SWFs under the spotlight as governments play a bigger role in ag markets

Geopolitical risk has always played a role in the investment case for agriculture and threats to food security have never felt quite as tangible as they have in the aftermath of Russia’s invasion of Ukraine. The war is, in fact, only the latest in a series of systemic shocks to the global trading networks on which food security relies.

As the world watches another excruciating test of its food system in near real-time, investors are grappling with the implications of more active government engagement in the sector, and across private markets more broadly. Early developments suggest some degree of confusion driven by the fog that surrounds national strategy, a possibility of restrictions on investment amid record-levels of sector interest among sovereign wealth vehicles, and some suggestion of new forms of opportunity and partnership.

On a May NCREIF webinar, UBS‘s Dan Murray described how US farmland values have already responded in an upward trajectory to the implications of Ukraine’s removal from markets. Any view ahead, he stressed, should focus on likely export capacity and some of the unanswerable questions hinging on global government policy that could benefit US producers.

“There’s a lot of debate about how much corn is actually in China and would China actually export it anyway. It doesn’t seem like it, considering that they are importing 18 to 23 million metric tons of corn over the past couple of years,” he said. “The only place to get this additional corn is the United States.”

Since at least 2006, the US has also been the main beneficiary of a strengthened focus on food and ag among sovereign wealth funds that has sharpened even further following the events in Ukraine, IE University Sovereign Wealth Research Institute director Javier Capapè Aguilar told Agri Investor.

His institute’s annual report found Singapore and the GCC to have been the main sources of capital driving a doubling in sovereign wealth fund participation in food and ag deals over the past five years. Looking ahead, he said, expectations of a less welcome political environment in key markets is among factors inspiring some SWFs to concentrate more on domestic development and cooperation among the Global South.

“It won’t be surprising if we see national food security as a key element used by recipient countries or target countries to exclude certain investors,” he said. “Regionalization looks more the normal now, rather than globalization. We will select very carefully who is investing and who is allowing me to invest back.”

Broader tensions between the US and China have already prompted congressional attention to the security implications of foreign investment in US farmland. Last week, lawmakers responded to concerns surrounding Chinese investment into a North Dakota corn mill by introducing legislation to restrict investment into domestic agriculture from China, Iran, Russia and North Korea.

Franklin Templeton highlighted government support as a key part of the investment case for opportunities related to Brazilian carbon markets and water conservation efforts in the GCC, in its June overview of food and agtech investment opportunities.

Indeed, Conservation Resources announced in March it is the first farmland group to join AIM for Climate, a collaboration between the governments of the US and the United Arab Emirates, which is an effort to “mobilize” at least $1 billion of investment into climate-smart ag and food systems over the next five years.

Over coming months, how and through whom such publicly led responses to acute food security challenges are accelerated could help determine the nature and focus of opportunities available to private investors in the years ahead.