G8 Farming Initiative May Offer Investing Opportunity in Ag

The Financial Times reports that the G8 (Group of 8 Industrialized) countries are expected to announce this week a $12 billion program for agricultural development.  Signalling a shift from food aid to long-term investment in farming, the “food security initiative” will provide funding over a three-year period.

A draft declaration by the G8, expected to be released at a summit meeting on Wednesday (7/8/09), obtained by the Financial Times  states, “The combined effect of longstanding underinvestment in agriculture and food security, price trends and the economic crisis have led to increased hunger. Food security is closely connected with economic growth and social progress as well as with political stability.”

According to the Financial Times article, ”The number of chronically hungry people has surged above 1 [billion] as the impact of the crisis compounds the effect of high food prices. The UN will warn today that a reduction in foreign aid could cause more hunger and disease as the recession has forced up to 90 [million] more people into extreme poverty.”

As the world population continues to grow, the need for sustainable farming increases as well.  Thus it would seem that the agricultural sector of the world economy is poised for growth regardless of macroeconomic conditions.  For investors looking for safety with some return in an extremely volatile and uncertain economic environment, agriculture may present an opportunity.

There are many different ways to invest in agriculture.  There are two general exchange-traded funds that provide diversification across the sector: Market Vectors Agribusiness (MOO) and Powershares DB Agriculture (DBA).  For those who prefer investing in individual companies, fertilizer producers would seem to offer the most return—especially since their share prices have recently been knocked back after a strong run, but are still well below their peaks.  Three examples are: Potash (POT), Mosaic (MOS), and Intrepid Potash (IPI).

Happy farming!