subject: Green Investments Driven By Profits In Approach To Green Investing [print this page] Population growth has outstripped the availability of quality soil, which leads to higher prices for crops, particularly staples like grains. Despite recent volatility in soft commodities, the price is expected to increase over time. The gap between supply and demand, projected to widen in the coming decades, prompted Rafnsson to form Global Green Capacity Ltd., a real estate investment firm offering green and socially responsible investments to private and institutional investors. He sees land for cereal crop production as a way to grow stable profits, with expected returns of more than 20% per year.
Food supplies would have to increase by more than half just to meet the basic needs of the more than 9 billion population predicted by the United Nations for 2050. Yet recent substantial private equity investments in agriculture are aimed primarily toward production of bio-fuels, ignoring food production.
Given that agricultural land is limited, this will place significant demands on the farming sector and all agricultural prices are expected to rise significantly over the next few decades, noted Rafnsson. Meanwhile, cereal production is predicted to show negative growth over the same period. People have to eat, and we have found a way to make substantial returns while filling that need. The deep, rich soil of Ukraine can be utilised to help meet rising demand and has the realistic potential to become the bread basket of Europe and Asia. The cost of Ukraine farmland is one of the lowest in Europe, while at the same time providing the highest return potential given the high soil fertility (the country has 40% of the worlds uncultivated black soil, the best for growing grain) and favourable continental climate with its optimum balance of sunshine and rainfall. The countrys intention to pursue membership in the EU is also a key factor.
New investment into large-scale farming in Ukraine is possible because individual farmers, to whom the land was given after the breakup of Soviet collective farms in 1991, lack capital to invest in agricultural technology. Around 22 million hectares of fertile soil have gone uncultivated. For an approximate 5,000 purchase per five hectares, Global Green Capacitys investors receive a lease on selected farmland (until a change in Ukraine law allows purchase) and 70% of net profit from crop sales. Yields are expected to be well above those of traditional investments and realise solid capital gains from land price appreciation. We expect the ROI to be approximately 15-18% the first year and average over 20% during the investment period, said Rafnsson. Investors buying between March and October 2010 will receive returns from the 2011-harvest to be paid out in January 2012. Investors have the option to sell their land back to Global Green Capacity for market price after five years. With a five-year exit possible, professional management, and solid financial and agricultural partners, the company sees this as an excellent opportunity for investors to not only cash in on rising crop prices but also to make a highly profitable land acquisition. Global Green Capacity has partnered with Stov Olstas-Lyon, a 15-year-old Ukrainian farm company that has successfully managed Eastern European farm ventures producing crops and livestock. Using state-of-the-art agricultural production technologies, Stov Olstas-Lyon will manage the project on site, cultivating, harvesting, transporting and selling the crop. Wheat, barley, rapeseed, sunflowers and maize will be planted in rotation based on market conditions.
We can show investors that socially responsible agriculture investments in the emerging markets ,can lead to both great profits and a better world for future generations.
by: Henrik Hojgaard
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