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MACQUARIE AGRICULTURAL FUNDS MANAGEMENT
The case for agriculTure as an asseT class
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DISCLAIMER
This document does not constitute financial product advice and should not be relied upon as such. The information in this document is for discussion purposes only and is not an offer or solicitation to purchase or sell any securities or financial product. None of the information in this document takes into account any person’s personal objectives, financial situation or needs and you must determine whether the information is appropriate in terms of your particular circumstances. We recommend you obtain financial, legal and taxation advice before making any financial investment decision.
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This document has been prepared based on information believed to be accurate at the time of the preparation of this document. Subsequent changes in circumstances may occur at any time and may impact the accuracy of the information in this document. Some of the information in this document and the figures that have been quoted, and or used within it, have yet to be confirmed and finalised and consent has not been obtained from all relevant stakeholders. It is important to note that to this extent the document may not be accurate or complete and some of the information could be subject to amendments.
Any forecasts contained in this document are predictive in character and therefore no undue reliance should be placed on the forecast information. Whilst every effort has been taken to ensure that the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties. The actual results may differ substantially from the forecasts and some facts and opinions may change without notice on the basis of changing market conditions.
Past performance is no indication of future performance.
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Contents
Executive Summary 02
Demand factors driving the asset class 04
Supply constraintsdriving the asset class 08
Portfolio benefits of investing in agriculture 14
Mitigating Agricultural Risks 16
Portfolio benefits of investing in agriculture 18How to derive returns from agriculture 18Agricultural Exposure – how to invest 19Portfolio benefits of investing in agriculture 20
Conclusion 21
Footnotes 22
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Executive Summary
Executive SummaryDeveloping economies
The rapid industrialisation and urbanisation of emerging market countries is driving a structural shift in agricultural markets. The economic growth and urbanisation of Brazil, Russia, India and China (BRIC) is being accompanied by an increase in living standards and per capita income.
GDP growth
An increase in wealth, in turn, has a direct correlation with driving food consumption, as highlighted in the Food and Agriculture Organization (FAO) chart below, which shows that as GDP increases so too does the appetite for protein.
Changing dietary patterns
As Gross Domestic Product (GDP) growth and per capita income increase, so too does the appetite for protein. In particular, for animal sourced protein, vegetable oils, sugar enhanced and processed foods. Developed world amenities such as refrigeration also become more readily affordable, meaning that meat can be stored and eaten over longer periods and consumption accordingly grows.
Chart 1: GDP and Food Consumption
4,000
Food consumption (?)
GDP per capita (USD/capita)
3,500
3,000
2,500
2,000
1,50010,000 20,000 30,000 40,000 50,000
GermanyUK
US
Japan
AustraliaBrazil
China
India
ArgentinaIndonesia
Source: FAOSTAT, IMF1
An increase in meat consumption has a corresponding effect on the amount of grain needed to feed livestock, known as the “multiplier affect”. For example, livestock have an inefficient energy input to protein output ratio, meaning that they need to consume approximately seven kilograms of grain to increase their live body weight by one kilogram.2 This weight gain ratio provides another driver of agricultural demand.
A structural shift in commodities, food supply and demand
Global agricultural commodity markets have recently experienced exceptional price volatility, with record heights achieved in 2008, followed by a recent paring back in the face of the global financial crisis. The ascension of commodity prices in 2008 however represented the beginning of an ongoing structural shift, driven by several key themes and long term demand factors that will continue to place pressure on food supply. It is these factors that will ensure that food security remains high on national agendas in the future.
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Population growth
The size of the populations in countries such as China and India mean that these structural trends amplify many times over the demand placed on agricultural production.
Limited arable land and water
There is a diminishing amount of arable land available or viable for farming. Urban and population sprawl are rendering large tracts of land either unavailable for agricultural use, or untenable due to land degradation.
Due to mounting pressures on the arable land that is available for farming, and demand for food, productivity gains will need to be made.
Few technological leaps forward
In the past, agriculture benefitted from a significant and co-ordinated global effort into agricultural and scientific advancements, that came to known as the “Green Revolution.” The scientific and ecological leap forwards that resulted from this effort took place in the mid-twentieth century and saw investments and research efforts into new and more resistant crop varieties drive yields to record heights. But, the leaps forward in scientific advancements are now behind us.
Little investment, slowing harvest yields
Comparatively, agricultural advancement has won little attention or precedence on the world stage or on national agendas since the inception of the Green Revolution. Consequently, after decades of steadily increasing tonnage per acre, harvest yields are now growing at only 1.3 percent per year, barely half the rate of thirty years ago.3
Mounting demand and constrained supply factors are the results of longer term trends in agriculture. In addition, they present some of the major reasons as to why investment into food security is now high on every national agenda. Finally, shorter term cyclical factors have also played their part in driving up prices through 2008 and in causing a critical supply and demand gap.
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Urbanisation
The growing global population is on the move. Increasingly, people are treading the well worn path from rural to urban areas in search of work, improvements of living standards and in some cases, education. In the Asia-Pacific region alone, it is estimated that nearly 600 million people will move from rural areas to cities by 20207 and by 2030, the number of people living in cities is forecast to grow by an additional 343 million people (equivalent to 60% of the world’s population, up from around half currently.)8
This country to city migration has a well documented link to economic growth, but also, its impact can be felt on global food demand. As people gain access to a broader job market, their employment prospects increase. With work, comes higher disposable incomes and consumer spending power and on offer are a wider variety of food products, with a higher proportion of processed foods, and in greater quantity.
Chart 3: Growing Urban Population
1950
1960
1970
1980
1990
2000
2010
2020
2030
2040
2050
10,000
Milli
ons
■ Rural population ■ Urban population
9,000
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
Source: UN Secretariat9
Changing dietary patterns
In line with an increase in personal wealth, consumers will typically trade up from lower-value foods, such as staple grains, for higher value foods. The proportion of fats and sugars in diets should also rise. Moreover, an increase in personal wealth will support a substantial
The structural change in commodity and food demand is predominantly being driven by the following factors:
global population growth; ■
urbanisation ■
changing dietary patterns; ■
diversion of output to biofuels; ■
Global population growth
Most notably, the demand for food is being driven by the growth in the global population. The World’s population is projected to grow from its current base of 6.1 billion people, to 8.3 billion by 2030 and 9.3 billion by 2050.4 At current growth rates, that means there will an additional 79 million mouths to feed each year.5 Such forecasts present an indisputable dilemma: how to feed the mounting numbers?
Chart 2: Global Population chart
1950
1960
1970
1980
1990
2000
2010
2020
2030
2040
2050
10,000
Milli
ons
■ More developed regions ■ Less developed regions
9,000
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
Source: UN Secretariat6
In addition, there is also an en masse change at play in the living standards and diets of a vast number of people, due to the urbanisation and industrialisation of developing countries.
Demand factors driving the asset class
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increase in the demand for meat, eggs, fish, dairy products, fruits, vegetables and processed foods.
As personal wealth grows, fresh food storage in the form of refrigeration becomes affordable so meat consumption becomes practical and will only increase.
