The G8, the world's richest and economically powerful nations, wrapped up its annual meeting this past week. Aside from the usual trade negotiations and talk about restoring the world's economy after the recent downturn, one of the more interesting developments was a new food initiative for struggling nations. The International Food Policy Research Institute estimated that the total global annual agricultural investment required amounted to $14.3 billion for all developing countries. The meteoric rise in world food prices last year highlighted the underinvestment in agriculture in emerging countries. Recent estimates from the Food and Agriculture Organization, a division of the U.N., estimated that nearly 1 billion people will go hungry in 2009.
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The Basics of the Plan
The proposed plan would stretch over three years, with a proposed budget of $14 billion to $20 billion dollars. The United States pledged $3 billion to $4 billion over the period, with matching donations coming from the rest of the G20 nations. The assistance would come on top of about $5 billion a year that's already committed U.S. food aid. The proposed agriculture investment fund would be managed by the World Bank, with emerging nations applying for grants and receiving funds. The arrangement would involve a major shift from just supplying food to creating sustainable production, with strategic investments going to areas such as irrigation, fertilizers, genetically modified seeds and farm equipment. The plan calls for overall hunger reduction, but adds a distinct job creation and economic growth component.
How to Play the Agriculture Super Fund
The recent incentives by the G8 highlight a growing concern worldwide about feeding an ever-growing population. The long-term nature of this problem makes it worthy of investment. If the program is successful, several exchange-traded funds (ETFs) could be affected in a positive manor. Everything from the makers of farm equipment to the underlying commodities themselves are likely benefit.
Van Eck Global's Market Vectors Agribusiness ETF (NYSE:MOO) is the leading fund in the agriculture arena. Its 44 holdings span companies that manufacture tractors and equipment, produce seeds and fertilizers and maintain working farms. Companies such as Potash Corp. of Saskatchewan (NYSE:POT) and John Deere (NYSE:DE) round out the top holdings. The ETF should see the lion's share of the agricultural fund investment as emerging nations strengthen and move toward more modern farming techniques.
With a focus on the four diet staples of corn, soybeans, sugar and wheat, the PowerShares DB Agriculture ETF (NYSE:DBA) should continue to show results as pricing increases. The ELEMENTS MLCX Grains Index ETN (NYSE:GRU) and the iPath DJ AIG Grains TR Sub-Index ETN (NYSE:JJG) are also great ways to play the food staple commodities. (Please see The Upcoming Wheat Crisis for more on this.)
With an ever-increasing spotlight cast on sources of protein, the iPath Dow Jones AIG Livestock Sub-Index ETN (NYSE:COW) could also be a winner, as the G8's plan does not exclude livestock from its food production goals. The fund is weighted 65% in live cattle and 35% in lean hogs.
The G8's aggressive plan highlights a growing long-term problem: feeding people. Investment from the Ag Super Fund will go a long way in providing food for millions of people. At the same time, it strengthens the need for agriculture investments in investors' portfolios. Luckily, there are many great products that can provide investors with exposure to the agricultural sector. (The raw materials used in construction, agriculture and many other industries are subject to the laws of supply and demand. Learn more in our Commodity Funds 101 article.)