The next boom: Agriculture!

In the past 15 months we have witnessed the two biggest global crises unfolding very quickly – the world food crisis and the financial crisis.

These very unsecure times have triggered a new trend towards buying up land for outsourced food production.

There are two parallel agendas driving two kinds of land investors: the ones interested in food security and the ones interested in profit.

Food security

A number of countries which rely on food imports and are worried about tightening markets, while they do have cash to throw around, are seeking to outsource their domestic food production by gaining control of farms in other countries.

They see this as an innovative long-term strategy to feed their people at a good price and with far greater security than hitherto.

Saudi Arabia, Japan, China, India, Korea, Libya and Egypt all fall into this basket. High-level officials from many of these nations have been on the road since March 2008 in a diplomatic treasure hunt for fertile around the world.

Convinced that farming opportunities are limited and the market can’t be relied upon, “food insecure” governments are shopping for land elsewhere to produce their own food.

At the other end, those governments being courted for the use of their countries’ farmland are generally welcoming these offers of fresh foreign investment.

Financial returns

Given the current financial meltdown, all sorts of players in the finance and food industries – the investment houses that manage workers’ pensions, private equity funds looking for a fast turnover, hedge funds driven off the now collapsed derivatives market, grain traders seeking new strategies for growth – are turning to land, for both food and fuel production, as a new source of profit.

Land itself is not a typical investment for a lot of these transnational firms. To get a return, investors need to raise the productive capacities of the land – and sometimes even get their hands dirty actually running a farm.

But the food and financial crises combined have turned agricultural land into a new strategic asset.

In many places around the world, food prices are high and land prices are low and most of the “solutions” to the food crisis, talk about pumping more food out of the land we have. So there is clearly money to be made by getting control of the best soils, near available water supplies, as fast as possible.