Futuregrowth Asset Management, a unit of insurer Old Mutual Plc that oversees 110 billion rand ($13.3 billion) in fixed income investments, is buying farms in Africa to benefit from surging food prices.
Futuregrowth’s United Farmers’ Fund has spent 450 million rand buying nine fruit and vegetable farms in South Africa since December 2010. It’s now 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 managing directors.
“There is a big pipeline coming,” with the fund planning to grow its assets to about $500 million, Vink said in an interview in Cape Town on July 25. “The investment thesis is there. There will be increasing food scarcity long-term, a growing worldwide population.”
Corn surged to a record $8 a bushel in Chicago on July 23 as the worst drought in half a century scorched crops in the U.S., the largest grower, increasing concerns about grain shortages. World demand will total 878 million metric tons this year, more than the anticipated harvest of 864 million tons, the International Grains Council estimates.
Futuregrowth seeks to generate returns of at least 10 percent more than South Africa’s annual inflation rate, which was 5.5 percent in June, 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’s being driven by concerns about food security and rising grain prices. On March 29, Zeder Investments Ltd, a Stellenbosch, South Africa-based investment company, 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 (111 million acres) of farmland were leased in the two years through 2009, compared with an average pre-2008 rate of 4 million hectares a year, the World Bank said in a September 2010 report. More than 70 percent 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 has sparked protests in Madagascar and accusations from advocacy groups such as the California-based 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 Vink, whose fund re-insures its projects with the World Bank’s Multilateral Investment Guarantee Agency. “It’s not large tracts of land. Governments in most countries we engage with are very open to investment.”