LONDON, (Reuters) – Funds are increasingly looking to  invest in farmland as a rising global population and changing  diets lead to growing demand for food crops.

But the emergence of the asset class is not without pitfalls  with the provision of food always highly political and a  tentative global economic recovery potentially threatened by the  H1N1 flu pandemic, fund managers said.

Some international development organisations have expressed  concerns that farmers’ rights in developing nations could be  compromised by what some see as a “land grab”.

“The case for farmland can be summed up in two words as far  as we are concerned, food security,” Susan Payne, chief  executive of Emergent Asset Management, said at three-day World  Agri Invest Congress which concluded on Thursday.

Payne said there were great financial rewards from investing  in farmland, citing factors such as a shrinking supply of arable  land due to climate change, increased production of biofuels and  the rapid rise in the global population.

Meat consumption in China is also on the rise, further  straining available resources. It takes several pounds of grain  to produce a pound of meat.

Payne said Chinese meat consumption had risen to about 40 kg  per capita from about 10 kg in the 1980s.

Craig Swanger of Macquarie Agricultural Funds Management  said food security also had a flip-side and any government  “lock-down” could deal a severe blow to the sector.

There were food riots last year as prices rose across the  world. Several governments imposed export controls in a bid to  dampen local prices and ensure there were sufficient supplies.

“If the sector hasn’t established credibility as an asset  class by that stage (the lock-down) it could kill it before it  gets started,” Swanger said.

The transfer of hundreds of thousands of hectares of land in  Africa, Latin America, Central Asia and Southeast Asia has  raised concerns in the international community.

“Lands that only a short time ago seemed of little outside  interest are now being sought by international investors,” a  recent report released by several international groups including  the United Nations Food and Agriculture Organization, said.

“This is rightly a hot issue because land is so central of  identity, livelihoods and food security,” it added, noting  rising agricultural commodity prices were making the acquisition  of land an increasingly attractive option.

Fund managers at the conference, asked to opt for the most  attractive areas to invest, mainly targeted regions with  abundant resources of water.

“Water is absolutely key for farming investments,” Payne  said, adding countries such as India and China would face  growing shortages of water over the next 10 years.

Clear land title was also seen as vital with fund managers  reluctant to invest in countries like Ukraine where they can  only purchase limited term leases.