Agricultural investment has performed much better than most other asset classes throughout history as growing populations demand more food to consume, more feed for livestock and now biofuels. At the same time frame, climate change, land degradation and development have eaten to the method of getting farmland, pushing the scales of supply and demand in the favour of those holding farmland for investment.
Investment into agriculture has consistently provided stable annual returns returns averaging 10% to 15% per annum over the last decade กระทรวงเกษตรและสหกรณ์, whilst the human race has consumed more grain than we’ve produced for seven out of the last eight years. Institutional investors like Jim Rogers have been using farmland investment as a highly effective inflation hedge for decades and Mr. Rogers has been often quoted as saying that agricultural investment, in the proper execution of farmland investment, is probably the best overall asset for investment this with this new decade.
Just what exactly is the better agricultural investment, and just how can investors with use of smaller pots of capital participate in agricultural investment and utilise the reduced risk, high returns investment strategy that has been employed by institutional investors for many years?
Many structures can be found on the open market for retail investors, with options to choose form including farmland investment, investment funds and operating a farm yourself and selling crops. You also have a variety of geographic area on which to target including Eastern Europe, the UK and the US. Deciding on the best agricultural investment will depend on the way the length of time you need to tie up your capital and your attitude to political risk.
After carrying out extensive research and due diligence on the the kind and structure of each type of agricultural investment along with past performance of your target farmland or fund manager, you can narrow down your selection to a small number of investment projects or strategies.
Deal Structure for Smaller Investors
Smaller investors will take part in Agriculture by buying farmland and then renting to a player to control the growth and sale of crops. The investor will own the land and will be given a rental income from the investment of up to 7% per annum, whilst the farmland is going to be professionally managed, harvested and the crops obsessed about by the farmer. This sort of buy to let deal structure allows smaller investors to participate in agricultural investment in quite similar way as institutional clients have done, provided the smaller investors can source investment farmland.
You can find farmland investment products that design risk out of agricultural investment, with tenant rent to get options, allowing the farmer tenant to buyback the farmland form the first investor after a fixed time period. This provides the investor having an exit strategy and it can also be possible to build in further risk mitigation by securing a minimum buyback price to the rental contract with the farmer.
So, In my opinion, the most effective investment in agriculture would include a deal structure that designed out the risks of agricultural investment by choosing to purchase farmland with farming tenants already set up paying rents and with the option to get the land for a minimum price in a few years time. In my search to discover the best farmland investment, location is vital and the fundamentals of the UK farmland market are very favourable right now.
The best agricultural investment then, with regards to timescale and risk would for me, be farmland investment in the UK, with an offer structure set up to ensure a minimum risk level for the investor.