In the past couple of years the world price of field crops such as wheat, rice, soya beans, rice and palm oil has risen dramatically (doubling, tripling and more..).
But, what is causing this upward movement? Well…a multitude of market forces!
Firstly, an increase in demand for food driven by the boosting prosperity in the large and fast emerging economies of China and India. In particular, their growing appetite for meat trigged a worldwide expansion of arable land cultivated for animal feedstuff to the detriment of human nutrition.
Secondly, an increase in demand for energy supplies from crops to produce ethanol, again to the detriment of human nutrition.
Last but not least, recent weather events such as last year’s drought in Australia and recurrent floods in China brought in severe supply constraints.
The response of farmers and land owners to the new agricultural conjecture consists of immediate amendments to the present cultivation patterns (changes in land uses, implantation of alternative irrigation systems, alterations to level of intensity in management of agro-ecosystems, etc). Consequently, on-going changes in land use are not only driving future crop technological and genetic developments but also creating the grounds for stock market investors attentive to the recent turnaround in food and farmland prices.
Within the context of agriculture investment opportunities, experts are already asserting on which plantation companies are most likely to succeed in the short and medium term. Useful tips are also offered to investors based on information on the life cycle of the crop (annual, biannual or perennial) and on its growth period (number of years before full production) as a function of when to expect their returns and at what rates.
As expected from the recent developments in the biofuel industry, the palm oil plantation companies have registered the greatest increase in share prices; however other companies covering a basket of agricultural commodities and farmland investments are also regarded as highly promising.
The environmental impact of this new investment trend, opportunely called “Crop Boom Winners” by John Mulligan in the Investors Chronicle (25 April- 1 May 2008) becomes then ground for deep thought!
One of John Mulligan’s standpoints is based on reclaiming set-aside land in a free market context: “In the short term, the area of land available and suitable for arable cropping is relatively inflexible, but over longer periods fallow land can often be quickly brought into cultivation and government controls of production, as in the EU, can be removed”.
Does this imply that conservationists and ecologists will get busier than ever making sure that immediate economic gain does not completely surpass the long-term environmental and social aims within the framework of policy makers? I welcome your thoughts.