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Agricultural Commodities & Sustainable Investment

London, June 2013

F&C Viewpoint: Over recent months much attention has been paid to claims that investors are exacerbating commodity price inflation, as well as a focus on direct investment in productive assets (such as farmland), which have proven increasingly attractive. This has led to initiatives such as the Principles for Responsible Investment in Farmland which have sought to provide guidance on how to ensure such investments are genuinely sustainable.

Whilst these types of participation by financial actors have been the subject of intense scrutiny, less attention has been paid to the exposure investors have through their holdings in listed equities and bonds along the agricultural value chain. Such investments make up a sizeable proportion of portfolios, with the food, beverage and food retail sectors constituting almost 7% of the MSCI All Country World index.

With this in mind, F&C has undertaken engagement with 50 companies across the agricultural value chain over the past 18 months, and heard almost universal consensus that global food security was a material issue to companies, presenting significant risk at some points of the chain, and sizeable opportunity at others. F&C engaged with companies including: growers, crop science and machinery companies, trading houses, food producers and retailers.

The Viewpoint downloadable below from F&C highlights the urgent need for companies to develop strategies on food commodity supply risks and opportunities:

  • With a response rate of 80% F&C identifies key areas for ongoing development for these companies as well as the challenges and opportunities these areas present:
  • Strategy with board oversight: Develop a strategy to manage commodity supply chain risks and opportunities, with evidence of implementation throughout the organisation and board level participation
  • Yield improvement: Contribute to capacity-building and knowledge transfer within the farming sector with the goal of enhancing and protecting yield
  • Suppliers: Reconsider input sourcing mix and potential opportunities for a shift towards more direct sourcing to improve control and visibility into supplier base
  • Waste reduction: Seek to increase efficiency and reduce waste within and beyond direct operations
  • Strategic partnerships: Work closely with peers, suppliers, industry bodies and governments to address systemic issues beyond the control of one company alone.

F&C will attend a key pre-G8 meeting to press the investor case for better transparency on land ownership.

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Download this file (AG_Commodities.pdf)AG_Commodities.pdf[ ]498 Kb