Are we on the verge of another global food crisis? asks Peter Macfarlane. And if so, how can we protect ourselves and profit from this crisis? This could have a huge impact on your offshore investments and assets, and – more importantly still – your safety and security. How to protect your assets and yourself? Read on for more…

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Are we on the verge of another global food crisis? Some people think so. This could have a huge impact on your investments, and – more importantly still – your safety and security.  There are even ways to combine secure investments in this area with second passport opportunities. That’s why we’ve decided to focus this weekend’s Q Bytes on this important theme.

Last month was marked by large-scale anti-government protests in Tunisia and Egypt. It’s fair to say that the Tunisian revolt inspired the Egyptian one. The Tunisian riots were sparked by a simple dispute about the right to sell food. Last year we also saw food riots in other African countries, such as Algeria, Mauritania and Mozambique.

Wheat prices have surged 50% since early June, the biggest jump in 30 years, according to HSBC. Droughts in Russia, Ukraine and Kazakhstan, which together account for 26% of world wheat exports, are leading to fears of tight supply and super-charging prices.

Today’s scares are just the latest sign of what could be one of the biggest challenges facing the global economy over the next 20 years – the fight to feed the world. Investors and speculators should definitely be paying close attention.

Food, of course, isn’t like other commodities traded on world markets. No country wants to run out of food or watch sky-high prices dump people into poverty and malnourishment. So both exporting and importing countries often take extreme, knee-jerk populist measures if they think a shortage is coming or prices will keep rising. These measures include things like hoarding and export restrictions. For example, Russia slapped a ban on wheat exports from mid-August last year, while Argentina has severely restricted beef and soybean exports.

Severe structural problems in the world of agriculture have made the balance between supply and demand very precarious. On the production side, there is a severe lack of investment in the rural infrastructure and agricultural research that we need to keep yields increasing. On the consumption side, all those newly wealthy Chinese, Indians and Brazilians are now buying more food than previously… more meat, for example, which means more grain gets turned into livestock feed instead of people-feed. Also don’t forget to add the new diamond for bio-fuels into the equation.

According to the OECD and the UN’s Food and Agricultural Organization (FAO), world population is expected to grow by 2.3 billion people between 2009 and 2050 with nearly all this growth from developing countries. They estimate that feeding a population of 9 billion will require a 70% increase in global food production by 2050.

World Bank Chief Robert Zoellick writing in the Financial Times, in an article that already caused controversy by suggesting that major economies look at a partial return to the gold standard, warned that “with food accounting for a large and volatile share of tight family budgets in the poorest countries, rising prices are re-emerging as a threat to global growth and social stability.”

Another problem many people have not taken into consideration is the falling value of the dollar.  Ben Bernanke’s quantitative easing will continue to cause a greater demand for dollar-denominated commodities, from people like us who are seeking to exchange fiat money for tangible assets.

Where are we going with all this? It’s well known that the Chinese are buying up large swathes of Africa, mainly for natural resources, while Latin America is seen as the new breadbasket – or perhaps the meat producer. Argentina’s government is certified nuts as far as we are concerned, so even wealthy Argentines are investing their capital in production in neighboring countries, particularly Uruguay and Paraguay. Brazil, meanwhile, is speeding ahead in agricultural production.

As some of you may know I recently attended a closed doors briefing in Paraguay with a small group of Q Wealth readers, during which we heard presentations from agricultural and forestry experts (Paraguay’s former consul in Hamburg to be precise, who has now returned to his home country and is heavily involved in forestry.)

I’ve invested quite a substantial part of the assets of my personal investment vehicle in Latin America’s southern cone area recently (including Paraguay and Uruguay) as I believe this area definitely represents future growth opportunities. Another very positive thing about this region is that it’s eminently liveable. That is, you can easily enjoy a safe, clean and reasonably priced first world lifestyle in the area. Africa has lots of potential too for the more adventurous amongst us, but I’m not about to move my family there. However, my family have spent time in Uruguay and got on great.

Last but not least, both Uruguay and Paraguay are quite liberal when it comes to naturalizations – that is, second passports.

At Q Wealth we are not a share-tipping newsletter, but there are certain plays on agriculture in the southern cone region you can buy on international markets. Do your research and due diligence. More generally, you can also expect further significant gains on stock market investments in the ag sector.

Most important, however, is that you understand the big picture, that governments with their short term mentalities are not telling you. This is a region you should watch. With the largest fresh water reserves in the world, plenty of land that is ideal for food production, and relatively hands-off governments, it is probably the world’s best hope to solve the future food problems, and your best hope if you are looking for a safe place to hide out where you’ll never want for food or water.

