Sovereign wealth funds’ appetite
for agriculture and fertilizer companies is growing as concerns
about stable food supplies rise.
Last year, Ding Xuedong, chief executive officer of
China Investment Corp. (CIC), the country’s
$650 million sovereign wealth fund, put the the issue of food
security squarely on the agenda for state-owned investors. In a
June 2014 op-ed piece for the
Financial Times, he wrote that the fund was planning to
partner with governments, multilateral organizations, and
institutional investors to increase world’s food
supply and generate profits.
CIC is not alone. Other sovereign wealth funds are
acting to protect their countries from food shortages,
particularly in the Middle East. They are plowing money into
land, farms and forestry as well as agricultural businesses. In
the last 10 years, 14 state-owned funds executed 51 deals worth
at least $11.1 billion in the industry according to Sovereign
Wealth Center (SWC) data. These include the Abu Dhabi
Investment Council (ADIC), Singapore’s GIC and
SWF Direct Investments in Agriculture by Sub-Sector, 2005-
For some, its a matter of national security.
Qatar, for example, depends on imports for more than 95 percent
of its food products. Just seven countries supply 75 percent of
Qatar’s food imports, and the government sees this
exposure as an unacceptable risk.
Qatar Investment Authority (QIA) is seeking to hedge the
state against possible food price increases. It is doing so
through a series of diverse investments. In 2008 QIA-owned
Barwa, bought a local partner, Hassad Food Co., from its parent
and financed it with $1 billion to invest in agricultural
companies around the world. Hassan, originally intended to buy
existing food companies, is now purchasing and developing
Target Regions of SWF Direct Investment in Agriculture,
2005-’15 (Number and Total)
In 2009, Hassad paid $200 million for 200,000
hectares of pastures in New South Wales, Queensland, Victoria
and Western Australia and invested $100 million in a joint
venture with the Sudanese government to cultivate 8,094
hectares of wheat, corn and soy in the northern part of that
country. The same year, Hassad hired Oman’s
A’Saffa Poultry to develop a $68.5 million poultry
project to secure food supplies in Qatar.
There are hurdles. Investing in Latin America
became more challenging in August 2010 after the Brazilian
government blocked major land purchases by foreigners. That
year, QIA pulled out of a sugar project in Brazil due to
regulatory challenges. The fund invested in one of South
America’s largest agribusinesses, Buenos
Aires-based Adecoagro, via
its Al Gharrafa Investment Co. subsidiary.
Sovereign funds paused their agricultural
investing in the region after 2010 due to strengthening local
currencies and rising prices. Now some sub-sectors are becoming
attractive. In Brazil, the world’s largest sugar
market, an increasing number of cane mills are going bankrupt,
offering investment opportunities as they restructure their
"We have a lot of stuff in our pipeline and Brazil
is definitely part of that, not only sugar but also poultry,"
said Youssef Hegazy vice president for business development at
Hassad Food, at the Global AgInvesting Middle East conference
in Dubai last month. "We realise there are structural issues in
both industries in Brazil, like high debt," Hegazy added.
Sovereign funds are also moving into the
complementary chemical sector, committing capital to potash
mines and fertilizer-makers. Since 2005 the Sovereign Wealth
Center recorded 8 such investments for a total of just over $3
Top SWF Investors in Agriculture: Asia Pacific Funds, 2005
– 2015 (Number and Total Value)
SWF Investors in Agriculture: Middle Eastern Funds, 2005
– 2015 (Number and Total Value)
In one deal, in September 2013, CIC moved to
bolster China’s position in the potash market.
China is the world’s largest importer of the
fertilizer, which is part of an oligopolistic industry. CIC
converted bond holdings in OAO Uralkali into a 12.5
percent equity stake in the Russian company, taking a seat on
its board and gaining insight into its pricing policies.
Producers are no longer tied together in a cartel and big
potash importers like China and India have benefited.
Still, the most valuable assets involve the
trading of soft commodities, like wheat and cotton, food
processing and agribusiness services, such as storage.
Sovereign funds were involved in with 23 transactions for a
total of $5.6 billion since 2005. In 2012 when
Singapore’s state investor
Temasek Holdings, defended one of its portfolio companies,
the Singapore—based Olam International—a
world’s leading trader in cocoa, coffee and rice
—from a 2012 short-selling campaign.
Muddy Waters LLC, a California firm founded by
short-seller Carson Block, accused Olam of poor accounting
practices. Muddy Waters, had a strong track record ferreting
out dubious businesses. In 2011 it accused Toronto-listed
Chinese timber company Sino-Forest Corp. of accounting fraud.
Although Temasek in 2007 bought a 15 percent stake in
Sino-Forest, it never disclosed if it incurred any losses when
Sino-Forest went bankrupt.
Following the publication of Muddy
Waters’ research, Olam’s share price
cratered in the U.S. over-the-counter market, and the
Singapore Exchange suspended trading in the stock for one
day. Temasek pumped $712.5 million into the company, boosting
its stake to 24 from 16 percent. A year later, in March 2014
Temasek moved to take over Olam for $2.1 billion.
In September 2014, only three months after
CIC’s CEO Xuedong pledged to invest more in
agriculture and food suppliers the fund announced it was
selling one-third of its holding in Hong Kong-based Noble
Group, a big commodities trader. As CIC sold , Chaoyang,
Corp., bought 51 percent of Noble's agricultural trading
arm, Noble Agri for about $3.2 billion. COFCO brought in a
consortium, led by Temasek’s regular deal partner
Hopu Investments, a Beijing-based private equity firm, to
finance one third of its stake.