Investment into global farm production has not only generated high returns for investors over the past year, but will be increasingly necessary in the fight to avert global food shortages, according to independent index provider Indxis.
Investment into global farm production has not only generated high returns for investors over the past year, but will be increasingly necessary in the fight to avert global food shortages, according to independent index provider Indxis.
The GAIA Farming Index calculated by Indxis offers investors access to agricultural production globally. It invests in listed companies that mainly operate farms producing meat, grains, edible oils, dairy, fish and other diversified farming methods.
The main exposure is to large-scale, diversified agri-producers, primarily in emerging markets where large scale farming is prevalent. The index has returned 10.3% over one year on a cumulative basis since launch.
The index was launched in November 2011 by GAIA Capital Advisors, a Geneva-based fund manager and investment adviser specialising in global natural and agricultural investing, on the principle of sustainable food production to "feed the world".
Over the past four years, it has returned 18.4% based on back-tested data, outperforming the MSCI Emerging Markets SMID (12.9%), the Market Vectors Agribusiness ETF (MOO) (9.6%) and the Claymore Global Agriculture ETF (COW) (7.7%) over the same period.
Extreme weather has led to a fall in food production this year, leading to dramatic increases in food prices, and the United Nations has called for increased sustainable food production to avert a global crisis.
Coast Sullenger, investment manager at GAIA Capital in Geneva, said: "Structurally low stock-to-use ratios are the clearest sign of the fundamental shortfall of food production. This situation will become even more critical unless the sector attracts investment to boost production and productivity."
In contrast to the geographic diversity of companies producing meat, the most exciting opportunities in dairy tend to originate from a single source – China. The country spent more than $250m on 100,000 foreign heifers in 2011, more highly regarded than native breeds, feeding domestic demand for liquid dairy products that is expected to reach double-digit growth by 2020.