Finally, a large proportion of the population in the rapidly urbanizing and developing economies is young, and as this collective increasingly embraces Western eating habits, demand for higher-value food products, rich in protein and sugar, looks set to intensify.
Chart 4: Global Consumption Chart
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
2009
2001
2003
2005
2007
2009
1,800
Million tonnes
■ Corn ■ Wheat ■ Soybean
1,600
1,400
1,200
1,000
800
600
400
200
0
Source: Macquarie, USDA10
This list of factors supporting the increasing demand for protein rich foods will also trigger a ‘multiplier effect’ on grain consumption. As meat increasingly becomes the food of choice, for more and more people, more livestock will need to be bred. And, cattle, poultry, sheep and even fish are reared to a large degree in confinement systems where they are fed grains. Substantial future gains in beef, chicken and pig production are most likely to come from these intensive production systems, as arable land for farming is diminishing. In turn, demand for grains, used in the rearing and fattening of animals in confinement production systems will increase. Beef production in particular will enhance demand for grains, as it requires nearly twice as much grain as pork and nearly four times as much grain as poultry. It takes 7 kilograms of grain to
produce one kilogram of beef: the conversion is 4 to 1 for pork and 2 to 1 for chicken.11
Diversion of output to Biofuels
The growing biofuels market is another factor, that until recently did not exist, and is joining population and urbanisation trends to place a new level of demand on agricultural commodities.
Historically the main competition for the world’s staple food, in the form of grains, has been either feed for livestock and animals, or for human consumption. But now, the search for an alternative source of energy is afoot, and has effectively thrown another competitor in the queue. At the heart of this change is the realisation that oil reserves are finite and controlled by few. Also at play is a race to fuel the massive and emerging Asia. India and China’s economies alone are expected to grow by an average of 6.5% and 9.1% respectively by 2013, according to the International Monetary Fund12, as they do so, energy consumption will expand along with the pressure to find a cleaner, efficient source of fuel.
A cleaner alternative to gasoline, ethanol is domestically produced from a range of agricultural sources including corn, wheat and sugar, making it a renewable form of energy. It sits alongside biodiesel as the current, most accessible alternative fuel, which itself is manufactured from soybean, canola, sugar and other oilseed feed stocks and is already in wide use in domestic cars in Brazil.
After years of complacency, where dependence on oil was by and large accepted and finite supplies drilled for and contested, we have arguably witnessed a shift in thinking.
World fuel ethanol production tripled between 2000 and 2007 and is expected to double again between now and 2017 to reach 127 billion litres a year. Biodiesel production is set to expand from 11 billion litres a year in 2007 to around 24 billion litres by 2017.13
There are currently 41 countries with biofuel mandates. And the US is one of the nations leading the charge. The US government’s current ethanol mandates, outlined in the Renewable Fuel Standard charter are also set to increase to 11.2
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supportive to soyoil prices worldwide. In 2009/10 Brazil is expected to export 1.5mt of soyoil, while it is expected to consume 1.58mt for the domestic biodiesel industry.19
The growth of ethanol production has also led to competition between food and fuel, triggering a more immediate impact on food production, consumption and prices. In Brazil, for example that competition was clearly manifested in sugar prices at the end of 2009 and at the start of 2010. In January 2010, sugar prices sat at near 28 year highs leading sugar producers to shift their mills’ production capacity away from ethanol, to sugar, triggering a shortage in the domestic ethanol supply. In turn, ethanol prices in Brazil increased.20
In Organisation for Economic Co-operation and Development (OECD) countries, at least, the growth of biofuel production has thus far been driven largely by policy measures, and it is not clear whether the energy security, environmental and economic objectives of biofuel policies will be achieved with current production technologies. Even with the collapse in oil prices at the end of 2008 (which saw prices of gasoline in the US fall from a record of $4 in summer to an average of $1.66 by mid December)21 prices have since remained at levels higher than historical averages due in large part to increases in biofuel usage – a price support that we believe looks likely to continue, at least in the mid-term.
billion gallons by 2010 and expected to peak by 2015 at 15 billion gallons. Such demand is currently keeping US corn prices supported as it is the most positive consumption variable at the moment.14
Of the major factors which impact the profitability of ethanol production in the US, the prices of oil and gasoline are the most significant. High oil prices make ethanol more profitable to blend, and in 2008 oil prices soared globally to reach heights of $140 (bbl), providing a strong support, due to its comparative competitiveness of the cost of production. At prices of approximately $80/bbl ethanol profitability continued to remain competitive and well supported at the end of 2009.15
In addition, the cost of corn, the price of the by-product (Dried Distillers Grains) as well as ethanol's supply and demand outlook, all play a part in its overall profitability.
In only eight years from 2001 to 2009 ethanol’s share of the total fuel mix grew from 1% to 7%16 primarily through strong government support for the industry. Since the USDA’s World Agricultural Supply and Demand Estimates (WASDE) report began including corn consumption for ethanol in 2002 the share of corn devoted to ethanol production has risen from less than 10% to just less than 30% projected for the 2009/10 season17. Therefore ethanol is becoming an ever more important aspect of US corn demand.
The European Union has a mandatory target of 10% biofuel usage by 2020 as stipulated in the Renewable Energy Directive (2008) charter. Much of this may have to be imported from South America, and in particular from Brazil. While its biofuel market is not as developed as the US, EU Member countries must submit a "Renewable Energy Action Plan" by June 2010 and some member countries that have not had mandates may fall in line with the ambitions of countries such as France and Germany.
Brazil is the second largest producer and consumer of biofuels after the US and is the world's largest exporter. Brazil has also recently increased its biodiesel mandates from 4% to 5%, with a major input being soyoil.18
Consequently, for the first time, Brazil's domestic consumption of soyoil for biodiesel will match their export volume of soyoil. This is generally
Demand factors driving the asset class
7
8
Supply constraints driving the asset class
In addition to demand factors, the structural shift in commodity and food demand is also being propelled by supply side pressures. They include:
Land scarcity ■
Water scarcity ■
Slowing productivity ■
The unlikelihood of reinventing the ■
“Green Revolution”
Land scarcity
Rapid urbanisation and accompanying land degradation is rendering an increasing amount of land untenable for many forms of modern farming. The controversial subject of climate change is also a factor, if the world’s thermostat continues to rise, in turn making farming and high crop yields increasingly difficult to achieve and or requiring greater inputs of water.
Out of sync with population growth rates, the global area dedicated to the production of key agricultural crops has risen only modestly. Between 1961 and 2007 arable land grew at an average annual growth rate of 0.2%.22
Chart 5: Global Harvested Area
1998
/99
1999
/00
2000
/01
2001
/02
2002
/03
2003
/04
2004
/05
2005
/06
2006
/07
2007
/08
2008
/09
600,000
‘000
hec
tare
s
500,000
400,000
300,000
200,000
100,000
0
■ Soybean ■ Corn ■ Wheat ■ Rapseed
Source: USDA (December 2008), Macquarie23
Also concerning, is the fact that cities are often built on prime farmland, and nutrients are being transferred from farms to cities with little or no return flow. Consequently, urban areas have become the source of sewage flows, run-off and other forms of
waste that become environmental problems, often affecting surrounding rural areas. Types of land degradation include chemical contamination, soil erosion, nutrient depletion and salinity.
