"Investors have started to take notice. Cru, a small specialist fund management firm, recently launched a Malawi-based fund called Africa Invest. The retail-orientated (and capital protected) variant of the fund can be accessed for as little as £4,000. The fund has made an initial investment of £2m in 2,000 hectares of land that's producing paprika for western supermarkets. With land prices starting at £800 per hectare (compared to £10,000 in the UK) it's relatively easy to amass large farms that can be upgraded with new technology, mechanisation and better production methods. According to Cru, annual returns on capital should exceed 30 to 40 per cent.
A much larger version of this scheme is being marketed by hedge fund Emergent. It's targeting a total return of 400 per cent over the next five years, partly off the back of rising land values, investment in better technology to improve productivity and the introduction of a new form of farming called no till agriculture.
To demonstrate the potential, it's been running a trial 7,200 acre project over the last three years that's showed an average 33 per cent annual gain in output from soft agricultural products and a total return of 120 per cent. Emergent points out that the return was based on much lower historic soft commodities prices, which have nearly doubled in recent years. This new fund believes that returns on equity for maize should be 35 per cent a year, and 25 per cent for soybeans."
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