ONE of the world’s biggest fund managers is to launch a £100m hedge fund that will buy up farmland across Britain to profit from booming food prices.

Blackrock, half-owned by Merrill Lynch, the investment bank, will launch the London-based fund next month as investors show an increasing appetite for the “soft commodities” market.

The price of wheat has doubled in the past year, with leading food producers warning that price increases will be passed on to consumers this autumn. Even the United Nations has warned it will struggle to afford the rising cost of feeding the world’s starving millions.

The boom in wheat prices has attracted a new wave of agricultural speculators – including hedge funds and pension schemes.

The new Blackrock fund is expected to be managed by Graham Birch and will be available only to institutional investors. A well-placed source said: “It is the talk of the commodities market. There will be three strands to the fund – buying futures in wheat and other commodities, buying shares in firms profiting from the higher prices and, most interestingly, actually buying up farms.”

Blackrock is the world’s largest quoted asset manager and last year merged with Merrill Lynch Investment Management.

Schroders, which launched an agricultural fund last year, is considered to be the leader in the sector. Christopher Wyke, Schroders’ product manager for its agriculture fund, said: “Our view is that we’re probably in year one of a 20-year bull market in agriculture. Prices have been flat for 25 years and they really only started rising in the last year. If the price of bread doubles, we will all whinge, but we all have to eat.”

Neil Campbell, joint portfolio manager of the Axiom Opportunities fund, which invests in agricultural commodities through other hedge funds, said: “It’s gone berserk, but if you want exposure to wheat, it’s very difficult.

“These commodities have not attracted institutional money for 20 years, so there was no expertise. Over the past 10 years there has been money going into energy, metals and mining. Softs and agris have been overlooked.”

“Exchange-traded funds” for wheat were also launched last year, allowing private investors in for the first time.

Nik Bienkowski, head of listings and research at ETF Securities, said: “You’ve got record low inventories. Wheat is the lowest it has been for 30 or 40 years. Alternative fuels – sugar, corn, wheat – are being used to make biofuels.

“China used to be an exporter and is now becoming a net importer. Whereas previously people would have been asking what are agricultural commodities, now we have £500m to £600m in our products.”

Birch is a highly rated gold expert who has managed the £900m Merrill Lynch Gold & General fund since 1999.

This week, Brussels announced it was suspending the system that pays farmers millions of pounds to “set aside” their land. The move is aimed at encouraging farmers to grow between 10m and 17m tonnes more grain next year to make up for this summer’s poor harvest.

EU farm commissioner Mariann Fischer Boel warned: “A poor 2008 harvest combined with 10% set-aside would expose the internal [EU] market to potentially serious risks.”

On Thursday, consumer associations in Italy held a pasta “strike”, asking people to refrain from buying the national dish for a day to protest against price rises. The price for durum flour, the main ingredient for pasta, has almost doubled in the past two months.

Times Recommends

• ‘Lame duck’ fear for FSA as chief quits
• Storm over bailout of EU's most ailing economy
• Northern Rock to drop 100% savings guarantee