View: Find a good investment for food

food process machinery The New York Times reports that in light of the world food crisis,large private investment funds around the world are going beyondplacing bets on agricultural commodities like corn, wheat, soybeansand the like. Several are buying farmland, fertilizer, grainelevators, barges and ships. They figure that although the currentrun-up in food prices is partially due to one-time or possiblyfleeting factors, like drought and biofuel subsidies, the long-termdemand for food is likely to rise, which presents an investmentopportunity. Thus the BlackRock fund group plans to invest hundreds of millionsof dollars in farmland in sub-Saharan Africa and in England.Whitebox Advisors in Minneapolis has bought several large grainelevator complexes and plans to expand them, as has Ospraie SpecialOpportunity Fund. Emergent Asset Management, based near London, isbuying land in Africa. A division of Louis Dreyfus Commodities isbuying tens of thousands of acres of farmland in Brazil. These investors all hope that by consolidating smaller plots andintroducing modern machinery and technology, they will be able toboost production and reap the profit. The Times reporter managed to track down several people who worryabout this trend. Institutional investors might not be committed tostaying with farming in bad times as well as good. They might holdgrain off markets in their elevators hoping prices will rise ratherthan increasing effective supply. Farming could become morevolatile as a business. Farmland could become subject tospeculative bubbles. All these potential caveats are worth considering, but overall thisis a healthy trend — the self-correcting response of amarketplace, carried out by entrepreneurs who see opportunitieswhen others see doom and gloom. If their investments work out,these entrepreneurs will realize significant profit, the worldsupply of food will increase, and agricultural prices willstabilize and probably begin to decline. It is significant to note that these investment funds are usingtheir own money (or money for which they have a fiduciaryresponsibility). If they are successful they will profit, and inthe process will provide additional food for people around theworld, but if they are not, they will suffer losses. It's thestandard entrepreneurial model: Find a need and fill it. Private investment in developing countries is also likely to putpressure on governments to open their countries further toinvestment, to better respect private property and to move towardrule of law rather than political whim in setting policies. This isthe best long-term, sustainable approach to agriculturaldevelopment. Food aid can help in an emergency, but higherproduction is the long-run solution. For that you need more openmarkets. We're inclined to think these investments are probably good bets.The drought in Australia that has been a big contributor to foodshortages is unlikely to last forever, and biofuel programs likeethanol mandates in the U.S. and Western Europe can be changed orabandoned (though we suspect politicians will be too stubborn to doso). But economic growth in China and India that has created moredemand for more higher-quality food, another huge factor driving upfood prices, might level off but is unlikely to end. If these turn out to be unwise investments, however, it will be theinvestors who suffer, not the general run of taxpayers, as is thecase when governments take money seized through taxation and put itinto ventures that don't work out or become hopeless money pits.