Can you reap a profit from a farming boom?
THE price of land is falling at its fastest rate since the financial crisis. A report by property experts Knight Frank found the cost of an acre of farmland was £7,907 in March, a drop of 3pc in just three months and the biggest quarterly fall since the end of 2008.
Farmers blame this on the uncertainty caused by the Brexit vote. UK farmers receive about £2.5bn in subsidies from the EU. These payments can amount to up to 60pc of an average farmer’s income.
Taking them away could even force some farmers out of the business, it has been suggested.
But while land prices have tumbled agriculture funds which invest in the shares of businesses in the farming and food business are enjoying a stellar run.
The Sarasin Food and Agriculture Opportunities Fund has returned 16pc over the past three months. Think of agriculture investing and you may suspect your money was in land, food and machinery.
But as Gertjan Van Der Geer, manager of the Pictet Agriculture fund, explains: ‘We are investing in packaging, technology and nutrition.’
Agriculture businesses operate in some niche areas but they are experiencing increasing demand for their expertise across the globe as farming modernises and populations increase and become wealthier.
For example, animal feed supplement firm Anpario, is an Aimlisted firm based in Worksop. It exports to 70 countries and in its last results reported sales growth of 34pc in China because of rising demand for pork, as well as double-digit growth in the Philippines, South Korea and Vietnam.
Even where managers are investing in foods, it’s not the ones you might think.
Prices of so-called soft commodities – grains and edible oils such as wheat, rapeseed and corn – are low after three consecutive good harvests have helped create a stock pile. It’s a simple case of supply and demand which is hurting profits.
James Govan, manager of the Baring Agriculture fund, is trying to find the companies that benefit from this. He likes Tyson Foods, a US protein producer. Protein is becoming increasingly important, particularly as developing countries start to consume more meat, but also with the rising popularity in the US of ingredients such as whey used for protein shakes.
Govan also likes AGT Food & Ingredients, a Canadian lentil producer. It’s having a bumper year because demand has surged after a monsoon meant a poor crop in India.
GOVAN says: ‘It’s the year of the pulse. They’re high protein, high fibre, low fat and virtually allergen free.’
He also likes Tate & Lyle. Typically thought of as a sugar firm, it actually sold that part of its business and is now involved in food ingredients.
They produce salt and sugar substitutes to help manufacturers try and make food healthier, as well as bulking agents and products which improve the texture of food.
Both the Baring and Pictet funds invest across the globe. Tellingly, at least 40pc of each is in US firms. Just 3.5pc of Govan’s fund is in the UK, and even less in Van Der Geer’s. Perhaps that’s the reason they have had such a good run – both are up around 11pc over the past three months. But over the longer term the picture is less rosy – Barings Agriculture is down 11pc over 12 months. Govan says fertiliser stocks such as Mosaic and Potash performed poorly because of oversupply and reduced demand. He has since sold these holdings.
Jason Hollands, managing director of Bestinvest, says: ‘There are a number of specialist agricultural funds but we think these are too niche for most people and their returns have been very volatile. For those willing to take a punt, Sarasin Food and Agriculture has been one of the least volatile funds of this type.’
Van Der Geer says: ‘Farming in a cyclical area, and that means you’re supposed to invest when it doesn’t seem like a great idea. After years of price declines, that time is now.’