The problem continues to spread along with the urban sprawl, as in the US for example, where about 400,000 ha of farmland are lost to urbanization annually. On a greater scale, China lost about 5 million ha of farmland to urbanization during the period 1987–92.24
An estimated 23% of all usable land on Earth (excluding mountains and deserts, for example) has been affected by degradation to a degree sufficient to reduce its productivity.25 According to some estimates, world agricultural output could decrease by as much as one-sixth by 2020 due to climate change, which is expected to increase the risk of droughts and floods and exacerbate environmental damage leaving large areas of land unsuitable for crops or grazing.26
Due to these mounting pressures on land availability, the increased need for food and other agricultural products must be met by raising and sustaining crop and livestock yields and by more intensive land use.27
Water scarcity
Water scarcity is also a major constraint on agricultural production growth. Similar to the availability of arable land, the quantity and quality of global surface and groundwater resources is being jeopardized by the combined impacts of population growth and urbanization; rising wealth and resource consumption; and climate change.
According to UN data, by 2025, 1.8 billion people will be living in countries or regions with absolute water scarcity, and two-thirds of the world population could be under conditions of water stress – the threshold for meeting the water requirements for agriculture, industry, domestic purposes, energy and the environment. In stark contrast, the UN also estimates that in order to meet growing food needs agricultural water usage will need to increase by 50% by 2015, and double by 2050.28 The implications of this water requirement gap on farming activities are yet to be realised, but undoubtedly they will present a challenge, requiring, new infrastructure investments, such as water reclamation or desalination.
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This gap in supply and demand ultimately means that those with access to water and or water infrastructure may have increasing influence and clout in agricultural production and trade. As such, sound water management is likely to become an even greater pillar of success and longevity in scale farming.
Chart 6: Water scarcity chart
158
6
13
26
8
11
<1513
36
60
■ Share of available fresh water (%) ■ Share of world population (%)
Source: UNESCO:The United Nations World Water Development Report 1, 2003
Slowing productivity
Due to the limited amount of available arable land, the increased demand for agricultural crops, food and other agricultural products must be met by increasing yields. The modern dilemma however, is that just as cultivated area has stagnated, so too has global yield growth.
Chart 7: Global Crop Yields
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
6
tonn
es/h
a
■ Soybean ■ Corn ■ Wheat ■ Rapseed
5
4
3
2
1
0
Source: Macquarie, USDA (August 2008)29
One answer to the dilemma is the controversial use of biologically or genetically modified crops, or in the alternate and equally as divisive, is the possibility of using greater quantities of pesticides and fertilisers. Neither option provides the sole answer and increasing chemical inputs will only become increasingly costly as input expenses continue to rise.
Why the demand supply gap is different this time around
The fact that the world requires more food and higher yields from existing farmland is well documented. According to FAO, by 2030 average crop yields must climb from the current rate of 1.1 tons of grain per acre to 1.5 tons.30
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The Green Revolution
The Green Revolution refers to united efforts by scientists and botanists to breed higher yielding plant varieties specially suited to humid conditions in the developing world. New varieties of wheat, corn, and rice were also bred to resist fungus and insects and could tolerate higher amounts of nitrogen fertilizer, resulting in higher global yields and scale crops across formerly unfarmed areas. Irrigation methods were also improved and scientific advancements saw new chemical fertilisers on the market.
In the past, growing demand was met thanks to a significant and co-ordinated global effort into agricultural and scientific advancements. In the wake of the 1930s Great Depression, concerns mounted over whether there would be enough grain supplies and food to continue feeding the population. As a result, there was a combined focus and funding effort by governments, private industry and foundations. The associated transformation of the entire food production system stemmed from programs of agricultural research, extension, and infrastructural development, which were instigated and largely funded by the Rockefeller and Ford foundations, among other major agencies. Due to the size of the enhancements in global grain harvest yields, and the fact that it enabled grains to be grown in previously untenable areas, it came to known as the ‘Green Revolution.’
Countries that were previously food importers became net exporters. Mexico, previously, a wheat importer of approximately 50 percent of its total consumption, was self sufficient by 1956 and by 1964, an exporter of half a million tons of wheat.31 Similarly, India saw annual wheat production rise from 10 million tons in the 1960s to 73 million in 2006.32
These technological advancements allowed the world to keep pace with worldwide population growth to date, and it’s widely reckoned that it is the reason the average person in the developing world consumes approximately 25% more calories per day than pre 1945.33
Crop yields exploded, with world grain production increasing by over 250 percent between 1950 and 1984 resulting in an oversupply of food,
which saw a corresponding fall in the ‘real’ price of food.34
More recently however, after decades of steadily increasing tonnage per acre, yields are growing by 1.3 percent a year, barely half the rate of thirty years ago and slower than demand is growing.35
In 2006 the FAO Director General Jacques Diouf called for a second Green Revolution, but admitted that it may not be so easy to replicate in today’s environment.
“The task ahead may well prove harder,” he continued. “We not only need to grow an extra one billion tonnes of cereals a year by 2050 – within the lifetimes of our children and grandchildren – but do so from a diminishing resource base of land and water in many of the world’s regions, and in an environment increasingly threatened by global warming and climate change.” 36
Further improvements may require greater use of biotechnology which faces much opposition, particularly in Europe.
During the Green Revolution increased investment in dams, reservoirs, and canals allowed previously rain-fed land to be irrigated. Whereas today, climate change, urbanisation and expansion of industry are making water increasingly scarce, providing another hurdle that will have to be overcome if we are to increase the supply of agricultural commodities.
The higher yielding plant species that were introduced as a result of the Green Revolution also required higher usage of hydrocarbon-based pesticides and fertilisers. As a result, agriculture became vastly more energy-intensive. Today, increased use of fertiliser and chemical is constrained due to rising input costs. At the same time, we are more environmentally aware and as a result there is an increased focus on the need for a ‘greener’ Green Revolution.
Since the 1960’s, there has not been the same combined effort towards increasing agricultural productivity. By comparison, relatively few of the World’s leading foundations have the same sole focus on revolutionising farming production.
Rich countries, in particular, have had less focus on agricultural science in recent decades. Since
Supply constraints driving the asset class
11
Caribbean and Asia. Suddenly by 2008 food security was high on every national agenda. Traditional exporters such as China, Brazil, India, Indonesia, Vietnam, Cambodia and Egypt reacted by imposing strict export bans on rice. Elsewhere, countries such as Argentina imposed high tariffs blocking export of wheat and other grains, only serving to drive up prices even higher for net food importers.
Almost just as swiftly, the commodity price bubble came to an end, with the abrupt slowdown in the global economy precipitated by the financial crisis. The dual impact of slowing GDP growth, together with indications of high harvest yields in some crops combined to drive prices down. By some estimates, agricultural commodity prices have fallen by 16.2% for the year to November 200940. However, this subsequent fall in commodity prices has not been as dramatic as its rise. The prices of many commodities have consolidated to around 2007 levels. And, the FAO remains worried that the price hikes of 2008 may yet be seen again and do not anticipate pre-2006 prices ever returning.41
Why the short term price volatility?
