Why Investing in Agriculture is Good for Everyone?

The constantly growing demand for food combined with increased pressure on available farmland means investing in agriculture is an excellent opportunity for smart investors looking for steady returns. It is also a great hedge against inflation and can be used as a portfolio diversification (exhibiting non-correlation to stock and bond markets).

The Food and Agriculture Organization (FAO) projects that by 2050, population and economic growth will result in a doubling of demand for food globally. The rising middle-class affluence in Asia and Latin America are also fuelling a growing demand for a wider variety of crops, while the demand for organic produce has been growing in double figures annually for the past 20 years.

All of this is happening at a time when less and less agriculture farmland is available due to the growing demand for housing. Clean water resources, needed for agriculture, are also reaching their limits in many regions. In fact, most of the arable land suitable for farming is already under cultivation.

You can invest in agriculture in the following ways:
– Commodities Contracts or ETFs
– Agriculture Company Stocks or Mutual Funds
– Farmland or Land Backed Produce Yielding Farm Opportunities

Historically buying or selling contracts for future crops like soybeans, rice, sugar or wheat was the rather complex way to invest in agriculture. ETFs (Exchange Traded Funds), which trade like stocks and follow the price of a commodity instead, have made this process easier. However, commodity investments are high-risk and affected by countless variables. Severe droughts, flooding or any other random acts of nature can trigger significant seasonal losses even within agriculture’s predominant upward trend.
Buying stocks in food production or farming supply companies, or agricultural sector mutual funds offer a more conservative route into investing in agriculture. However, the values and potential profits will correlate with the overall market sentiment and wouldn’t shield the investor from the effects of a stock market crash (even if the argument holds that the demand for food will continue the rise).

Investing in actual arable farmland, often referred to as “gold with a coupon”, is by far considered the most risk-averse option. It’s a physical hard asset in limited supply that shouldn’t lose in value and doesn’t correlate with the stock and bond markets. In addition, if managed properly, it will produce annual returns from the produce farmed on the land.

The only way to yield income from farmland you own was to become a farmer yourself or to lease your land to a farmer. However, companies like Paraguay AG Invest now offer a much easier and simpler solution. They allow investors to purchase part of a professionally managed farm (with fully titled land ownership). The farm manager will then plant, care for and harvest the crops on your behalf, and give you a share of the profits annually.

While this type of investment is totally passive, it still has the benefits from land ownership in a scarce asset (arable farmland) while producing annual yields from high demand commodities (your crops). Returns normally range from 10-35% ROI per year, depending on the crop and opportunity.

No investment in agriculture (or otherwise) is totally without any risk, and adverse weather conditions, pests or disease can potentially damage your crops. However, these risks can be mitigated through location, farm practices and insurance. E.g. the opportunities promoted by Paraguay AG Invest are located in areas not prone to adverse weather, managed by professional farmers and include an All Risk Insurance policy which covers any risk that could potentially lead to the loss of the investment, including fire, hail, frost, pests, theft, flooding, sabotage, etc.

Investing in the stock market or in real estate are traditionally the most common choices for anyone starting to build their wealth. However, both have endured significant volatility in recent memory and are considered overvalued by many experts. Hence it is important for Millennials to consider all options. Investing in agriculture, especially in produce yielding farmland, allows them to hold a hard asset which is likely to appreciate over time, while receiving annual returns which can be reinvested.

As Generation X is getting nearer to retirement, the focus tends to shift from risky volatile investments to safer ones. But most returns on traditional safe investments like savings accounts and bonds are negative these days when considering inflation. Hence strong consideration should be given to investments that keep their value while producing annual returns well into retirement.

Orange trees, for example, take 4 years to grow, but when cared for properly will then generate annual returns up to 35% for 25 years and more.

Baby Boomers are retiring at a rate of around 10,000 a day in the US. Many do not have enough saved for their retirement due to a lack of preparation and the stock market decline of 2008 and 2009. They’re looking for safe investments that can generate consistent annual returns to top up existing pensions.

While some agriculture investments take 5 to 20 years before they start generating returns, others, like vegetable or fruit greenhouses, will start generating returns within 2 years. In addition, income-producing farmland can generate returns for many generations to come, as crops can be replanted after their initial lifespan. So not only can agriculture investments cover financial gaps in current retirement plans, they can be passed onto the children and grandchildren to secure the financial wealth for the next generation.

Depending on what variables you include for the analysis and which starting date, you will find studies online backing each option. What is clear though is that farmland has been far less volatile. Considering the simple laws of demand and supply for both food and farmland, income-producing farmland should be given serious consideration in any investment portfolio.