Futuregrowth fund buys farms to benefit from food prices

FUTUREGROWTH Asset Management, a unit of insurer Old Mutual, is buying farms in Africa to benefit from surging food prices.

Futuregrowth’s United Farmers Fund has spent R450m buying nine fruit and vegetable farms in SA since December 2010 and is considering investing in a cattle ranch in Botswana, a coffee plantation in Ethiopia and fruit and vegetable farms in Burkina Faso, Morocco and Senegal, according to Duncan Vink, one of the fund’s founders and MDs. “There is a big pipeline coming,” with the fund planning to grow its assets to about $500m, Mr Vink said last week.

“The investment thesis is there. There will be increasing food scarcity long term and a growing worldwide population.”

Maize surged to a record $8 a bushel in Chicago on July 23 as the worst drought in half a century scorched crops in the US, the largest grower, increasing concerns about grain shortages. World demand will total 878-million tons this year, more than the expected harvest of 864million tons, the International Grains Council estimates.

Futuregrowth seeks to generate returns of at least 10% more than SA’s annual inflation rate, which was 5,5% last month, from its farms, which are leased out.

Futuregrowth’s move to acquire agricultural land in Africa tracks an investment push led by China, India, Malaysia and Indonesia that is being driven by concerns about food security and rising grain prices.

In March, Stellenbosch-based investment company Zeder Investments said it would acquire a controlling stake in a large-scale commercial farming operation in Zambia, the first stage of a continental expansion plan.

About 45-million hectares of farmland were leased in the two years through 2009, compared with an average pre-2008 rate of 4million hectares a year, the World Bank said in a September 2010 report. More than 70% of the deals were in Africa, most of them in Sudan, Mozambique, Liberia, Ethiopia, Nigeria and Madagascar. The sales of large tracts of land to foreigners sparked protests in Madagascar and accusations from advocacy groups such as the Californiabased Oakland Institute that African communities are inadequately consulted and are being forcibly evicted to make way for investors.

“We do fairly small and intensive farming,” said Mr Vink, whose fund reinsures its projects with the World Bank’s Multilateral Investment Guarantee Agency. “It’s not large tracts of land.” Bloomberg