In the lead up to 2008, long term demand factors joined a combination of shorter term factors to create what was a ‘perfect storm’ for agricultural commodity prices.
Those shorter term factors included:
Market rallies, oil price hikes and a low Dollar ■
Low inventories ■
Government intervention ■
The impact of trading instruments ■
and speculation
Market rallies, Oil price hikes and a low US Dollar
On the economic side, the commodities price boom was set against a backdrop of strong global economic growth, supported by remarkable financial conditions.
In particular, low interest rates, the depreciating US Dollar exchange rate and favourable liquidity conditions all pushed the trajectory of global stockmarkets. This led to a global stock market capitalisation new record of close to $60 trillion
the 1980s public investment in farm science has stalled, with one sample of 21 first world countries revealing that real public spending on agricultural research and development reversed its traditional upward path after the 1980s and began declining at an annual rate of 0.6% in the 1990s. In his book “Starved for Science” Robert Paarlberg comments that Increasingly in the US, spending goes towards downstream processing, not on farm productivity. Paarlberg adds that in Europe, the surplus production after the Green Revolution led to a shift away for public spending for agricultural science, and in the UK, farm research began falling at an annual rate of -0.2% as early as the 1980s.37
It is also highly debatable whether, given the current global economic conditions, whether governments in developed countries have the political will to tackle the issue of food security, particularly if it is not considered a pressing issue domestically.
This combination of factors, coupled with the ongoing demand coming from industrialising BRIC economies, mean that farmers will struggle to keep up with increasing demand. For the first time in decades higher raw material costs for food manufacturers are being passed on as ‘real’ price increases to consumers.
It is not that the supply cannot be increased, but there is no immediate short-term solution. Achieving increases in supply is long-term project that requires a co-ordinated global effort.
Price volatility – does the story still hold true post 2008?
Between 2006 and 2008 average world food prices escalated dramatically. For example, the average world price for rice rose by 217%, reaching a ten year high, wheat rose by 136%, corn by 125% and soybeans by 107%. By late April 2008 rice prices had more than doubled in just seven months, as did milk and meat prices, in some countries.38
The impact of this price volatility was felt globally, creating political and economical instability and social unrest in both poor and developed nations. Total food import bills rose by an estimated 25% for developing countries in 200739, resulting in protests and riots in Africa, South America, the
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in 2007, according to the World Federation of Exchanges.42
Over the twelve months to September 2007, world stock markets increased in value by 31%, adding $14 trillion of new stock market wealth to the world economy in just a year.43
More impressive was the run up in stock market capitalisation over the five years from 2002 to 2007, which saw almost $40 trillion of stock market wealth created, as the global market capitalization rose from about $20 trillion in September of 2002 to almost $60 trillion in September 2007.44
During this five year period, more stock market wealth was created than was created during the thousands of years it took to create the first $35 trillion of stock market value reached in 2000.45
Similarly, the US Dollar exchange rate affected commodity prices because most commodities, including crude oil, precious metals, industrial metals, as well as grains, are priced in US Dollars. The effective dollar depreciation seen over the past few years consequently made commodities cheaper for non-dollar denominated consumers, spurring on demand.
In addition to rising stock markets, demand for oil from rapidly industrialising China, India, and the Middle East accounted for more than 56 percent of the growth in oil consumption during 2001–07. This level of demand pushed crude oil prices to new heights, reaching the $140 per barrel mark by mid 2008.46
Higher oil prices meant higher input costs for farmers using oil to fuel machinery, which in turn translated to higher end prices in commodities.
In turn, biofuels benefited from the higher price of oil. At prices comparative to $140 per barrel for oil, biofuel is a very competitive source of fuel. According to some commentators, while biofuel is comparatively more expensive to produce than petroleum-based transport fuels at current prices, it can become competitive as oil prices climb. (The exception to this is ethanol from Brazilian sugar, which is competitive with petrol at international oil prices of above $35 per barrel.)47 Bearing that in mind, reports that state we have just a few years left before production reaches its peak, together
with the fact that it is a finite resource, we believe may provide some support of biofuels, and in particular for corn prices, in future.
Low inventories and poor weather
In the face of this heated environment, there was also a trend that was being played out on the commodity-specific side.
Agricultural supplies were tight even in the lead up to 2008. Stocks of major food crops (including wheat and corn) in 2008 were at a two-decade low, so much so that when the 2008 harvest began, world carryover stocks of grain were at 62 days of consumption, a near record low.48
In such a heated macro-economic environment, prices tend to be highly sensitive to news flagging possible supply shortages. And the news had already flagged weather related production problems. Droughts in major wheat-producing countries in 2005-07 were well documented and harvests in 2006 and 2007 for many grains fell below expectations.49
Consequently, global concern mounted and influential voices recognised just how sensitive the world’s inventories are to both the seasonal decisions made by farmers planting crops, but also to short term weather events.
Government intervention preventing free market trade
As stocks fell and prices impacted domestic food consumption, governments from both grain importing and exporting countries began implementing adverse government policies.
In Africa, some governments cut grain import tariffs and provided state subsidies to importers while others banned exports of main cereals and began grain stockpiling, or taxing other goods to provide grants for food. In mainland China, the Government removed the value added tax (VAT) export rebate on most grains and introduced export duties of up to 20%. Looking to secure food for its vast population, the Indian Government removed import duties and increased the minimum export price of rice. Likewise in Asia, Latin America, the Caribbean and Europe similar policies aimed at securing food stocks were imposed.50
Supply constraints driving the asset class
13
However, this government led intervention had the opposite effect. As in the past, where attempts to deal with commodity price volatility relying on direct government intervention (for example, price stabilization schemes, floor prices, and guaranteed prices) proved generally unsuccessful – so too were efforts in 2008. The World Bank listed 21 countries that had controls on strategic staples in 2008, according to a Reuters report in early 2008.51 In the absence of the moderating force of an open market and global free trade, commodity prices continued to overreach until after July 2008, when the exchange rate of the U.S. dollar appreciated against major currencies. At the same, energy prices collapsed, influenced by changes in income and exchange rates. Lower energy prices in turn also constrained the profitability of ethanol, contributing to weaker commodity prices.
The impact of spot prices
Grain prices were also more directly exposed to various macro financial shocks than ever before due to the expansion of spot prices and exchange-based trading. Trade in over-the-counter derivative instruments has also expanded, and some suggest it may be many times larger than trade in organized exchanges. And, with many futures contracts
settled in cash rather than through the delivery of the underlying commodity, investors outside the commodity business can now use commodities to diversify their portfolio, thereby more closely linking futures markets for commodities with other financial markets.
