One of the Middle East's largest private equity firms has been quietly buying up farmland in Pakistan as part of plans by the United Arab Emirates to increase food security and to control inflation, according to a gulf website arabbuild.net. Please read prior blog posts on this subject.
Dubai-based Abraaj Capital says it is working with the UAE government on the strategic agribusiness investments in Pakistan. The government in Abu Dhabi has been holding talks with Islamabad about a framework for investment in its agricultural sector as it seeks to secure cheaper long-term supplies of staples such as wheat and rice.
The UAE investments appear to be part of a pattern of international investments in agriculture. Record prices of wheat and various grains have been attracting hundreds of billions of dollars from hedge funds and other speculators to the commodity futures markets (particularly wheat and rice futures) in recent months. A NY Times report now says that the investors are starting to make longer term commitments in food and agriculture sector including farmland, fertilizer, grain elevators and shipping equipment.
"Our aim is not to do away with precious farmland but in fact to raise the productivity of our farms and turn barren land in to fertile farmland," said a senior Pakistani official familiar with negotiations between Pakistan and UAE, according to a report in Financial Times.
Abraaj Capital, with $5bn of assets spread across the Middle East, North Africa and the South Asia, has been buying farmland in Pakistan during the past year, a company official said. UAE state and private entities planning to build agribusinesses in Pakistan have acquired as much as 800,000 acres of land, he said. Other companies participating in farming investments in Pakistan include Emirates Investment Group and the Abu Dhabi Group.
Similar farmland purchase or lease deals are being reported in Brazil, Canada, the United States, and the former Soviet Republics. Farmland prices have spiked up as a result of new money and growing interest in farmland.
At a recent Middle East-Pakistan Agriculture and Dairy Investment Forum in Dubai, Huma Fakhar, an adviser to the Government of Bahrain on Bahrain-US free trade agreement, said Arab nations are suffering from declining farm exports and rapid growth in population, leading to an increase in their imports of food products. Regarding investment commitments from the GCC investors in Pakistan's agriculture, livestock and dairy sectors, she termed the forum a success. "Major groups from GCC in general and the UAE in particular are willing to avail the opportunity and commit significant investment in Pakistan’s agriculture sector for the first time" she said.
Belal Pasha, Commercial Attache at Pakistan Embassy in the UAE, said five to 10 major UAE groups will explore Pakistan’s agriculture sector by making significant investment in corporate farming, livestock and dairy sectors. However, he didn’t name any group. In reply to a question, he said Pakistan could get significant share of GCC farm imports worth $200 billion if sizable investment is made in its agriculture sector.
The NY Times report raises concerns about the commodity speculators jumping into the fray. By owning land and other parts of the agricultural business, the investors, including sovereign funds, are freed from rules aimed at curbing the number of speculative bets that they and other financial investors can make in commodity markets. “I just wonder if they need some sheep’s clothing to put on,” said Jeffrey Hainline, president of Advance Trading, a 28-year-old commodity brokerage firm and consulting service in Bloomington, Illinois in the United States.
Concerns such as Mr. Hainline's make it necessary for countries such as Pakistan to be deliberative in crafting land sales/lease agreements. Any lease or sales of farmland must be carefully regulated to ensure that the country's food security is not jeopardized by the investors interest in making the biggest possible returns on their investments. The interests of the consumers and the investors must be carefully balanced.
The new agriculture investments and modernization of farming in Pakistan can potentially raise farm productivity and help stabilize prices to adequately feed the growing population as well as increase agricultural exports to earn foreign exchange.
At the same time, Pakistan can follow the Brazilian model of growing and using sugarcane for producing ethanol to reduce its dependence on imported oil. However, this must be done with a sound plan to ensure Pakistan's food security and sovereignty remain intact.
Sources: NY Times
equity and bond markets have benefited from a long period of low inflation, but ongoing and massive central bank liquidity injections point to a far less benign environment of elevated inflation ahead. Research by our firm, Agcapita Farmland Investment Partnership (Calgary, Canada based agriculture private equity firm) shows investors must be prepared to rotate into asset classes with different characteristics. During the last commodity bull market & high inflation period in the 1970’s, equities materially underperformed farmland.
- Western Canadian farmland went from around $100/acre to $550/acre (550% total return and 176% in inflation adjusted terms);
- Cash held in a money market account barely kept ahead of inflation (6% inflation adjusted return); and the
- S&P 500 index returned less than 2% per year (a loss of almost 50% in inflation in adjusted terms)
We believe the world is still in the early stages of this current commodity bull market. When agriculture commodities prices are compared against their previous inflation adjusted highs they are significantly discounted implying scope for further increases:
- Corn is US$ 4/bushel currently compared to US$16/bushel in 1974,
- Wheat is US$ 6/bushel currently compared to US$27/bushel in 1974
- Canadian farmland is C$ 660/acre currently compared to C$1,100/acre in 1981
Another interesting metric is the long-term average ratio of the Commodities Research Bureau Index versus the S&P 500 which is currently around 1.5 times. Simplistically, this ratio indicates how much S&P 500 stock you can buy with a fixed basket of commodities. Some important points:
- During the commodity bull market of the 1970s, the ratio was consistently higher than 2 times for over 10 years – it peaked at almost 4 times.
- The ratio is currently at around 0.5 times - significantly below the 1.5 times long-term average, just slightly above the 0.15 all time low reached in 1999/2000 and still very far below the almost 4 times multiple reached in the last commodity bull market. We still appear to be at an all time low relative valuation between “hard assets" versus "stocks.”
