Very attractive investment case
The agricultural sector faces great challenges in feeding the world in the future. Global population is expected to grow significantly, potentially reaching 9.8 billion by 2050 (UN, 2017). Rising global incomes are further increasing the demand for food, feed and fiber. While demand for agriculture products is increasing steadily, the supply side is constrained by decreasing growth in production yields and limited arable land availability. Access to freshwater is increasingly constraint by overuse of aquifers and impacts of climate change. So the focus of production will increasingly shift to areas with excess water and reliable rainfall patterns. Trade in soft commodities can be seen as trading virtual water.
Agriculture is a very attractive investment case given that it has a compelling risk/return profile, provides capital protection and a hedge against inflation, and offers significant diversification benefits, given its low correlation with other asset classes.
The downside risks are limited by the underlying land prices, which have proven remarkably stable even in times of market turmoil. At first glance an investment in agriculture might appear to be simple and straightforward, just buy a piece of fertile land and hold it until profits start flowing in.
However, the truth is that overall returns on agricultural investments are influenced by a wide range of factors: from weather risks to political interventions to the inherent illiquidity of agricultural investments. Hence it is very important to understand what drives and influences returns.
FAO Responsible Investment Guide
Publisher: Food and Agriculture Organization of the United Nations (FAO)
Role: Co-Author of Responsible governance of tenure: a technical guide for investors
Primary Agriculture: Investing in Farmland-Based Assets
Publisher: EBG Capital Ltd.
Role: Publisher of ground-breaking White Paper on investments in primary agriculture
OECD-FAO Guidance for Responsible Agricultural Supply Chains
Publisher: Organisation for Economic Co-operation and Development (OECD), Food and Agriculture Organization of the United Nations (FAO)