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Forward Thinking Magazine : August 2010
31 Figure 2: Arable land per capita insights A case for investing The global harvested area for agricultural crops has increased only modestly in recent years due to the pressures of urbanisation, land degradation and climate change, and as Figure 2 shows, has actually decreased per capita. At the same time, growth in global crop yields is decreasing despite demand, impacted by climate change, water scarcity and a reluctance to adopt genetically modified crops. In the lead up to the price spikes of 2008, long- term market factors such as population and income growth were joined by a set of short-term factors, particularly a supply shortage, to create a ‘perfect storm’ for agricultural commodity prices. Despite a drop in prices since then, many commodities have stabilised above historical price levels. We believe agricultural assets can contribute to a strategy of hedging against inflation, have low correlation to traditional asset classes and are less impacted by economic slowdowns. Investors can access the asset class directly, investing in real agricultural assets such as farming operations and land. Alternatively, listed equities have the advantage of providing liquidity, at the cost of more direct correlation to equity markets. Futures can provide a shorter term exposure to price volatility, at the cost of exposure to the long term fundamentals. Agricultural investments are exposed to a number of risks, such as drought, pests, disease, desertification, fire, commodity price volatility and political risks. Although it is impossible to remove all of these risks (for example, drought) many can be mitigated through good management practices and a sound investment strategy, including diversifying the properties you own across different climatic zones, the commodities you produce and the end markets you sell into. Macquarie Global Investments currently manages $A7 billion in investments across a range of asset classes. This includes a portfolio of farms and agricultural assets operated on behalf of institutional investors from around the world. We not only need to grow an extra one billion tonnes of cereals a year by 2050... but do so from a diminishing resource base of land and water in many of the world’s regions, and in an environment increasingly threatened by global warming and climate change. Jacques Diouf, Director General, Food and Agriculture Organization of the United Nations (FAO) Written by Simon Aboud, Macquarie Global Investments Read this story to receive CPD points. Simply log on to macquarie.com.au /ftmagazine Source: FAO