More to follow in Q Wealth Report.

“I’m a young, single US Citizen who is very concerned with the way things are going. I hope the government works things out fine. But in the meantime, prudence dictates that I have an exit strategy in place.”

That question came in recently for a reader asking about second passports and economic citizenship programs. The client was willing to do the following things:

1. Marry a Local Citizen (with an enforceable pre-nup).
2. Purchase a small property at Fair Market Value and pay property taxes.
3. Start a small business and pay local taxes.
4. Spend time to learn the local language.
5. Live in my new country for about 4-6 months per year for 3 years.

However, he also had a clear list of things he wanted to avoid:

1. I’m not willing to spend much more than 4-6 months per year.
2. I’m not willing to wait much more than 3 years.
3. I don’t think a Dominican Republic passport, St Kitts and Nevis Passport or Dominica passport is taken seriously so I want to avoid those countries.
4. I want to Avoid Canada because their taxes are too high.
5. I want to avoid renouncing my USA passport (but I might if needed)

The client’s research has already had him zeroing in on South America. Both Uruguay and Paraguay are attractive options, though they both have their clear advantages and disadvantages.

Although I don’t necessarily agree that Dominica and St Kitts and Nevis passports are not taken seriously, people in the know will certainly be aware that you’ve bought them. They are respectable programs, but still, I can understand this chap’s sentiments. If you can take the time to acquire a second passport by residence, including learning some of the local lingo, the advantages are huge. Both Uruguay and Paraguay have great visa-free travel. Feeling comfortable with your travel document is very important, so, in this case, I would definitely recommend the client goes with something from the zone he has been looking into.

“I’ve never been to Uruguay but I did the most research on Uruguay and it seems like a good country to gain citizenship. I must marry a local to get my citizenship in 3 years.  I’m told a great advantage of Uruguay is that you only need to be in  the country 3 months per year for 3 years if married and 5 years if single. I don’t know if this is true?”

Not exactly. A great thing about Uruguay is that although the normal waiting time for a passport for a single person is five years, anyone who is part of a “family unit” living in Uruguay can apply for naturalization and passport after three years. This does not necessarily mean you have to marry a local. It just means that if you have family in the country, it shows a greater committment, and therefore the waiting time is reduced to three years.

Marrying a citizen of any country is fine as long as the married couple live in Uruguay. Gay marriages are acceptable too. A family unit could also consist of brothers, a father and son, an uncle and nephew etc. The point is just that you should have a significant other in Uruguay.

The time you have to spend there is not set in stone but I guess 4-6 months is about the minimum. The connection you have with the country is more important than the number of days you physically spend there. Buying real estate, for example, demonstrates a connection, as does having a local corporation, paying taxes and social security etc. These are the kind of things you can expect the Uruguayan government to check up on when it comes to applying for citizenship.

Living in Uruguay is easy. More details of expat life in Uruguay, for example, can be found at Ola Uruguay. In the areas where expats typically live, services are of first world standard and there is little corruption.

All this comes at a cost, however. Compared to the rest of Latin America, both real estate and the cost of living in Uruguay is high. In the jet-set hideout of Jose Ignacio, a trendy village half an hour east of Punta del Este, I thought I was in London or Paris when I saw the restaurant bill!

So that’s living and obtaining a second passport in Uruguay, but what about taxes? For more details of Uruguay residence and citizenship, I am currently working on a free report that should be available during the summer to Q Wealth members. The report will take into consideration the new tax situation in Uruguay announced in May 2010, where for the first time Uruguayan residents (both citizens and foreign residents) will be subject for the first time to taxation on their worldwide income. If you would like to get this report as soon as it comes out, and without having to remember to check back here from time-to-time, let us know here: Uruguay Residence and Citizenship.

Now, for young-at-heart individuals with a sense of adventure and a slightly higher tolerance for risk (or perhaps an appetite for profit?) there is a wildcard choice: Paraguay. One might choose Paraguay over Uruguay because:

• you can apply after three years for citizenship, with no need to worry about family units
• no need to buy real estate: $5000 deposit in a local bank is enough
• costs in Paraguay are much lower
• it’s a country full of business opportunities
• it’s more anarchic than Uruguay, meaning less control and more freedom… for example, nobody is really going to count how many days you are there. Having residence on paper is enough.

I’ll be writing more about second citizenship opportunities in Paraguay in the second part of this article, which will be published in a week’s time. In the meantime, we have another article here: Paraguay Second Citizenship