- If history is a guide, the ratio of hard assets to stocks will have moved much higher before this commodity bull market is over.
- How? Stocks will continue to fall and/or commodities will continue to climb – most likely a serious combination of both as investors, fearing inflation, rotate out of stocks into commodities – the cycle of “inflation, rotation, hard assets”.
Agcapita allows farmland investors to cost effectively allocate a portion of their portfolios to hard assets in the form of Canadian farmland via its professionally managed Agcapita Farmland Investment Partnership. Agcapita Farmland Investment Partnership is the third in a family of private equity funds which has grown to almost $100 million in assets under management. Agcapita’s investment team has over 40 years private equity and fund management experience and over $1 billion in total career transactions and previously managed a group of emerging market funds with almost C$500 million in assets for one of the largest banks in Europe.
Legendary global investor Jim Rogers joined Agcapita’s advisory board because of his belief in the western Canadian agriculture investment premise. Amongst his many accomplishments, Jim was co-founder with George Soros of Quantum Fund, is the bestselling author of “Investment Biker” and “A Bull in China”, has circumnavigated the globe twice and is founder of the Rogers - Van Eck Hard Assets Producers Index and the Rogers International Commodities Index.
Here is a NY Times report on African farmers losing farm land to investors:
SOUMOUNI, Mali — The half-dozen strangers who descended on this remote West African village brought its hand-to-mouth farmers alarming news: their humble fields, tilled from one generation to the next, were now controlled by Libya’s leader, Col. Muammar el-Qaddafi, and the farmers would all have to leave.
“They told us this would be the last rainy season for us to cultivate our fields; after that, they will level all the houses and take the land,” said Mama Keita, 73, the leader of this village veiled behind dense, thorny scrubland. “We were told that Qaddafi owns this land.”
Across Africa and the developing world, a new global land rush is gobbling up large expanses of arable land. Despite their ageless traditions, stunned villagers are discovering that African governments typically own their land and have been leasing it, often at bargain prices, to private investors and foreign governments for decades to come.
“The food security of the country concerned must be first and foremost in everybody’s mind,” said Kofi Annan, the former United Nations secretary general, now working on the issue of African agriculture. “Otherwise it is straightforward exploitation and it won’t work. We have seen a scramble for Africa before. I don’t think we want to see a second scramble of that kind.”
A World Bank study released in September tallied farmland deals covering at least 110 million acres — the size of California and West Virginia combined — announced during the first 11 months of 2009 alone. More than 70 percent of those deals were for land in Africa, with Sudan, Mozambique and Ethiopia among those nations transferring millions of acres to investors.
He listed countries whose governments or private sectors have already made investments or expressed interest: China and South Africa in sugar cane; Libya and Saudi Arabia in rice; and Canada, Belgium, France, South Korea, India, the Netherlands and multinational organizations like the West African Development Bank.
In all, Mr. Sow said about 60 deals covered at least 600,000 acres in Mali, although some organizations said more than 1.5 million acres had been committed. He argued that the bulk of the investors were Malians growing food for the domestic market. But he acknowledged that outside investors like the Libyans, who are leasing 250,000 acres here, are expected to ship their rice, beef and other agricultural products home.
Every farmer affected, Mr. Sow added, including as many as 20,000 affected by the Libyan project, will receive compensation. “If they lose a single tree, we will pay them the value of that tree,” he said.
“Ante!” members of the crowd shouted in Bamanankan, the local language. “We refuse!”
Kassoum Denon, the regional head for the Office du Niger, accused the Malian opponents of being paid by Western groups that are ideologically opposed to large-scale farming.
“We are responsible for developing Mali,” he said. “If the civil society does not agree with the way we are doing it, they can go jump in a lake.”
The looming problem, experts noted, is that Mali remains an agrarian society. Kicking farmers off the land with no alternative livelihood risks flooding the capital, Bamako, with unemployed, rootless people who could become a political problem.
“The land is a natural resource that 70 percent of the population uses to survive,” said Kalfa Sanogo, an economist at the United Nations Development Program in Mali. “You cannot just push 70 percent of the population off the land, nor can you say they can just become agriculture workers.” In a different approach, a $224 million American project will help about 800 Malian farmers each acquire title to 12 acres of newly cleared land, protecting them against being kicked off. ...
UAE to build Red Sea port in Sudan in $6 billion investment package
The United Arab Emirates will build a new Red Sea port in Sudan as part of a $6 billion investment package, DAL group chairman Osama Daoud Abdellatif, a partner in the deal, told Reuters.
Abdellatif said the package includes a free trade zone, a large agricultural project and an imminent $300 million deposit to Sudan's central bank, which would be the first such deposit since an October military takeover.
The UAE deal also includes the $1.6 billion expansion and development of an agricultural project by Abu Dhabi conglomerate IHC and DAL Agriculture in the town of Abu Hamad in northern Sudan, Abdellatif said.
Rumours of Gulf investments in Port Sudan, and in agricultural projects elsewhere in the country, have in the past stirred opposition and sometimes protests.
Alfalfa, wheat, cotton, sesame, and other crops would be grown and processed on the 400,000 acres of leased land, he said. A $450 million, 500 km (310 mile) toll road connecting the project to the port would be built as well, financed by the Abu Dhabi Fund for Development.
Under the agreement, the Fund would also make a deposit of $300 million to the Central Bank of Sudan, Abdellatif said.
Abdellatif said the agreement was reached initially in July 2021, under a civilian-led transitional government.
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