Food for Thought: Opportunity in Crisis
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.