Debates also continue regarding the extent to which the price explosion of 2008 was driven, in part, by speculation at some of the major trading desks at global banks. The simultaneous increase in prices and in investor interest driven by speculators and index traders in commodity futures markets in recent years, have the potential of magnifying the impact of supply-demand imbalances on prices. However, while global market uncertainty and trading volatility can leave commodities exposed, and have a short term impact on prices, such speculation is dated. Equally, just as it is a symptom of short term uncertainty, speculation is also limited in the impact it can have on a long term build up of commodity prices as a whole, and ultimately on demand for food. Even in the face of what could one day be a repeat of day trading momentum on commodities exchanges, long term structural demand factors in agriculture will remain unhindered by such stock market activity.
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Portfolio benefits of investing in agriculture
Rebalancing the equities glut – and benefits of real assets
In the aftermath of the Global Financial Crisis of 2008, diversification has become an even greater imperative for investors. Portfolios overloaded with equities or highly correlated assets suffered severe losses through 2008 and much of 2009.
OECD country pension funds were heavily hit by the financial crisis in 2008, recording real losses of US$5.4 trillion in value, it total. Australian funds lost 26.7% in value, US funds, 26.2% and UK funds 17.4%.52
Much of these losses were attributable to high portfolio allocations to equity markets, according to the OECD. Investment losses in Australia the UK, Ireland and the US were particularly large because of the large share of equities in pension-fund portfolios.
In Australia for example, they sat at around 57% before the crisis hit, compared with an average of 36% in the 20 OECD countries where data are available.53
Similarly, in the US the share of equities in pension-fund portfolios was around 59% before the crisis,54
and in the UK equities in pension-fund portfolios accounted for around 60% of portfolios.55
In its biannual report ‘Pensions at a Glance 2009’ the OECD now proscribes reforms that include providing protection against equity market volatility in future, involving ‘an automatic switch to less risky investments as people near retirement.’56
Reforming pension systems now to make them both affordable and strong enough to provide protection against market swings citizens will save governments a lot of financial and political pain in the future.”
OECD Secretary-General Angel Gurría57
Investments with lower correlations to other asset classes, such as agricultural and real assets, can help to provide some rebalance through significant diversification away from equities, but also bonds and property, which make up the lion’s share of the traditional portfolio mix. The table below shows the correlation between agricultural commodity prices, real estate and the S&P 500 which represents the return to equities.
Correlation between asset classes (1991 – 2008)
Farmland TimberlandUrban
Real Estate CBOT SoyCBOT
Wheat CBOT Corn S&P 500 BondsListed
PropertyFarmland 1
Timberland 0.95 1
Urban Real Estate 0.98 0.89 1
CBOT Soy 0.50 0.40 0.49 1
CBOT Wheat 0.55 0.40 0.57 0.84 1
CBOT Corn 0.47 0.36 0.46 0.89 0.84 1
S&P 500 0.75 0.85 0.72 0.12 0.14 0.09 1
Bonds* 0.97 0.93 0.95 0.51 0.52 0.43 0.71 1
Listed Property** 0.91 0.85 0.95 0.35 0.44 0.32 0.76 0.87 1
Source: CBOT, Bloomberg, NCREIF, Macquarie* J.P. Morgan Global Aggregate Bond Index (JPM GABI)
** FTSE EPRA / NAREIT Total Return Index
In addition, agricultural investments can increase portfolio returns, and or reduce overall portfolio risk.
In the US, farmland investments as an aggregate asset class have the favourable characteristics of positive correlation with inflation and low or even negative correlation with many other equity classes and corporate debt. Similarly in an Australian context, the returns on both unlisted farming operations and listed
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Chart 8: Consumer Price Indexes (HICP and US CPI)
Other 84%
Food &beverage
16%
Food 16%
Other 73%
Restaurant& cafés 7%
Alcohol & tobacco4%
Source: Bloomberg60
In addition, total returns from farmland and other real assets have shown positive correlation to movement in inflation. In the US, correlation between the total returns to farmland and CPI between 1991 and 2008 was above 0.9.61
Unlike base metals, food is one commodity that is not discretionary. Hence governments need to respond to any threat of insufficient supply or they risk voter backlash or social unrest. Government responses may include export constraints, or investing in agricultural production in other countries. Both historically and today some governments are arming themselves for food security, by making sizable foreign investments via their sovereign wealth funds and by “land grabs” in emerging markets, in particular, in Africa. It stands to reason that farmland asset values should be positively impacted, as food security continues to be a priority for governments and gain exposure in the press and through organisations such as the FAO.
agribusiness companies have historically been negatively correlated to the returns of other asset classes and industries.
Low relationship to economic cycles
Food demand for grains remains the core base of demand for agricultural commodities. The demand for food is relatively inelastic to income, making demand for agricultural commodities less subject to an economic slowdown. This is evidenced when you consider that consumption of key agricultural commodities has continued to grow through previous economic downturns and wheat, which is the primary food grain, has been shown to be relatively inelastic to price and income over a sustained period.
An inflation hedge strategy
In the face of what has been a global and collective stimulus effort, inflation concerns are suddenly back on the radar. According to World Bank estimates, headline inflation is projected to pick up in 2011 to nearly five percent, as underlying core inflation once again becomes the dominant influence on overall rates of price changes.58
Such figures have highlighted the danger of combined stimulus and lower interest rate policies, and have some investors talking about inflation concerns, and possible inflation fighting measures.
Comprising large parts of the inflation basket, agriculture is a major driver of inflation. Owners of agricultural assets producing food will consequently stand to benefit if food prices go up which may help create a hedge against inflation.
In Europe, food and other related items account for over a quarter of the Harmonised Index of Consumer Prices (HICP) which is a consumer price index, used by the European Central Bank (ECB) as an indicator of inflation and price stability. In the US, food and beverage accounts for more than 15% of the consumer price index (CPI), a measure estimating the average price of consumer goods and services purchased by households by measuring the price of a standard group of goods meant to represent the typical market basket of a typical urban consumer. In low and middle income countries the share of food in the CPI is substantially higher.59
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Mitigating Agricultural RisksAgriculture, like any investment, is subject to a number of associated risks such as: drought; disease; desertification; fire; commodity price volatility; rising interest rate movements for the leveraged investor; political risks, etc. However through having a thorough understanding of the investment, and by utilising careful due diligence and management practices the majority of these risks may be mitigated upfront.
Weather events
Seasonal conditions such as drought and unexpected weather events such as fire, storms or frosts mean that a proportion of the risk and returns from agricultural investments are out of the direct control of operators and investors.
The impact of droughts can be managed, to a degree, at the farm level by installing infrastructure such as irrigation and watering points for livestock. But it is through a diversification of property locations and hence rainfall that this risk can be mitigated further.
A single property is a far greater risk than a portfolio of properties, particularly if the portfolio of properties is diversified across climatic zones. Adequate diversification in the underlying portfolio will help protect agricultural investments against the full impact of inevitable environmental factors. Geographically diversified properties, spread across different climatic zones mean you can capture the characteristics of different seasons in different areas, many of them good, but also are not exposed to adverse climatic developments across the entire portfolio.
