Demeter Finance //

Agricultural investment funds have a unique and critical role to play in fostering the expansion of the agricultural sector in developing countries. These funds focus on and contribute directly to economic growth, increased productivity and poverty reduction; with continuing and growing demand for food and other agricultural products, investors in the sector can expect to increasingly benefit in both the medium and long term.
Taking account of the new realities and new opportunities in agriculture and agribusiness, Demeter Finance has initiated an innovative regional multi-asset investment fund that will concentrate on synergistic project and portfolio investments and companies.
 
Background
Nearly half of the world's population --approximately three out of four people in developing countries--lives in rural areas.  An estimated 86 percent of these individuals consider agriculture their main source of livelihood. In developing countries, agriculture generates, on average, 29 percent of the gross domestic product (GDP) and employs 65 percent of the labor force. About two thirds of the world’s agricultural value added is produced in developing countries.

The new momentum within the agricultural sector represents a shift from a producer-led to a market-driven approach, one that promotes professional, economy-based enterprises with much stronger linkages within the farm-to-marketplace - value chain. This approach is also more holistic in that it focuses not only on production, agribusiness and rural infrastructure, but also on other aspects such as policy frameworks, long-term institutional development, empowerment of farmers and sustainable agriculture.
 
Incentives
Overall, a general mismatch between supply and demand in favor of the investor is evident. There are a number of factors that contribute to the increase in demand for agricultural products and consequently offer an opportunity and incentive for investors to enter the sector:
  1. The increasing demand for food commodities can partly be seen as a consequence of population growth and longer life expectancies. The global population is expected to increase from the current 6.8 billion to more than 9 billion by 2050, with much of the growth expected in developing countries, where the population of the current 5.6 billion is projected to reach 7.8 billion by 2050.

  2. Increases in purchasing power of the population in some emerging economies have led to further increases in food demand and changes in consumption patterns. The global middle class is expected to increase from 430 million in 2000 to 1.15 billion in 2030, with China and India contributing to the largest share of the expansion.

  3. The increased global demand for renewable energy sources, including biofuels continues, with demand for new energy sources expected to grow dramatically in the coming decade. Obviously, an increase in food crop growth and development is vital.

  4. Resources required for agricultural production such as land and water are scarce and cannot be replaced. With rising demand for agricultural products, resource scarcity will impact price levels and supply.

  5. Growing urbanization in developing countries is a major contributing factor in the decline of available arable land. The resulting rural-urban migration has brought about a shift of employment to the non-farm sector.

  6. Global warming is expected to contribute to further environmental degradation (e.g. through droughts and floods), impacting the availability and quality of arable land, thereby increasing relative demand as supply decreases.

  7. Another reason for the growing gap between supply and demand is the fact that, to date, investments in the agricultural sector have been insufficient to affect productivity and development.

  8. Investments in new technologies must be made in order to improve the quality of crops, reduce risk and losses, develop sustainable means of production and management of natural resources and increase efficiency: all are critical to creating and maintaining thriving economies and viable communities.
Unfortunately, increases in global food demand and prices have led to increased food insecurity. These factors have particularly importance and impact for governmental investors.  Even wealthy countries, such as the Gulf Arab States,  long dependent on food imports due to a lack of arable land and potable water, have begun to invest in agriculture abroad In order to ensure food security for their populations.

In addition, countries with growing populations, concerned with longer-term food security, such as India, China and Republic of Korea, have started to tap opportunities abroad in an effort to cultivate and produce additional food resources.
 
Opportunities 
Investment in agriculture can take many forms:  direct support for individual projects or, indirectly, through the creation of a portfolio of investments in agricultural companies or funds. The volatility experienced in the agricultural markets has led to an increased level of interest by investors who choose to engage in agricultural endeavors through investment funds. Investment opportunities are manifold and can include various agricultural subsectors and investments along the agricultural value chain.

Risks

Investments in agriculture are characterized by a variety of risks. While some of these are also relevant to other types investments in developing countries, agricultural production faces a number of specific issues, making investment in agriculture appear more risky than similar investments in other sectors of the economy. Agricultural risks are often classified into four categories: production, market, financial and institutional.
 
The Demeter AWE Advantage

At Demeter AWE we are able to help ameliorate the risk inherent in agriculture investments.  We bring to our clients and our projects a focus on agriculture, agribusiness and other areas linked to the sector and knowledge and experience in developing countries and transition economies.

Nevertheless, investors should always be aware that most investments in agriculture – not taking into consideration any speculative endeavor – are relatively long-term and do not allow for short-term profit maximization. The set-up as well as the daily operations of an agricultural investment fund requires a thorough understanding of the agriculture sector in developing countries.

Demeter AWE has that understanding and commitment -- to success--for our investors, our clients, and the communities of individuals all over the world who benefit from our projects.
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