An Introduction to Agricultural Investments
In the current investing climate, defined largely by economic uncertainty, low interest rates and volatile equity markets; investors are seeking out assets and sectors that are supported by solid, long-term fundamentals.
The agriculture sector offers investors a wealth of opportunities to capture growth and income. Whether buying shares in companies operating in the sector; or investing directly in agricultural productivity; Investors hope to capture sector wide growth and income driven by rising demand for food, feed and fuel.
Rising Demand and Diminishing Supply
Demand for agricultural commodities is rising fast; population growth is occurring at the fastest pace in history; and super-size populations in developing economies like China and India are spending their rising incomes on food and energy; demanding a more resource-intensive, western-style diet.
Furthermore, agricultural productivity is close to the limit of expansion using current technology, and millions of hectares of irreparable and irreplaceable productive land are lost every year to urban expansion, climate change and a host of other factors.
It is this backdrop of increasing demand for food, feed and fuel, coupled with a diminishing supply of productive assets that is causing value growth in basic assets like land and commodities, placing the agriculture sector high on the agenda of institutional and private investors alike.
Opportunities to Invest in Agriculture
Diversification is the bedrock of risk-management in portfolio planning, and the agriculture sector offers a host of opportunities for investors to participate in the growth and income derived at the most basic level from the production of food. The main options are agricultural stocks and agricultural land investment.
Investing in Agricultural Companies
Buying shares in companies operating in the agriculture sector offers investors liquidity alongside potential for exposure to sector-wide growth in the business of food production.
There are literally thousands of companies operating in the agriculture sector; including farmers, manufacturers, processors, distributors (retail and wholesale), and manufacturers of agricultural inputs such as chemical inputs or livestock feed. As the agriculture sector expands due to a continually larger population requiring more commodities; well-managed companies might capitalise on this growth in demand for their products and services, generating value growth and income for shareholders.
Whilst shares in agricultural companies may offer exposure to a growth market in general, it is quite simply not the case that every company will be able to capitalise on growth in their sector. As with any equity investment, investors are exposed to the vagaries of individual companies including the quality of management, market proposition and business infrastructure. It is also worth noting that any investment in stocks and shares carries a strong correlation to the performance of financial markets in general, and the value of an investment will certainly be impacted by general market sentiment and volatility.
For a more diversified approach to equity investing, one might consider investment funds with a focus on the agriculture sector. As with any managed investment, each fund will invest to a prescribed remit and may invest in specific countries or specific element of the agricultural supply chain such as growers, processors or distributors.
Investing in Food Production
Investors with an appetite for long-term capital growth, regular income, and investment performance with a very low correlation to financial market performance; might choose to invest in agricultural land, where capital growth is driven primarily by the income-generating potential of the asset, and long-term supply and demand fundamentals support future value growth and rising farm incomes.
Farmland been shown to outperform the majority of traditional investment assets, with much lower volatility over extended periods of time; making the asset class especially appealing to long-term investors seeking an element of portfolio insurance and a stable consistent growth pattern in order to offset the volatility often experienced in other assets. The impact of events in financial markets has been proven to have little impact of farmland values, thus protecting portfolios during periods of economic volatility.
Commercially viable farmland assets are large, often expensive, and require very specific expertise at both a sectoral and local level in order to assess and operate effectively. The high capital requirement often limits access to large investors, indeed a number of pension funds, university endowments and hedge funds have entered the market ; making substantial investments in various global regions.
Whether choosing to invest via financial markets, or preferring to head into the real asset space, the agriculture sector offers growth and income potential driven by basic demographic trends. It is a certainty that the sector will expand in order to accommodate 60 million new mouths to feed each year, but of course not all companies operating in the sector will flourish; so taking care in your stock selection in vital. Furthermore, not all arable land assets are productive, and specialist skills are required in order to property assess the risk involved in farmland investing.
Investment Fundamentals: The Impact of Biofuels
Investment Fundamentals: The Impact of Climate Change
Investment Fundamentals: Dietary Shift
Investment Fundamentals: Land Availability
Investment Fundamentals: The Impact of Population Growth
Investment Fundamentals: Agricultural Yields
An Introduction to Agricultural Land as an Asset Class
Farmland Investing Strategies I: Greenfield Developments
Farmland Investing Strategies II: Let Land
Investment Characteristics of Agricultural Land I: Capital Preservation and Inflation Hedging
Investment Characteristics of Agricultural Land II: Income and Superior Returns
Investment Characteristics of Agricultural Land III: Portfolio Diversification
Investment Characteristics of Agricultural Land VI: Simplicity and Transparency
Farmland Investment Risks I: Commodity Prices
Farmland investment Risks II: Operational and Geopolitical Risk
Farmland Investment Risks III: Liquidity
Farmland Investment Report Summary
How to Invest in Farmland