Such diversification can also smooth volatility in portfolio returns, as there is always a collection of different crops either growing or being harvested to sell at one time. Consequently, it is possible to achieve sales of a variety of products throughout the entire year, so that income flow is more regular and cash flow requirements and variability is minimised.
Disease
In recent times livestock diseases such as Bovine spongiform encephalopathy (BSE) or “mad cow” disease, foot and mouth disease and swine and
bird flues have hit headlines. Often times, these developments are a result of, or are spread through poor conditions and or deficient animal husbandry practices.
Additionally, crop plagues can also be problematic as fungus or insects infest paddocks and harvests.
While the risk of disease can never be completely eradicated, operational controls that maintain strict standards can help to minimise their eventuality or impact.
In the case of managing animal infections such measures include maintaining environmental conditions; maintaining checks on incumbent or recently purchased animals and limiting herd or flock sizes. In addition, vaccinations are available for some diseases and parasites and strict management of this within flocks or herd can help to avoid infliction from various diseases.
Crop damage by infestations can likewise be mitigated through use of a combination of fertilisers and chemical agents, which can help to prevent infestation of fungus and or limit any damage sustained.
But moreover it is by having established risk management and due diligence policies, along with diversification of properties, that the risk of contamination or spread of disease can be contained and, or its affects on portfolio returns minimised.
Land valuations
As with any investment, the price at which an asset is purchased has a major impact on the performance of a portfolio. Again, diversification across geographic areas can mitigate the risk of land values trading sideways in difficult economic environments. Purchasing properties that have been identified as having recognisable performance history in relation to primary production is a way to reduce acquisition risk.
Prices
Traditionally agricultural producers have been price takers. Income returns are heavily influenced by commodity prices which are set on the world market, broadly on the basis of supply and demand factors, but which are
Portfolio benefits of investing in agriculture
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multiple property ownership, with geographic ■
diversification providing flexibility to manage drought conditions and take advantage of stock trading opportunities as they arise;
investment in a highly experienced ■
management team; and
access to capital for continued growth. ■
The structure of the investment plays a large role in how the returns will be derived. In order to maximise return and mitigate risk, investors should seek out investments which are adequately diversified. For example, Kaplan63 studied the diversification potential on farmland ownership and found that in order to reduce the volatility of farming, large enough scale was required in order to have land across several regions, and capable of producing many varied crops.
The chart below demonstrates the relationship between scale and profitability by showing that as cattle herd size increases, profit also increases as a percentage of farm equity.
Chart 9: Specialist Beef Producer Performance: Cash Income as a Percent of Far Equity Average 1979 – 2008
Cash
Inco
me/
Farm
Equ
ity
Farm Size – No. Cattle
0.005
0
0.010
0.015
0.020
0.025
0.030
0.035
0.040
>300 300-600 600-1,200 1,200+
Chart 11 demonstrates that the relationship between productivity and scale. The better-run (i.e. more productive) mid sized farms generate greater returns in percentage terms than the average of their larger peers. Ultimately, large scale productive properties generate greater returns than their smaller counterparts.
also impacted by quotas, import controls and other trade distortions. Historically, producers have often been in a weak position relative to produce purchasers, which are usually large corporations. Additionally there has been a lack of competition amongst purchasers within geographic regions.
In the face of such compelling fundamentals propelling demand for food, it’s likely that as the factors play out, primary producers will regain pricing power, and food manufacturers will pass on higher raw materials costs to consumers.
Productivity growth
The competitive position of either an agricultural industry, or the broader agricultural sector, depends not only on relative productivity growth with other countries, but also on how it performs relative to other activities competing for those same resources domestically. Unfortunately, international comparisons of productivity growth are difficult to make and interpret because of differences in methods, data and observation periods.
Over the period 1980–2000, Australia and the US have had similar rates of productivity growth and this has been well above average for agriculture in OECD countries. Productivity growth in Australian agriculture has been up to four times higher than the average productivity growth for the economy as a whole. For a selection of OECD countries, productivity growth in agriculture has averaged twice that in other sectors. Hence, the comparative advantage of Australian agriculture has improved.62
Operational Scale
The prevalence within the agriculture sector of small owner-operators who are driven by social, family, lifestyle and historical factors as much, or more than financial drivers, often means these operators do not have access to scale and cost efficiencies.
Operating profits can be increased through building scale and leveraging the accompanying benefits:
reduced per unit costs of production; ■
investment in technology and genetics to ■
enhance on-farm efficiencies;
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Chart 10: Scale and Productivity
8%
6%
4%
2%
0%
Aver
age
smal
l far
m
Aver
age
med
ium
farm
Top
med
ium
farm
Aver
age
med
ium
farm
Top
larg
efa
rm
Top
smal
lfa
rm
-2%
-4%
How to derive returns from agricultureOverall returns from investment in agriculture can be derived from four basic sources;
1. through inflation linked capital growth of the commodity the farm produces;
2. inflation linked capital growth of the underlying land;
3. via operating revenue; and
4. land development resulting in higher revenues and appreciation of land values
Capital inflation linked appreciation of commodities
Investors in agriculture, who are particularly interested in liquidity and deriving profits from more short term sources than land value appreciation, can do so through the capital appreciation of inflation linked commodities, that is by buying futures contracts for example in the underlying commodity of the farming activity can for example, be a type of inflation hedge strategy. By forward selling contracts in wheat or soybeans, for example, investors can also derive profit from the arbitrage between and the real and contract price, in the process taking a bet on future inflation driving up prices.
The most liquid and often traded tools are inflation linked derivatives, which attempt to
capture the price return of the commodity futures market. However investments in agricultural production with tangible underlying assets, can also allow for real exposure to the capital inflation linked appreciation of the commodity in question.
Capital inflation linked appreciation of underlying land values
Land values have increased incrementally over time. In Australia for example, the Agricultural Price Index (AGPI), which tracks prices of land per hectare, reveals an increase of approximately five fold of the price of Australian land from 1980 to 2009 as evidenced in the chart set out below.
Chart 11: Index of $/ha for property sales over 2,000 ha – Base of index 1980 = 100.0
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
700Index of $ per hectare
600
500
400
300
100
0
200
■ AGPI ■ Trend
Generally speaking, this data falls in line with global trends for land prices, a structural shift which is supported by the diminishing amount of arable land available globally for large scale farming. For example, the National Council of Real Estate investment Fiduciaries (NCREIF) Farmland index, a quarterly, return measure of a large pool of individual commercial real estate properties, has suffered only one quarterly loss since launching in 1992 – 0.01% in the fourth quarter of 2001, while USDA figures suggest that during the high-inflation periods of 1944-1947 and 1975-1981 farmland returns exceeded US CPI by 2% and 6.6% respectively.64
Portfolio benefits of investing in agriculture
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Operating revenue
Operational revenue is derived from the sale of underlying agricultural commodity.
The demand factors supporting increased consumption and appetite for protein, demand for food in general, and in particular for meat from emerging market economic growth, should provide a support for agricultural commodity prices over the longer term.
Agricultural Exposure – how to investThere are a number of different investment options available to investors looking to gain exposure to the agriculture sector. Each of these options will provide varying levels of return and exposure, ranging from passive to direct which will in turn influence the returns.
