IB Net Payout Yields Model

Buying Farmland Abroad

Very interesting article at Economist.com about the huge transactions taking place in Farmland mainly surrounding Middle Eastern or China buyers of affordable, unproductive farmland in Africa. Most striking is the deal where Saudia Arabia is leasing land from Ethiopia and shipping the food back home. Some day this trend will likely reverse as Ethiopia catches onto the game and grows the food themselves and ships it to the Middle East for huge profits. Food is likely to be more scarce then oil/energy supplies in the future. Not to mention that the World Food Program provides Ethiopia with food that could just as easily get from the land they've just leased out. What about using that money for it instead as well? Hmm...

All of these deals highlight the need for food in parts of the world and the available land in other parts. The investment increases in Sudan alone are enourmous. Stocks from farm equipment companies like Deere (DE), fertilizers like Potash (POT) and Mosiac (MOS), along with our favorite commodity risk manager FCStone (FCSX) are likely to benefit from the growth in global demand for food. The FCSX move to a global provider could prove huge. It also will indirectly benefit companies like Alvarion (ALVR) and Millicom (MICC) that provide broadband equipment and wireless servies in Africa that will undoubtebly grow from the worlds increasing need of the products that can be grown and mined in Africa. Not to mention that foreign buyers of this land will likely spend much more on telecommunication services then the locals. Air travel might benefit as well especially if China continues to employ Chinnesse workers. Our favorite airplane leasing firm Genesis Lease (GLS) could well benefit from this trend.

Will Africa one day get mentioned along with the BRIC countries as a place for huge growth? A few snippets from the article.

  • In total, says the International Food Policy Research Institute (IFPRI), a think-tank in Washington, DC, between 15m and 20m hectares of farmland in poor countries have been subject to transactions or talks involving foreigners since 2006. That is the size of France’s agricultural land and a fifth of all the farmland of the European Union. Putting a conservative figure on the land’s value, IFPRI calculates that these deals are worth $20 billion-30 billion—at least ten times as much as an emergency package for agriculture recently announced by the World Bank and 15 times more than the American administration’s new fund for food security.
  • Sudan is letting investors export 70% of the crop, even though it is the recipient of the largest food-aid operation in the world. Pakistan is offering half a million hectares of land and promising Gulf investors that if they sign up, it will hire a security force of 100,000 to protect the assets. For poor countries land deals offer a chance to reverse decades of underinvestment in agriculture.
  • EARLY this year, the king of Saudi Arabia held a ceremony to receive a batch of rice, part of the first crop to be produced under something called the King Abdullah initiative for Saudi agricultural investment abroad. It had been grown in Ethiopia, where a group of Saudi investors is spending $100m to raise wheat, barley and rice on land leased to them by the government. The investors are exempt from tax in the first few years and may export the entire crop back home. Meanwhile, the World Food Programme (WFP) is spending almost the same amount as the investors ($116m) providing 230,000 tonnes of food aid between 2007 and 2011 to the 4.6m Ethiopians it thinks are threatened by hunger and malnutrition.
  • The investors promise a lot: new seeds, new marketing, better jobs, schools, clinics and roads. An official at Sudan’s agriculture ministry said investment in farming in his country by Arab states would rise almost tenfold from $700m in 2007 to a forecast $7.5 billion in 2010. That would be half of all investment in the country, he said. In 2007, agricultural investment had been a mere 3% of the total.


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