In part one of our series on agricultural investing we noted that your investment could be as hands off as any other investment. But we also mentioned direct ownership of farmland.
Here, in the second Smart Investors Series article on ag-investing, we expand our look to include strategies that offer direct investment in farmland. We start with the ‘what’, move to the ‘where’, and then we take it a step further and cover socially responsible, sustainable—green—agriculture.
Much like investment in commercial property, if you’re planning on buying a working farm or other agribusiness, you’d better plan on hiring professionals to run it—or be an expert yourself with lots of time on your hands. The pros at TIAA-CREF, with about $4B directly invested in farming, realize up to 12% annually on their portfolio because:
“We have been able to identify tenants and local operators who employ responsible and modern farming practices.”
Even with professional farm managers on your team, direct investment in agriculture is a very hands-on proposition requiring lots of time, plenty of capital, and a long-term outlook.
Where Is That Farm?
When you look at investing in agriculture, you might be tempted to think of a tract somewhere in Iowa. And that could happen. In fact, our firm started nearly ninety years ago investing in agricultural land in California’s Central Valley.
But the reality is that these investments can be far from home. Significant investment is being made in areas as far flung as the Black Sea farm belt and projects spanning the African continent.
The Black Sea area, in particular, is enjoying significant agricultural development, after “...large falls in agricultural output and...strong decapitalization of the agricultural production system” caused by the collapse of state-funded economies in Eastern Europe. (See the Belgian government report in PDF format).
Australia is another popular destination for ag-investors because of their stable government and proximity to the huge Chinese and Indian markets.
So, if you’re looking at direct investment, be prepared to earn some frequent flyer miles.
Sustainable, Green Investing
“A growing population and limited natural resource base means that if current and future food and fiber needs are to be met, natural resources will have to be used in a more sustainable way.” The World Bank
Without a doubt, being earth-friendly is popular these days; investing is no different. What’s even better is that sustainable agriculture can be a more profitable investment. The Holistic Management Technique, developed by Allan Savory actually increases production while rehabilitating native grasslands. Mr. Savory developed his technique ranching in South Africa, but has successfully applied it worldwide.
In fact, Forbes reports that “...two South Dakota ranches are expected to double in value and in productivity over a ten-year period and to yield annual dividends on the order of 4% to 5% in the early years, increasing to 10% to 11%.”
The grass really is greener for investors putting their money into sustainable agriculture.
Talk To The Experts
It pays to be a smart investor. In this series of articles written by the experts at KerNors LLC, we share some of what we’ve learned about investing since we started back in 1924. Agriculture is part of those roots; our founder’s investments in Central California farmland were among our firm’s first ventures. Call today to get started.