Farmland and agriculture were never considered as mainstream investment classes. However,
with a growing world population and the associated need for increased food production, many
professional investors are turning to agriculture and farmland as suitable medium to long-term
investments, especially as investors look to diversify their portfolios away from equities and into
tangible, alternative asset classes.
As a result, both private and corporate investors are increasingly entering the global marketplace
with a view to direct investment in agriculture and farmland. And so are sovereign wealth funds
that consider food security to be put high on their national agenda.
World’s population growth from 7 billion to 9 billion in the next 40 years: farmland is becoming an increasingly precious
Dietary shifts towards proteins in developing nations.
Climate changes, getting clearly noticeable
Continual growth of the biofuels industry will all add further importance to the limited supply of land that is available
for agricultural production across the globe.
Taxation and Wealth Preservation
Global equity markets have shown tremendous volatility over the last 5 years leaving a its effects
on the financial sector and forcing investors to emphasize preservation of wealth and to look more
at diversification of their portfolios.
Farmland is a direct, tangible asset with a limited supply and is considered by many investors to be
an excellent investment for wealth preservation as part of a diversified portfolio. Depending on
the investor profile, their aims and objectives, farmland could also provide a suitable vehicle for
wealth preservation through favorable taxation reliefs available on agricultural land and
Next to the increasing global demand for food, the 2008 world economic crisis has made the long-
term stability of agriculture look very attractive. Nowadays agricultural land can produce
reasonable cash flows and ‚ returns. It is a direct, tangible asset and a good inflation hedge. It also
has a low or negative correlation with other traditional asset classes such as stocks and bonds,
giving an interesting portfolio diversification.
Income and Capital Returns
The income and capital returns achievable on a farmland investment are subject to some variables
depending on location, management option, business strategy and some minor factors that affect
agricultural economics and farmland profitability.
Investing in the ownership of the farmland, however, enables an investor to capture both
operating profits and capital growth through a combination of income and land price appreciation
over a period of time. When taking into account the total combined returns, the investment
performance of farmland has consistently outperformed many other mainstream assets including
stocks, bonds and commercial property across a wide range of markets and timescales.
Understanding and managing risk is an important factor to consider with any investment, and
farmland and farming businesses contain quite some risks that need to be well understood and
managed. Some of these risks, such as climate and weather events, are obvious. But currency
volatility and global trade policies, are less so. Risks can be managed or mitigated provided the
investment is structured to take them into account. In evaluating the suitability of an investment,
potential investors should consider the various risk factors relevant to farmland.
With any investment, the exit strategy for the investor is an important consideration, and is driven
by their specific criteria and aims. In most instances, to achieve the desired returns from direct
investment in farmland and farming businesses, the investment should be viewed as a medium to
long-term hold, commonly longer than of five years.
In the short term, the year-to-year performance of a farming business is subject to any number of
external factors that may have negative as well as positive consequences. Modest performance in
the short term can be offset by positive performance over the longer term. A significant capital
outlay in the set-up of the farming business, allied to the necessary improvements in the
management and productivity of the land in the first two years of the investment, can result in low
annual returns on the investment initially. Over the medium to long term, however, the benefit of
these improvements is reflected in the returns subsequently achievable.
The exit is ultimately driven by the investor‚ investors aims and the prevailing market conditions at
certain times within the life of the investment. Investors who are driven by wealth preservation
may wish to hold the investment on an indefinite basis, whilst other investors will have set
objectives for the investment based on a certain time period, or once a specified performance
indicator has been reached. our company recognizes that each investor, criteria will be different,
and can therefore tailor the management of an investment to their specific requirements.
Paraguay – South America