Look for value-adding agri alternatives amid oil price fall, says consultant

Falling oil prices will contribute to lower food prices, according to a recent report from Rabobank.

“The size of the drop in oil prices combined with the already significantly lowered agri-commodities will place substantial downward pressure on global food prices, possibly reaching multiyear lows”, wrote Rabobank analyst Clara van der Elst in the report.

While this spells good news for consumers, the potentially deflationary food price environment could leave traditional, commodity crop agri asset management firms looking for value-adding alternatives, according to sources.

“Premium, niche markets such as almonds, premium coffee and cut flowers should still perform well,” said Emma Cowan, founder of  agribusiness consultancy Cardy-Brown. Biotechnology investment could be another exciting angle, she added.

Falling agri commodity prices since the end of last year have already filtered into land prices in regions such as the US Midwest, according to local brokers. The low-price environment could create a wave of buying opportunities, however, as farmers are forced to sell their land and lease it back, according to Jonah Kolb, vice-president at Moore & Warner Farm Management.

Capital conservation is the phrase of the moment among the farming community, according to Kolb, although this might not bode well for land owners holding a portfolio of farms acquired during the summer’s land valuation peak.

The oil price fall will, however, mean better margins for producers of certain foods including horticulture, milk powder, coffee, potato processing and beer production, according to Rabobank. “Some of the upside will eventually be passed downstream in the value chain initially to processors, then to retailers and finally – driven by competition –to the consumer,” wrote the analyst.