Equities
Liquidity is one of the major attractions of gaining exposure to agriculture via listed equities.
The challenge with investing in agriculture via equity markets is that the listed universe of agribusiness companies is relatively limited. For example The DAX Global Agribusiness Index, derived from the MSCI World Index, comprises only 565 companies in total, with a total market capitalisation of USD $2,905,391.
In addition, the definition of what constitutes an agribusiness company is very broad. For instance, beer manufacturers which could arguably be considered consumer stocks, and therefore exposed to a different set of return drivers and economic factors, are included within the DAX Global Agribusiness Index. Only 62.8% of the global listed DAX universe is made up of companies that are actually involved in what is broadly defined as “primary production”. Measured by market capitalisation this represents only 34.4% of the index. A high proportion of these companies however are in fact producers of chemicals and fertilisers used in agricultural production, or are manufacturers of farm machinery. Agricultural chemical companies make up 27.6% of the DAX total of companies, or 50.8% of the index in market capitalisation.
Land Development
The capital appreciation of agricultural land can be further aided through development work and via operating improvements which should drive gross margins and improve the operating efficiency of farms. Development examples include, installation of additional watering points for livestock, clearing land for crop based activities and through new fence installation.
The operating efficiencies of smaller sub-economic farms can be improved by combining two or more of them into one larger aggregation in order create economies of scale.
The charts below refer to the average rate of return for ‘medium to smaller scale’ farms carrying approximately 1,200 cattle or more, and 10,000 sheep or more, compared with the largest scale and most successful farm holdings in Australia. A 2.9% average rate of return difference exists between the smaller to medium sized cattle farms and those with greater operating efficiencies, created through scale. In sheep farms, the difference in operating efficiencies is even greater, with a 3.7% different between smaller operators and the top 25% performers.
Specialist Beef Farms – Rates of Return & Volatility 1979-2005
Farms with 1,200+ Cattle
Top 25% Performers
Average Rate of Return 11.2% 14.1%
Standard Deviation 14.1% 13.1%
Sharpe Ratio 0.8 1.1
Specialist Sheep Farms – Rates of Return & Volatility 1979-2005
Farms with 10,000+ Sheep
Top 25% Performers
Average Rate of Return 8.8% 12.5%
Standard Deviation 10.6% 10.9%
Sharpe Ratio 0.8 1.1
Source: ABARE Farm Survey65
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Similarly farm equipment companies make up 6.2% of the index, or 14.2% in market capitalisation, while the rest is a balance of agricultural related companies.66
As such, a number of the listed stocks that fall within the agricultural category may have closer return and risk correlations with pure equity and or consumer stocks, and similarly provide little real exposure to the agricultural thematic.
Listed agricultural companies may not offer the desired diversification benefits due to their exposure to market risk and resultant higher correlation to the general equity indices. This market risk in turn leads to confusion regarding the return drivers of the underlying stock. Agriculture is a long-term investment, whereas shares prices are often driven by short-term factors.
Product manufacturers looking to take advantage of investment opportunities in the agricultural sector have brought a number of fund offerings to the market. In general terms these products aim to tap into the agricultural story by investing in listed companies aligned with the agricultural sector. One of the drawbacks, dependent on the fund and style of investment, can be that the definition and mandate of the fund may be very broad, resulting in dilution of the levels of exposure to agriculture.
Futures
Similarly, commodity futures are an alternative way to gain exposure to individual soft commodities; this strategy is useful for gaining short term exposure to the spot prices with the intention of making profit through speculation. Due to the short timeframe and the intention to predict the trends over this period, this strategy may limit true exposure to the agriculture theme, and therefore miss out on the underlying growth and diversification benefits gained from a more pure play strategy.
Direct investment
Arguably, the most direct and pure exposure to agriculture currently available is via exposure to real assets; being the land, livestock assets or crops. Returns are in the form of any increase in the value of property; livestock increase in value driven by rising meat prices based on the
quality of the meat, herd size growth through natural increase and expansion of breeding the livestock; and the returns from harvesting crops or selling livestock. Income results from sales of the commodity produced on the land.
One way to tap into this direct exposure is via the owner/operator model. The benefit with this model is the level of control over key decisions relating to the running of the property such as timing around harvesting, sewing crops, which crops to plant, and the sale of livestock to name a few. However, given the level of responsibility which rests with these property managers, it is important to undertake a substantial level of due diligence into the manager of the property. Ensuring the manager has the relevant experience and knowledge is clearly going to be important in terms of the overall return delivered from the property.
A slight variation to the owner/operator model is the leasing of the property or livestock. While there may be advantages to this method, such as tax benefits, there are also a number of risks, such as contractual risk, should one of the parties involved not meet their obligations. In addition, in the leasing model there is the risk of an inherent misalignment of interests, while in an owner/operator model the interests of all involved are aligned to that of the investor.
Farmland ownership and farming are two very different things. By owning the land, an owner will realise the increase in the value of land and, if renting the property out will also receive this income. Farming on the other hand, is the operation of growing crops or raising livestock on the land without the benefit of capital growth on the land. In addition renters of the land are not incentivised to adequately maintain the land; rather they may engage in over-intensive farming practices which benefit them in the short term at the expense of the long term quality of the land. Inherent within this model is the tension between maximising short-term income returns versus maintaining the productivity of the land over the long-term.
Gaining exposure via the owner/operator model allows investors to benefit from a diversified combination of commodity prices, land values, and operating efficiencies and profits. Less liquidity is outweighed by diversified return sources.
Portfolio benefits of investing in agriculture
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ConclusionGlobal agricultural commodity markets recently experienced unprecedented price volatility, however we predict that prices are likely to remain above historic levels, due to a number of factors influencing the supply and demand dynamic. Demand is increasing due to population growth, changing diets, increased income and demand for biofuels, while at the same time supply is constrained due to the availability of arable land and water, the inability to increase yields materially and government policies. As a result, we believe that prices are likely to remain at elevated levels.
For more information about Macquarie Agricultural Funds Management, please contact: Tim Hornibrook, MAFM Divisional Director
P: +61 2 82320579 F: +61 2 82329999 E: [email protected]
Macquarie Agricultural Funds Management Macquarie Group Limited 1 Shelley Street, Sydney NSW 2000 Australia
Conclusion
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Footnotes
1 International Monetary Fund, World Economic Outlook Database, October 2008; FAOSTAT, FAO Statistics Division 2009, 27 August 2009
2 'United States Leads World Meat Stampede,' Worldwatch Institute, 2 July 1998, http://www.worldwatch.org/node/1626
