Agricultural Farmland Investments
Farmland Investments - An Excellent High Yield Inflation Hedge
As we have noted on a number of pages, if you are worried about inflation, the best investments to protect yourself are so-called real assets that will rise in value along with inflation. If you are interested in a real asset that pays good current income and dividends, hedges against inflation and also has tremendous value, consider farmland investments. It is worth noting that Jim Rogers, our favorite investor today, is a huge fan of farmland as an investment and sees agriculture as the premiere asset class for the next decade.
Why invest in farmland? GreenWorld believes that farmland is among the best alternative investments for retail investors. In keeping with Green World’s theory that it is important for any investment to be on the right side of global macro trends, and as the graph from the UN demonstrates, the amount of arable land worldwide is dwindling. Simultaneously, the world’s population is forecast to jump to more than 9 billion by 2050 from 6.9 billion today. Simple economic principles of supply and demand dictate that when there is an increasing shortage of an asset combined with growing demand for it, the prices of that asset are likely to go up. This trend and the accompanying high prices for agricultural commodities has created a substantial concern amongst world governments around the issue of “food security” and has led many large institutional investors – including governments – to launch agriculture and farmland funds.
Shrinking Arable Land and Global Food Security
Just to summarize, the points below provide a good overview of reasons for including farmland in your portfolio:
1) Food inflation looks set to continue for the foreseeable future, as the amount of arable land globally is actually shrinking whilst the global population is continuing to grow. To meet growing global food demand the United Nation’s Food and Agriculture Organization estimates an extra six million hectares of additional farmland investment is needed every year for the next 30 years, creating a massive new opportunity for farmland investors.
2) Western central banks continue to use Quantitative Easing to create new money on a massive scale. Farmland is an excellent hedge against inflation, which is the inevitable effects of this printed money entering the real economy.
3) Farmland pays high current income and dividends from the sale of crops. As interest rates are near zero and likely to stay that way for some time, prudent savers are forced to look elsewhere for current income. Farmland is an excellent option for obtaining that income.
4) Farmland stands out as an asset class that can be a safe haven from global financial and economic instability, as it provides diversification to a portfolio since farmland does not respond to the same factors as those which influence financial assets such as stocks and bonds.
5) Finally, investing in farmland is also a play on China’s continued rapid growth. One of the places where arable farmland is shrinking quite fast due to development is China, and indeed China has now become a net food importer, causing great worry in the government about the issue of “food security”. With US$3.1 trillion of reserves, when China wants or needs something, it goes out and buys it. Food and farmland are no exception, and indeed China has been buying farmland all around the world.
One other point worth noting is that GreenWorld’s favorite investor, Jim Rogers, has long been a huge proponent of investing in farmland. Rogers believes that we are only in the “third inning” of the farmland story, and the asset class still has plenty of room to run. It is also worth noting that Jim Rogers also “eats his own cooking” so to speak, as he offers two farmland funds targeted at institutional investors, one of which invests in western Australian farmland, which is where one of GreenWorld’s farmland projects is located.
Jim Rogers speaks on agriculture and farmland funds
The next question to consider is how to invest in farmland? You could, of course, invest in a Jim Rogers farmland fund, but Jim Rogers’ funds target high net worth individuals or institutions with minimum requirements of hundreds and thousands of dollars. GreenWorld, by contrast, offers direct farmland investments for retail investors, with minimum requirements as low as £2,250. Furthermore, GreenWorld’s farmland investment projects provide for the direct ownership of the underlying agricultural land – i.e. the retail investor actually owns farmland directly, rather then having indirect exposure through an expensive (2 and 20) farmland hedge fund. It is now possible for individual investors to make direct investing in farmland a part of their portfolio, as there are an increasing number of projects where large tracts of land are purchased, and then individual parcels are sold directly to retail investors. These investments are a full “soup-to-nuts solution,” as everything from the cultivation of the land to the planting and harvesting and the sale of the sale of the crops are performed by an existing farm manager who is part of the project. That means these are perfect passive investments for individuals looking to diversify their portfolios.
GreenWorld current offers the following direct farmland investment opportunities:
As an introduction to farmland investing, please feel free to download the following overview of this asset class. Please contact us if you are interested in adding the unique asset class of farmland to your portfolio!
