Sovereign wealth funds have invested $11.1 billion into agriculture over the past 10 years, according to data from the Sovereign Wealth Center.
During this period, 14 state-owned funds invested in 51 deals across three sub-sectors: agrochemicals, land and forestry, and trading and food processing.
“Sovereign wealth investment into agriculture globally started around 2010-2011, but interest from this investor group has really picked up over the past 18 to 24 months,” said Dania Zinurova, investment consultant at Towers Watson.
Food security concerns amid growing population and food supply constraints are pushing these sovereign funds to invest as a means to secure food supply but also to hedge against the price of food, according to a report from the Sovereign Wealth Center.
Of the total, some $3.1 billion was invested into the agrichemicals sector across eight deals, 20 land and forestry deals accounted for $2.7 billion and 23 deals worth $5.9 billion were made in trading and food processing.
Investment centred around Asia-Pacific deals which accounted for 65.8 percent of deal flow during the period as sovereign wealth funds prefer to invest locally, according to Enrico Soddu, author of the report.
“Many sovereign wealth funds are acting to protect their countries from food shortages, particularly in the Middle East,” he wrote.
Zinurova agrees: “Sovereign wealth funds tend to invest in the countries in which they are domiciled because most Asian countries have quite underdeveloped agriculture sectors,” she said. “If you compare to more developed markets like the US and Brazil, you will find Asian markets are much less efficient, so from the investor perspective there are more opportunities to add alpha. But of course they also want to support their home economies.”
Australia and New Zealand also provide attractive scale and opportunities to operate and maintain control themselves, which several sovereign wealth funds prefer, Zinurova added.
Other popular investment destinations were Europe, which had five deals worth $2 billion, and North America with five deals worth $1.6 billion. Middle East and North Africa attracted three direct investments totalling $1.3 billion, South Asia and Oceania had a total of seven deals, or $587 million, coming into the region.
Sovereign wealth funds tend to invest directly in the asset class although they have shown interest in investment funds in the past. But most agriculture funds are not big enough to accommodate them, according to Zinurova. “When sovereign wealth funds go into a sector they tend to allocate quite significant amounts and they have a preference to partner with likeminded investors to form a club,” she said. “This will also enable them to invest over a longer time frame than most funds offer.”
These partnerships are with other sovereign wealth funds or private equity firms, she added.