FarmInvestor.com

Chongqing Grain Group Co Ltd, one of China’s largest State-owned grain companies, is intalks with Molino Canuelas SA, a major agribusiness group in Argentina, about jointinvestments totaling $10 million in a soybean farm and dairy farms in the South Americancountry.

This marks the beginning of a series of plans the Chinese group is about to carry out inArgentina.

It also follows its investment in a soybean production base in Brazil last year, as it steps up itseffort to meet the country’s growing appetite for agricultural products through investments inSouth America.

Agreements on the investments in Argentina – split 50-50 between the two companies – areexpected to be signed “within this year”, Claudio Canepa, industrial manager of the Argentinecompany, said in Buenos Aires on Wednesday.

The two companies plan to rent a 10,000-hectare soybean farm in central Argentina’sagricultural Cordoba province, with an expected annual output of more than 30,000 metric tonsof soybeans, and ship all the beans back to China.

According to the current farmland rental price in Argentina, investment in the soybean farmwould amount to around $6 million, and the remaining $4 million will be invested in dairy farmsowned by the Argentine company to produce dairy products for export to China, Canepa said.

“This is just the first step (in cooperation) for the two companies,” Canepa said, adding thatthey will also jointly invest in Chongqing in the near future.

The southwestern China-based group has emerged as a major overseas investor in recentyears. It said in November that it will invest $500 million to build a soybean production base,equipped with oil-crunching, refinery and processing plants, in Brazil’s northeastern state ofBahia.

The group also announced plans early this year to invest $1.2 billion in Argentina to grow corn,cotton and soybeans, according to Chinese media reports.

Overseas investments in South American countries’ agricultural sector could provide Chinesecompanies with cheap and reliable supplies, all the more important as the country has grownsteadily more dependent on the international food market in recent years, said Chineseagricultural analysts.

Most Chinese companies currently buy soybeans from international traders such as Bunge Ltdand Cargill Ltd. Direct purchases from the producers could cut costs by around 20 percent,analysts said.

In the meantime, closer ties with South American countries could also reduce China’s relianceon soybeans grown in the United States, they added.

China is the largest overseas market for US soybean farmers. It imported 52.6 million metrictons of soybeans last year, nearly half of which came from the US, accounting for 60 percentof total US soybean exports last year.

During the first five months of this year, China’s soybean imports jumped 20.7 percent year-on-year to 23.4 million tons, according to the General Administration of Customs.

The price of British farms will rise higher than any other class of real estate in Europe over the next four years driven by investors buying farmland to capitalize on growth in global demand for food and also to shield wealth and pay less tax.

Farmland values will rise 37 percent by 2016, beating forecast growth for gold, oil, ten-year British government bonds and homes in London’s most exclusive neighborhoods, according to data compiled by Oxford Economics and the research arm of property consultant Savills.

The United Nations’ food agency has estimated that the world will need to boost cereals output by 1 billion metric tons (1.1 billion tons) and produce 200 million extra metric tons of livestock products a year by 2050 to feed a population projected at 9 billion people, up from 7 billion now.

And diets in developing countries increasingly include items common in the West such as bread and potatoes, which will further boost the value of British farmland where such crops are grown, Savills director Alex Lawson said.

“Combined with that there are income tax, capital gains tax and inheritance tax advantages to putting your money in farmland,” Lawson told Reuters, referring to the higher levels of tax relief for farmland owners.

Farmland will even outshine offices in London’s West End district, where prices are kept high by companies like hedge funds and technology firms competing to rent a limited supply of space, the data showed.

“UK farmland will be the top performing real estate in Europe and potentially the world,” Savills head of rural research Ian Bailey told Reuters. “Supply is tight and demand is especially strong for arable crops like wheat and rape.”

This scenario has increased investors’ focus on agricultural land globally as an asset class. Grain, a non-governmental organization that promotes the sustainable use of the world’s resources, last year estimated that between $5 and $15 billion of pension fund money was invested in global farmland, a figure it said would double by 2015.

The average value of British farmland has trebled over the past decade to about 6,000 pounds ($9,300) per acre, though prices of 10,000 pounds and upwards can be paid for larger tracts of land and the high quality arable farms in east England.

The British farmland market is the most transparent and liquid in Europe, creating stronger levels of interest than markets like France from private investors and institutions which, combined with a limited supply, will fuel the price growth, Bailey said.

British farmland has broadly tracked the price of gold over the last several decades as a safe haven investment and defensive hedge against inflation, though the price of gold is expected to fall by 2016, Oxford Economics said.

Ralf Oberbannscheidt, portfolio manager at DWS Invest Global Agribusiness, which has more than two billion euros under management, said UK farmland was a good investment but warned that widespread private ownership left investors open to taxation from the government should crop prices rise dramatically, as opposed to in countries where a lot of land belongs to the state.

“There might also be other more interesting pockets globally where farmland is relatively cheap because the yield can be doubled or tripled with better technology,” he said, noting investors might not be able to wring as much value from UK land due to the country’s greater use of technology.

Last year, farmers buying land to expand accounted for 61 percent of purchases. Savills director of residential research Yolande Barnes said wealthy individuals and institutions are attracted to farmland’s safe annual agricultural yields of about 3-4 percent.

“It is an obvious no-brainer choice for most pension funds,” she said, though limited supply can make it difficult for fund managers to buy a sufficient quantity to have an impact on the overall portfolio balance.

“There is nothing flash about the income performance,” Lawson said. “But unlike an Icelandic bank, farmland is not going anywhere.”

($1 = 0.6427 pound)