Investing in “The Most Important Issue Under the Sky”
Mr. Ding Xuedong, chairman of China Investment Corporation (CIC), has made an important announcement. He says China’s $650bn sovereign wealth fund is shifting its focus to invest more in agriculture and food supplies.
When it was established in 2007, CIC invested mostly in U.S. financial institutions. Then, in the aftermath of the financial crisis, it shifted focus to energy, metals and mining.
Now the fund will invest in food security, paying attention to local job creation and economic growth.
FAO says that global grain production needs to increase by 70% to meet the rising demand for food, which is driven by population growth, urbanization and changing dietary habits.
This is not impossible. There is no shortage of fertile land. Less than 30% of total cultivatable land in Africa is producing food at the moment. That excludes forests. Africa alone has an estimated 800 million hectares of land that can be farmed, but only 227 million ha are presently used to produce food. Crop yields are miserably low in many areas.
“The crops will not plant themselves,” says Mr Ding.
His organization knows that many governments are not up to this task. They simply don’t have the money. If African governments cannot fix the roads and provide healthcare or school meals, how can they fund food production? Private sector and institutional investors have to move in to fill the gap.
While private capital is edging towards food production, most investments have been in logistics, trade finance and shopping malls.
The funding drought afflicts infrastructure, seed and fertilizer supply, irrigation, protein production, processing equipment, food distribution, extension services, farmer education, and research.
A change is coming. “For the past 40 years, U.S. farmland investments have outperformed stocks and bonds,” says Mr Ding. Farmland values are rising, from Lusaka to Luanda and from Cairo to Capetown. Food companies are gearing up for the global increase in demand for food, as demonstrated by recent mergers and acquisitions. China’s Shuanghui, for example, bought America’s largest pork producer Smithfield.
“Food security is a global issue that no one can afford to ignore,” says Mr Ding. “We believe the agriculture sector offers stability, a way of hedging against inflation and a device for spreading risk.”
“To the people, food is the most important issue under the sky” says a Chinese proverb. The 2007-2008 food crisis may now seem a distant memory, but never forget there are just four days between civilization and chaos.
