Investing in farmland: Meeting the global demand for food


Investing in agricultural land is a strategic way to capitalize on the ever-growing worldwide demand for food. This investment opportunity is strengthened by several key factors.

## **Global population growth**

The world's population is consistently increasing by over 67 million people every year, and it's projected to reach 9.7 billion by 2050. To meet the surging demand for food, agricultural producers will need to double their output from 2010 levels. This requires an annual growth of at least 1.73% in total factor productivity (TFP). Although global agricultural TFP has been growing by an annual rate of 1.63% since 2002, it falls slightly short of the required rate. This shortfall is mainly driven by constraints in developing countries, and as the population continues to grow and land remains limited, there will be continuous pressure on food-producing land prices.

## **Growing middle class and protein consumption**

Developing nations are witnessing the rise of a growing middle class with increasing prosperity. This demographic shift leads to greater consumption of protein, particularly major meat proteins like beef, pork, poultry, and lamb. The shift towards higher protein consumption significantly increases the demand for grains used in feed, further driving the need for agricultural production.

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## **Sustainable water resources**

Farmland with sustainable water resources is becoming increasingly valuable as water scarcity becomes more prevalent. Water is vital for agricultural production, and agricultural exports serve as a method of transferring water from countries with abundant resources to those with less. Regions with secure water access are poised for enhanced valuations.

## **China's shift to importer**

China, with a significant share of the world's population, has limited arable land, and its supply is diminishing due to urbanization. Clean water challenges further restrict its agricultural potential. As China's population grows and diets improve, it becomes increasingly reliant on agricultural imports, affecting the global market.

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## **Direct investment in global farmland**

- **Diversification:** Farmland as a distinct asset class diversifies portfolios, reducing risk. Low correlation with other assets, acting as a hedge during market fluctuations. Geographic diversification across various regions and economic dynamics.
- **Inflation protection:** Tangible hard asset, effective hedge against inflation. Rising food demand maintains high agricultural commodity and land prices during inflation.
- **Return potential:** Potential for long-term capital appreciation as arable land value rises. Income generation through crop yields and rental income from experienced agricultural operators. Embracing sustainable farming practices enhances productivity and value.

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## **Key features of farmland investments**

Investing in U.S. farmland has consistently provided strong returns relative to other asset classes, along with diversification benefits and inflation hedging. A global agricultural portfolio offers all these advantages, along with risk mitigation through diversified exposure to various economies. Global investments in farmland have the potential for higher returns due to enhanced diversification, faster growth rates, and lower valuations in emerging economies.

- **Historically strong return:** Investments in farmland, measured by the U.S.-only NCREIF Farmland Index, have consistently outperformed domestic stocks and bonds over the last 29 years, providing reliable income and capital appreciation.
- **Attractive risk-return characteristics:** Farmland offers strong returns per unit of risk compared to other asset classes.
- **Diversification potential:** Farmland investments have low correlations with stock and bond indexes, enhancing portfolio diversification. Global diversification further mitigates risk.
- **Direct investment in global farmland:** Investing in farmland is a strategic way to benefit from the ever-growing global demand for food. It offers diversification, inflation protection, and potential long-term capital appreciation, making it an appealing alternative asset class.

## **Conclusion**

Investing in farmland is a strategic move to benefit from the increasing global demand for food. It offers diversification, inflation protection, and potential returns, making it an appealing alternative asset class for investors looking to add stability and growth to their portfolios.

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Investing in farmland presents a strategic opportunity to capitalize on the rising global demand for food. Driven by factors such as population growth, expanding middle-class consumption, sustainable water resources, and China's shift to agricultural imports, farmland investments offer diversification, inflation protection, and potential long-term capital appreciation. Global farmland investments have historically shown strong returns, attractive risk-return characteristics, and diversification benefits, making them an appealing option for investors seeking stability and growth in their portfolios amidst a dynamic global market.

Investing in farmland: Meeting the global demand for food

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