o relax, you’re onto a good thing in farming. Just follow Warren Buffet’s advice and never move with the herd. – Peter Hughes ([email protected] or call (013) 745 7303). |fw