5 Reasons Investors Are Going Crazy For Farmland
It may seem a radical investment made by those who believe the end times are coming, but with food prices soaring, farmland could be on the brink of a serious bull market.
It’s not just investors like Jim Rogers in the market, but countries too seeking to secure their food future.
Of course farmland investment comes with its own challenges. It requires a long-term commitment. Weather volatility and political instability could slam your investment in the short-term.
But if you have the patience, and the money, farm land could be of huge use to you.
#1 Food demand is rising
Detail: The fact that food inflation leads core inflation in most countries reflects the rising demand for food and soft commodities, like corn and wheat. With food security threats sovereigns are rushing in to buy up land and farmland is becoming increasingly scarce.
#2 Inflation is red hot
Detail: Farmland is like gold, because there’s a limited amount in the market a demand causes a jump in prices. Globally, it has appreciated at a rate 2% higher than inflation since the 1950s according to Marketwire.
#3 Farmland offers stable returns
Detail: The NCREIF Corn Belt Farmland Index has had total returns of 11.43% from January 1991 to December 2008 according to Agrinuity.
#4 Farmland offers portfolio diversification
Detail: Developed markets are a better fit for investors concerned solely with wealth preservation, according to a report by Savills, even though values are higher, reflecting the sophistication of the agricultural industry. These include Western Europe, USA, Canada, Australia and New Zealand.
#5 You can get tax breaks for buying farmland
Image: s.yume via Flickr
Detail: In the U.K. income off farmland investment benefits from tax planning advantages like IHT (inheritance tax) relief if you’ve lived on the land for two years. Property owners also benefit from a business relief for 5 years if their farmland makes a loss. The U.S. and Canada offer tax incentives as well.
Detail: Foreign investors own 5 million hectares (approximately 12.4 million acres) of Brazilian farmland according to The Rio Times. In 2010 then President Lula da Silva had announced measures to clamp down on foreign land ownership but the government has since told investors it isn’t looking to block foreign investment. With 19% of the world’s arable land which sells at an average price of $2,700 per hectare (approximately 2 1/2 acres), it is no surprise that Brazil is a popular investment destination.
Big investment: In 2010, Macquarie Group backed AMERRA Capital and Bunge Capital announced that it was looking to invest in Brazil according to Reuters. Phil Corzine’s South American Soy LLC already owns 3,600 acres in Brazil which has upcoming projects in the $5 – 50 million bracket.
Headline: African countries have recently been selling and leasing vast quantities of land to sovereign wealth funds looking for food security
Detail: Unfair land grabs in Africa have resulted in many countries leasing their land, instead of selling it outright. Tanzania allows for land ownership, dry land and land for pastures and grazing ranges from approximately $ 900 – $1,080. Land for plantations and with irrigation facilities can cost between $3,600 – $5,400, according to Savills.
Big investment: Pharos Miro Agricultural Fund, a joint venture between U.A.E.’s Pharos Financial Group and London-based Miro Holdings International, is looking is looking to invest $350 million in farmland across Africa and Europe and is looking to lease about 50,000 hectares (approx. 123,550 acres) for 98 years, according to Reuters.
Image: U.S. Agriculture Dept.
Headline: Farmland prices have been on the rise in the U.S. in keeping with rising corn prices
Detail: In Iowa the best land saw its value increase by 13% up to about $5,000 per acre while Minnesota had a comparable 12% increase selling between $4,000 – $5,000 per acre. Jason Henderson an economist with Reserve Bank of Omaha told the AP:
“We’re starting to see more interest in farmland purchases by nonfarm investors,” Henderson said. “It’s more attractive than other kinds of fixed income investments, CDs, stock market investments. It looks like an attractive rate of return for some investors.”
Big investment: UBS AgriVest customizes portfolios for clients with a minimum investment of $50 million. Its farmland investments amounted to $544 million at the end of FY2010’s third quarter, according to Barron’s.
Headline: Argentina offers some of the best quality land in South America and gives investors legal titles.
Detail: Argentina’s farmland value has appreciated 10% in 2010 and can cost up to $14,000 per hectare (approximately 2 1/2 acres) according to UPI.com. With upcoming elections in Argentina and potential policy changes to farmland investment, people are looking to Uruguay as well where prices can range anywhere from $3,750 – $9,000 per hectare, according to Savills.
Big investment: DGC Business Consulting Ltd. has 5 – 10 year investment options in Argentinian farmland starting at $16,000, which promise up to 14% annual returns.
Headline: Foreign companies have often tried to buy up Australian companies to get a foot in the commodities market and control land.
Detail: Investors are likely to venture into Australia’s pastoral land, livestock and horticultural farming, and its prices are more attractive than neighboring New Zealand. Australia’s floods and resulting crop disaster this year however provide the perfect example of risks in farmland investment.
Big investment: Spain’s Ebro Foods is trying to acquire Australian SunRice for $600 million. Swiss company Glencore International operates through its Australian subsidiary Glencore Grain which farms 300,000 hectares (approximately 741,000 acres) of land in Australia, Paraguay, Russia, Ukraine and Kazakhstan.