BlackRock BGF World Agriculture Fund
BlackRock's BGF World Agriculture Fund, which has now been launched in the UK, enables investors to gain exposure to the broad agriculture sector at a time when world population expansion, rising prosperity, demand for biofuels and constrained supply means agriculture and its supporting industries are set for long-term growth. The Fund is managed by Desmond Cheung and Richard Davis. They are both members of BlackRock's Natural Resources Team which manages $33.8bn across the agriculture, energy, new energy, and metals and mining sectors.
A Fund set to capitalise on long-term demographic and consumption shifts:
By 2050 there will be an estimated 9.2 billion people in the world, compared to 6.9 billion today. This is the equivalent of adding a population the size of the UK - over 60 million people - every year. Food production will have to rise by 70% above 2005/07 levels to feed them.
Incomes are rising in many developing countries, particularly in Asia. As people become more affluent dietary patterns change and demand for meat increases. However feeding animals is less efficient than using crops to feed people directly - it takes over 8kg of grain to produce just 1kg of beef. As a result, rising demand for meat from developing countries requires exponential growth of grain output for livestock production.
Governments around the world are encouraging a switch to biofuels. The world will produce an estimated 200 million tons of biofuels, doubling the 2009 level, fuelling demand for sugar, corn, soybean and oilseed rape, etc, from which biofuel is produced, as well as for land to grow these crops on.
A market constrained by land supply:
Global crop production has experienced powerful growth over recent decades. But this rise has not led to a build up in grain stocks. Moreover, since the extensive adoption of farming technology over the past decade, the improvement in crop yields has slowed.
The world has 1.4 billion hectares of agricultural land. Whilst there is potential to increase this by another 1.6 billion hectares this requires substantial investment of capital and time.
Desmond Cheung, co-manager of the BGF World Agriculture Fund, commented: "These emerging global trends will structurally change the agriculture market in coming years. We believe that the BGF World Agriculture Fund offers a highly effective way to access this structural shift.
"Agricultural equities deliver great flexibility to profit from opportunities in key sub-sectors of the wider agriculture industry. These sub-sectors have different drivers and can behave differently at various stages of the cycle. For example, as soft commodity prices rise, farming becomes more profitable and farmers can invest in better technology - equipment, chemicals, seeds - to raise productivity. If crop prices fall food manufacturers, livestock and biofuels producers enjoy lower costs. Moreover when selected on a global basis, we can diversify our Fund in terms of geographical risks from events, ranging from weather, and political turmoil to economic and trade restrictions."
BGF World Agriculture Fund co-manager, Richard Davis, added: "In addition to the companies supplying products to farmers, the BGF World Agriculture Fund has the flexibility to invest in companies that provide services to the farming sector and those that are engaged directly in the production of grains and soft commodities. We scan the sector for the most promising stocks that could benefit in different grain price environments - from seeds, chemicals and equipment suppliers to farming and plantation companies. The Fund is currently weighted towards the agribusiness sector, edible oil and fertilizer sub-sectors.
"In the agribusiness sub-sector we like US-based grain handlers, such as Bunge, which originates grain supplies from the US and South America. Not only do they benefit from rising volume of global grains production thanks to their extensive logistics footprint in grain transportation and storage capabilities, their vertically integrated business models also give them the flexibility between trading grains and feeding the grains into downstream value-adding processing activities."