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Poprozhuk R.V. INVESTMENT IN AGRICULTURAL SECTOR. ATTRACT...

 
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: 13.05.10
: 107

: ' 14, 2010 10:06 am     : Poprozhuk R.V. INVESTMENT IN AGRICULTURAL SECTOR. ATTRACT... ³

INVESTMENT IN AGRICULTURAL SECTOR. ATTRACTIVENESS, RELEVANCE AND PROSPECTS

Poprozhuk R.V., postgraduate
Dnipropetrovsk State Finance Academy
ruslanpv@ukr.net


One of the defining lines of solving the food problem in modern terms is to increase investment in agriculture, especially in countries where opportunities for development of the uses are limited. However, FDI in world agriculture inadequate growing investment needs of the industry. The share of industry in total foreign investment 15 times lower than its share in world GDP structure. Such distortions are typical for Ukraine, where the agricultural sector creates on average 14% of GDP, but the sector accounts for only 3% of total foreign investment. For comparison, in the food industry, which produces 5% of GDP, attracted more than 15% foreign investment. In this regard, the current task is to research the investment attractiveness of the agricultural sector of Ukraine and its mechanisms on the international capital market.
Theory and practice of investment processes in the agricultural sector reflected in the work of national scientists: D. Van'kovychi, G. Hrytsayenka, S. Hutkevych, M. Dem'yanenko, O. Dufenyuka, M. Kisil, G. swears, M. Maliki T. Ostashkov, P. Sabluk Pidlisetskoho T., A. Shevchuk, A. Shepitsena, N. SHKVYRYA and others.
There are five factors why agriculture investments are as good as green gold.
1. Grain inventories are falling to their lowest levels in more than 40 years
Obviously, we cant continue to dip into inventories. The natural response you would expect to see is rising prices for grains and for the farmland that produces them. Global grain inventories, drought pending, are expected to rise this year, but will still remain well below historical level.
2. Grain consumption is on the rise
The world consumes, on average, 2,600 bushels of grain crop per second. Thats almost twice what we ate back in 1974. And that amount could easily double to 5,200 bushels per second over the next 20 years. The amount of pressure on the global food supply network is enormous. You can see the steep downward trend in wheat supply in the chart below.
The Boom Has Only Just Begun
Why are we eating so much more grain? The big factor here is meat. Hundreds of millions of people in China and India are joining the middle class. As people get wealthier they eat more meat. And more meat requires more grains to feed cattle and hogs. It takes 10 pounds of grain to produce one pound of meat. Because of that, most of the demand growth for coarse grain and oilseed meal will come from livestock in developing economies or the countries feeding them. So long as the middle class expands, you can be sure meat and grain consumption will follow.
3. Biofuels are driving ag demand up to new levels
Most every oil-consuming country has biofuel targets in place that will kick in over the next five years. These places include the U.S., the EU, Canada, Japan, Brazil, India and China. To meet their targets, according to work by Agcapita, well have to commit some 240 million acres to biofuel production. That represents about 50% of the arable land in North America and about 6% of all the arable land in the world.
4. Arable land per person is falling
We are losing quality topsoil faster than we are replacing it. Quality soil is loose, clumpy, filled with air pockets and teeming with life. Its a complex microecosystem all its own. On average, the planet has little more than three feet of topsoil spread over its surface. The Seattle Post-Intelligencer calls it the shallow skin of nutrient-rich matter that sustains most of our food. Replacing it isnt easy. It grows back an inch or two over hundreds of years.
This little graphic below summarizes where we are in terms of arable land per person. For the first time ever were in danger of slipping below one acre per person:
Of course we dont need 2.8 acres per person anymore, because of advances in agriculture over time. But gains in yield per acre are slowing. Over the last 40 years, weve increased the yield per acre by 2.1% per year. But the pace of those gains is slowing. Since 2000, the increase in yields per acre has averaged less than 1% per year.
We may see new innovations in seeds or other technology that we can scarcely imagine now. But any solution will take time and money to implement. Meanwhile, the worlds agriculture markets just get tighter and tighter.
5. Low water supplies cut down farm productivity
One British study suggests that if China imports to meet just 5% more of its grain demand, it could swallow all the worlds exported grain. In 2007 and 2008, China imported practically zero wheat. However, today imports are on the rise, sometimes increasing over 100% from month to month. Part of thats due to drought, which we can expect a lot more of in China as the years roll on and the water table decreases even more.
It also means that any way to secure better water supplies will be worth its weight in gold. Growing crops and keeping livestock hydrated uses three-quarters of the worlds water. So you can not imagine a better asset to own during any kind of financial crisis than farmland or investing in agriculture stocks.
In some ways, farmland is even better than gold or silver. At least farmland is an intrinsically useful thing. It provides a tangible yield in the form of good things from the earth. We all have to eat. As consumers trim their sails, they ll give up a lot before they give up their calorie intake. In fact, worldwide, the per capita calorie intake is likely to rise, while quality soil will become a scarce commodity.
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