Investing in Sustainable Agriculture ~ Buy Farmland!
It’s often overlooked because it’s not particularly sexy to mainstream investors, but there is huge opportunity in global farmland and sustainable farming.
You see, global population growth has increased at a staggering rate over the past century, with an increase of one billion in the past decade alone and a projected world population of nine billion people by 2050. Yet today’s global food production continues to leave over a billion people undernourished.
The proliferation of a new middle class with an increased purchasing power in emerging markets, coupled with a shift in dietary trends, has increased the demand for meat.
This global population growth and an increasing reliance of the global livestock industry on grains for feeding its livestock has, in turn, led to an increased demand for grains that will continue to trend upwards.
Add to that the millions of acres of land lost to urbanization every year and the negative impact of extreme weather events, soil degradation, water scarcity, and rising temperatures on agricultural productivity, the increase demand for biofuels, and the “finite” nature of arable land to meet this ever-increasing global demand, and you’ll begin to understand why global farmlands — a prime asset — continue to be an attractive investment on a global scale.
Farmland investments are quite an attractive alternative or supplement to stocks. They can serve as a great hedge against inflation, and their performance doesn’t correlate directly with the stock market.
Farmland values across the globe have increased up to 1,800% over the past decade, with countries like Romania, Hungary, Brazil, Argentina, and Poland recording the highest percentage of increases in farmland values between 2002 and 2011.
Truth is, farmland continues to outperform residential and commercial property investments in many places across the globe.
Take Brazil, for instance. According to research from São Paulo-based consultancy Informa Economics FNP, the value of Brazilian farmlands has quadrupled over the past decade, outpacing inflation and matching gains by the São Paulo blue chip stock exchange.
When you take into consideration that the Brazilian crop areas are forecast to increase from 62 million hectares in 2010/2011 to 68 million hectares by 2020/2021, potentially expanding Brazil’s crop and livestock production by a factor of three, it becomes clear why Brazil continues to be a hot spot for farmland investments.
When visiting Asia this past October, I found that the Chinese interest in global farmland was evident, with high net worth investors as a top target.
Given that China’s population of 1.3 billion consumes approximately 20% of the world’s food and the country only has 9% of the world’s farmland, I foresee a continued upward trend in investments into global farmland by Chinese investors. This trend will affect the globe much in the same way the Chinese real estate investor has.
The U.S. farmland investment horizon is also promising. According to the Oakland Institute, a California-based think tank with a focus on agriculture, $10 billion in institutional capital in the U.S. is looking to purchase farmland over the next 20 years.
And as the current generation of U.S. farmers retires, an estimated 400 million acres of land will be up for grabs, creating ample opportunities for investors (although it should be noted that these investors will see competition from real estate developers).
By : Paul Benson – Tuesday April 15th, 2014