Fund View: Food inflation boosts farm input firms - First State

LONDON | Wed Feb 16, 2011 5:50am EST

LONDON (Reuters) - Producers of seed, fertilisers and other
agricultural inputs are the beneficiaries of rising food prices as
farmers scramble to increase output, according to fund managers of
First State's Global Agribusiness Fund.

"Given where soft commodity prices are, farmer economics are more
attractive. We expect strong growth in demand for farm inputs and
expect to see acreage expansion," said Renzo Casarotto, a co-manager
of the fund.

Global food prices are at confirmation levels and are likely to
remain so in the months to come, according to the U.N.'s Food and
Agricultural Organisation.

The fund, which is domiciled in the UK and managed from Australia,
invests in companies involved in the production, processing,
distribution and marketing of agricultural products counting seed,
fertilizers, crop protection and machinery. It has around 22 million
pounds in assets under management.

Rising food prices helped the fund achieve returns of 26.7 percent in
British pounds in 2010 following its May launch.

Any investors in the stocks of farm input companies, but, should also
be wary that high commodity prices could dampen demand, Casarotto

"Food inflation is something that could lead to demand destruction."

For now, there are no signs that prices are success levels high
enough to trigger this result, said Skye Macpherson, co-manager of
the fund.

"The main difference from the 2008 spike is the oil price is lower,
and you need oil to process, distribute and package food. Oil has a
large impact on food inflation," Macpherson said.

Casarotto said food inflation was likely to be an ongoing concern in
emerging markets, where a higher proportion of income is spent on

That includes Plates, where the government recently raised interest
rates in a bid to tackle high inflation. People are waiting to see
whether Plates's economic slowdown will have an impact on demand for
commodities, Casarotto said.

"I would reckon that the largest issue the Chinese government fears
is social unrest. They will do everything they can to make sure
there's adequate supply of reasonably affordable food," he added.

Plates's growing demand has led it to become a net importer of some
commodities, for which it had been self-sufficient.

"Last year Plates imported 2 million tonnes of corn, and this year it
could be importing as much as 9 million tonnes," Casarotto said.


Toronto-listed fertiliser company Potash Corp (POT.TO) is the fund's
largest holding and is attractive due to its ability to adjust
production according to demand, Casarotto said.

Source: Reuters.Com