First State Executive: World Food Prices At Investment "Tipping Point"
April 19 2011 - 1:44PM
Dow Jones News
World food prices have reached a "tipping point" where farmers
are likely to boost their investments in increasing productivity,
the manager of First State's Agribusiness Fund said Tuesday.
International prices for agricultural commodities have surged to
record highs this year, according to the United Nations, after a
succession of weather problems dented output for crops as diverse
as grains, oilseeds and sugar.
Yet while this season's rally has been spurred by natural
disasters, some investors argue it heralds a longer-term trend of
rising food prices as the world struggles to increase output by 70%
by 2050 in order to feed a predicted 9 billion people.
"We're at the point now where we're incentivising farmers to
increase production," said Renzo Casarotto, senior manager of the
$26 million fund. "We're going to see more [research and
development in order] to become more effective in improving
yields."
A major driver in the food-price rally this season has been a
draw-down in world stock levels. Global sugar inventories are at a
two-decade lows and grain production has fallen short of supply for
the past seven seasons out of 11.
Yet while every major forecasting agency is expecting a rise in
world food production next year, doubt remains as to whether this
will sate demand given emaciated stocks, and prices are expected to
remain high into next season.
Although he gave no specific forecast, Casarotto said if prices
stay at these levels for a sustained period farmers will "take
gradual steps to invest once they see these levels are sustainable"
in the way energy and metals producers have done.
"The challenge is to produce more food with fewer resources," he
said. "This will need investment." He cited U.N. figures estimating
agriculture will need $80 billion a year to meet growing global
demand.
Launched less than a year ago, First State's Agribusiness Fund
invests in a range of agriculture-related businesses in order to
cash in on the predicted rise in farm investments. Its largest
holdings are in agricultural giants like Potash Corp. of
Saskatchewan Inc. (POT.T, POT), Deere & Co. (DE) and Mosaic Co.
(MOS), although it also invests in companies such as BRF-Brasil
Foods SA (BRFS3.BR, BRFS) and Sino-Forest Corp. (TRE.T, SNOFF).
Casarotto said the fund intends to expand more in regions like
South America and Asia where output growth will be centered. In
these countries, he said, price transmission to farmers can be
slower due to inhibitors like greater transportation costs, but the
agricultural potential is vast.
"The transportation costs [for moving grains] from [Brazil's]
Masso Grosso to Santo port is $3.50 a bushel so only now are
farmers becoming incentivised to increase production," he said.
-By Caroline Henshaw, Dow Jones Newswires; 4420-7842-9478;
caroline.henshaw@dowjones.com
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