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2014 Media Kit

Farm subsidies seen a turn off for investors

By: | at 07:00 PM | International Trade  

Pricey commodities have made U.S. farmers less dependent on government aid, but the European farm sector still faces the risk of disruption from subsidies being phased out, agriculture investors said.

Tim Hornibrook of Australia’s Macquarie Agricultural Funds Management said that price-skewing farm assistance was unlikely to disappear entirely any time soon, given concerns about food security in both rich and poor countries.

“Agriculture is one of the most protected markets globally,” he told Reuters on the sidelines of a conference on investing in farming where several financiers described a reluctance to put money into subsidised markets.

“Our preference is to invest in regions where there is little to no subsidies because the risk of a change of legislation affecting your profitability is minimised,” Hornibrook said.

Farmland purchases have boomed alongside a run-up in food, feed and biofuel prices, with bullish investors seeking to benefit more directly from commodity demands.

Desmond Sheehy, managing director of Duxton Asset Management, which has invested $330 million in the agricultural sector, said that because U.S. agricultural support is tied to prices, farmers there have become more self-reliant.

Subsidies no Longer Needed
“With global commodities where they are, subsidies are no longer required as a prop or support,” he told Reuters. Duxton is invested primarily in emerging markets including East Africa, Argentina and Vietnam, and is also engaged in Australia farming.

“We try not to invest long-term in areas where farming requires subsidies to survive,” Sheehy said, suggesting that aid cuts in Europe were also almost inevitable over time and could disrupt the industry.

“EU farming will have a shake-up. Exactly how it will look at the end I don’t know,” he said.

Agricultural subsidies in wealthy markets are expected to be slashed in the World Trade Organization’s Doha round, which has been under negotiation in Geneva for nine years.

While the timing of such a WTO accord remains far from certain, financiers in Geneva said the writing was on the wall for a reduction in U.S. aid for farmers through its Farm Bill and other measures.

“We are probably going to lose the aid,” said Gary Taylor, a former Cargill executive who now runs AgriCura, an investment fund focused on U.S. corn, soybean, cotton, rice and wheat farming.

“We do expect that it will go away,” agreed Cliff Ganschow of Terra WorldWide, an agricultural real estate company, who said a cut in U.S. subsidies would have little consequence for investors in that market.

The U.S. regulatory landscape is not deterring many foreign investors, said Mary McNairy, a partner with International Farming Corp, an alternative investments firm based in North Carolina.

“Farmers tell us they have never seen so much traffic from Brazilians and Argentinians wanting to direct-own land (in the United States),” McNairy told the conference participants.

“It is competitive. The sector is hot,” she said. “People are looking for steady return and low volatility, and farmlands have outperformed commodities and the S&P500 for some time now.” (Reuters)