3 Paul Roberts, ‘The End of Food’ the coming crisis in the world food industry, Bloomsbury, GB, 2008. 213.
4 Population resource centre: http://www.prb.org/Publications/Datasheets/2007/2007WorldPopulationDataSheet.aspx)
5 Macquarie Research Economics, Australian Economics, 18 February 2008
6 Population Division of the Department of Economic and Social Affairs of the United Nations Secretariat, World Population Prospects: The 2008 Revision, http://esa.un.org/unpp
7 Bunge, The Role of Brazilian Agriculture in Human Development, www.bunge.com/public/pdfs/RoleofBrazilianAg.pdf
8 Macquarie Research Economics, Australian Economics, 18 February 2008; Population Division of the Department of Economic and Social Affairs of the United Nations Secretariat, World Population Prospects: The 2006 Revision and World Urbanization Prospects: The 2007 Revision, http://esa.un.org/unup
9 Population Division of the Department of Economic and Social Affairs of the United Nations Secretariat, World Population Prospects: The 2008 Revision, http://esa.un.org/unpp
10 Macquarie Research, Agriculture: overall, still a positive outlook, Sept 2008, p5
11 Worldwatch Institute July 2, 1998 ‘United States Leads World Meat Stampede’ http://www.worldwatch.org/node/1626
12 IMF World Economic Outlook April 200913 FAO news release, http://www.fao.org/newsroom/en/
news/2008/1000849/index.html)14 Macquarie Research, Agricultural Commodities Briefing, 8 September
2009. ‘US Ethanol Policy Update: Short-term optimism, longer term constraints,’ Kona Haque
15 Macquarie Agricultural Research, Macquarie Securities Group 201016 Macquarie Research, Agricultural Commodities Briefing, 8 September
2009. ‘US Ethanol Policy Update: Short-term optimism, longer term constraints,’ Kona Haque
17 Macquarie Research, Agricultural Commodities Briefing, 8 September 2009. ‘US Ethanol Policy Update: Short-term optimism, longer term constraints,’ Kona Haque
18 Macquarie Agricultural Commodities Research Division, memo 12 November 2009
19 ibid20 Macquarie Agricultural Research, Macquarie Securities Group, 201021 ‘Big Oil Projects in Jeopardy by Fall in Prices,’ Jad Mouawad, New
York Times 15 December 2008, http://www.nytimes.com/2008/12/16/business/16oil.html
22 OECD-FAO Agricultural Outlook 2009-2018, p5623 Macquarie, Agriculture: overall, still a positive outlook, Sept 2008, p424 United Nations Population Fund, UNFPA State of the World Population
2001, Ch 3 ‘Development levels and Environmental impacts’ (http://www.unfpa.org/swp/2001/english/ch03.html)
25 UNEP Global Environmental Outlook 3 February 2002 (Chapter 2: Land)26 Macquarie Research Economics, Global Vision – Agflation, 15 April 200827 UNEP Global Environmental Outlook 3 February 2002 (Chapter 2: Land)28 United Nations commission on sustainable development, ‘The Food
Crisis and Sustainable Development’ May 2008. P2, http://www.un.org/esa/sustdev/csd/csd16/documents/bgrounder_foodcrisis.pdf
29 Macquarie Research Underlying Data for Charts, Email from Kona Haque30 Paul Roberts “The End of Food”, the coming crisis in the world food
industry, (Bloomsbury, GB), Pg 21331 Rand Organisation: www.rand.org/pubs/occasional_papers/2007/
RAND_OP179.pdf32 ‘The End of India’s Green Revolution?’ BBC News.29 May 2006
http://news.bbc.co.uk/2/hi/south_asia/4994590.stm33 Conway, Gordon (1997). The doubly green revolution: food for all in the
twenty-first century. Ithaca, N.Y: Comstock Pub. ISBN 0-8014-8610-6. Chapter 4
34 Kindall, Henery W & Pimentel, David (May 1994). "Constraints on the Expansion of the Global Food Supply". Ambio. 23 (3). http://dieoff.org/page36.htm.
35 Paul Roberts “The End of Food”, the coming crisis in the world food industry, (Bloomsbury, GB), Pg 213
36 FAO Director-General appeals for second Green Revolution’ FAO, 13 December 2006, http://www.fao.org/newsroom/EN/news/2006/1000392/index.html
37 “Starved for Science” Robert Paarlberg, Harvard University Press, US, 2008 Pg 77.
38 Financial speculators reap profits from global hunger, Stefan Steinberg, Centre for Research on Globalisation, http://globalresearch.ca/index.php?context=va&aid=8794
39 Rising Food Prices: A Global Crisis, Overseas Development Institute, 22 April 2008.
40 Aus Food News, ‘commodity prices continue to fluctuate’ November 19 http://www.ausfoodnews.com.au/2009/10/26/food-commodity-prices-continue-to-fluctuate.html)
41 Ibid.42 Economist Blog, 29 October 2009 http://www.economistblog.
com/2007/10/29/global-stock-market-capitalization-sets-new-record/43 Ibid44 Ibid45 Ibid46 IMF, FT report: IMFarticle:http://www.imf.org/external/pubs/ft/
fandd/2008/03/helbling.htm). 47 Opportunities for Biofuels and Biomass in the Region, Thomas Legge,
October 2008. UNDP, LSE http://www.developmentandtransition.net/index.cfm?module=ActiveWeb&page=WebPage&DocumentID=687
48 IMF, quoted in, http://www.scientificamerican.com/article.cfm?id=civilization-food-shortages) IMF article: http://www.imf.org/external/pubs/ft/fandd/2008/03/helbling.htm
49 ABARE, Australian Commodities December Quarter 2007 http://www.abare.gov.au/interactive/ac_dec07/htm/wheat.htm
50 FAO: http://www.fao.org/docrep/010/ah881e/ah881e05.htm ).51 ‘CONTROLS DON'T REVERSE PRICE TRENDS, EXPERTS SAY’ Reuters online,
7 April 2008 http://www.reuters.com/article/idUSN253864022008040752 Highlights from OECD Pensions at a Glance 2009 Australia; US; UK53 Australia Highlights from OECD Pensions at a Glance 2009, page 154 United States Highlights from OECD Pensions at a Glance 200955 UK Highlights from OECD Pensions at a Glance 200956 Highlights from OECD Pensions at a Glance 2009 57 Highlights from OECD Pensions at a Glance 200958 World Bank website: http://web.worldbank.org/WBSITE/EXTERNAL/
EXTDEC/EXTDECPROSPECTS/EXTGBLPROSPECTSAPRIL/0,,contentMDK:20372131~menuPK:659178~pagePK:2470434~piPK:4977459~theSitePK:659149~isCURL:Y,00.html)
59 OECD-FAO Agricultural Outlook 2009-2018, p2760 Bloomberg, HICP Weightings, The Consumer Price Index Breakdowns
and Weightings61 US Bureau of Labour Statistics, NCREIF62 Productivity Growth in Australian Agriculture: Trends, Sources, Performance’
Australian Farm Institute. March, 200763 Journal of Portfolio Management, ‘Farmland as a Portfolio Investment,’
Howard Kaplan, 198564 IP&E magazine online article, 'Seed capital' - 30 June 2009, Martin
Steward, IP&E.com www.ipe.com/articles/print.php?id=3210465 *Source: ABARE Farm Survey. Note: The Top 25% is the top performing
farms in a given year. From year to year there will be variations in the exact composition of the Top 25% as the performance of individual farms varies.
66 Macquarie Funds Group Agricultural Research, 2009
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