Agriculture Investment - How to Approach Agricultural Investment For the Private Investors
Investment in agriculture is now on the radar of both institutional and private investors, with many seeing the asset class as an ideal inflation hedge and a stable source of income in these uncertain economic conditions, here we will go some to explaining how the current market is lending itself to this type of strategy, and the various forms of agriculture investment, and lay out some of the best options available for investors.
The current climate can be defined by three key characteristics; lack of visibility, low interest rate, and the very real threat of inflation caused by quantitative easing and austerity measures. Essentially investors are nervous about stocks and shares because such limited economic visibility it is impossible to value companies and predict growth or depreciation in the value of shares, also we have lost the risk free income that we would normally accrue from cash deposits because interest rates are so low, and inflation will eat into o ur cash, effectively reducing our wealth.
So how does agricultural investment solve our problem? Let's take this opportunity to look at the simplest and most transparent form of investing in agriculture; farmland investment. Firstly farmland shares a positive correlation with inflation; having proven to grow in value quicker than the rate of inflation rises, therefore this type of farmland investment allows investors to grow their capital even in an inflationary environment. Also this mode of agricultural investment enables investors to capture income by renting their farmland to a commercial farmer who will work the land, this effectively replace the lost risk free income that cash would normally provide. Thirdly, investing in good quality farmland has an infallible track record of being low-risk, with a lack of supply and increasing demand for food pushing up values consistently. It is easy for a person of logic to see that demand for food will continue to rise in li ne with population growth, and there are fundamental limits to bringing any more farmland into production.
So agriculture investment in this form certainly fits the bill when weighed against the current economic climate, and provides investors with all of the ticks for their boxes. So how does one approach agricultural investment in the form of investing in farmland? The answer to this question is long and complex and many factors must be taken into consideration to ensure your agricultural investment turns out to be a profitable one.
Firstly one must consider location, UK, Europe, The America or Australia all present opportunities, but my advice will always be to invest locally, or at least within a structure that allows any future dispute to be handled locally.
Secondly consider the business model, do you want to buy the land and rent it out, or do you want to share in crop yields? I would always prefer to shoulder the commercial farming risk with the ten ant farmer and simply enjoy a stable rental income as any default is easily handled by evicting the farmer.
So agricultural investment, does provide income, growth and capital preservation, especially it times such as these, but anyone considering an agriculture investment should at least take on the services of an expert consultancy who will have the investors need at security as their priority. Whenever considering a farmland investment for my clients, it is paramount to properly qualify the requirements of each investor, only then is it possible to recommend a suitable type of agricultural investment.
David Garner is Partner at boutique alternative investment boutique DGC Asset Management Limited.
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