Agriculture offers attractive monetary returns

There is a positive relationship between agriculture investment and food price inflation. Investing into agriculture means hedging a portfolio against inflation.

15 October 2020 | Business

There is no better asset to own than one that increases in value over the long term and keeps pace with inflation. Frederico Van Wyk, Senior Associate: Eos Capital.

PHILLEPUS UUSIKU

Agriculture is one of Namibia’s most important sectors and is a significant source of economic growth and industrial transformation.

Most of Namibia’s population is dependent directly or indirectly on the agricultural sector for their livelihoods, says Frederico Van Wyk, a senior associate at Eos Capital.

As an investment asset class, agriculture offers attractive monetary returns. There is a positive relationship between agriculture investment and food price inflation, therefore, by investing into agriculture, you are hedging a portfolio against inflation.

Inflation is the increase in the prices of goods and services which reduces the purchasing power of the currency consumers are transacting with.

As a recent testament to this claim, during the Covid-19 restrictions, while other sectors were affected in the slowdown of economic activity, agriculture prices remained consistently robust, Van Wyk pointed out.

Agriculture investments have the benefit of diversifying a portfolio from public traded stocks, matches the return profile of pension liabilities, and gives exposure to agricultural land, which is a finite resource.

A growing world population and continued pressure to produce food will drive land prices and in doing so, investment returns. In many ways, investing in agricultural can be a strong and fruitful venture. There is no better asset to own than one that increases in value over the long term and keeps pace with inflation, he emphasised.

Ripple effects

The social benefits of investing into the asset class has numerous advantages. The sector’s significance is largely because of a potential for growth, through increasing productivity to ensure food security, skills development, creation of employment and poverty eradication, export opportunities and reducing dependence on imports.

In addition, agriculture is a catalyst to industrialization and encourages investment into infrastructure.

Investment in agriculture is important because empirical evidence suggests that improved agricultural performance has the potential to reduce poverty, increase household incomes, make food affordable, and spur structural transformation, thereby contributing to overall economic growth and environmental sustainability, Van Wyk says.

Despite the importance and potential of agriculture in socioeconomic development, investment in the sector has been relatively limited. Multiple factors are responsible for the underdevelopment of agriculture and its low levels of investment, but risk is one common factor.

However, with precise planning and oversight, these risks can be mitigated. Natural disasters can be managed through technology, greenhouses, and infrastructure. Hedging instruments can be implemented to manage exchange risks that directly impact inputs costs and the sale of export goods.

Trade barriers remain a key risk but taking advantage of advantageous trade regulation should be a key input into structuring investments. Choose the right fund manager such as Eos Capital that will give access to a diversified agriculture fund instead of a single investment, one that is regulated and registered with Namfisa, and has the skill and experience within the agriculture sector, the senior associate pointed out.

Finance

Accessibility to capital for emerging farmers is a key success factor for a strong future agriculture sector, and Eos Capital, Namibia’s leading private equity firm, is committed to the growth and development of Namibia and the surrounding region through meaningful investments and progressive impact, he said.

The Euphrates Agriculture Fund aims to bring about an agriculture renaissance in Namibia. Its mission is to facilitate the industrialization of the agriculture sector, deliver social impact and provide medium term returns to investors.

Through its patient and responsible investment into efficient local value chains it will improve food security and provide additional employment and income to farmers, entrepreneurs, and laborers alike, Van Wyk added.

Eos Capital’s strategy and decision for launching the Euphrates Agriculture fund is to address the challenges faced by the agriculture sector in Namibia, and to focus on boosting its productivity and sustainability by means of an unlisted manager solution, the senior associate concluded. Contact the Eos Capital team today, [email protected][email protected]

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