- Listed farming companies undercapitalised
- Poor harvests signal need for higher production
- Index returns over 10% in 12 months
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.
Extreme weather has led to a fall in food production this year, leading to dramatic increases in food prices1, and the UN has called for increased sustainable food production to avert a global crisis. The GAIA Farming Index calculated by Indxis, a leading independent provider of bespoke indices, allows investors to support agricultural production through a great long-term investment.
The index 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 returned 10.3% over one year on a cumulative basis since launch. Over the past four years, it has returned 18.4% based on back-tested data, strongly outperforming such references as 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.
The index was launched in November 2011 by GAIA Capital Advisors, a Geneva-based fund manager and investment advisor specialising in global natural and agricultural investing, on the principle of sustainable food production to “feed the world”.
Alan Price, sales director of Indxis, said: “The index shows investment into farm production, a traditionally under-invested sector, can not only generate much needed income for investors but allow companies to increase farm productivity, which is increasingly vital as food production fails to keep pace with population growth.”
Coast Sullenger, investment manager at GAIA Capital in Geneva, added: “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 $250 million 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 20202.
China Modern Dairy, one of the constituent companies in the Index, was recently ranked the fastest growing enterprise in China by China Entrepreneur magazine, its net profits up by 127.2% on the 2010/11 fiscal year.