Farmland I: An Investible Asset Class?

Abstract

Farmland has gained significant attention in recent years by investors.1 Not surprisingly, since the start of the financial crisis, investors have been faced with economic uncertainty and poor investment visibility, periods of significant price volatility in many (mainstream) asset classes, inflation-related concerns, and dismal returns on fixed-income products (with only a few notable exceptions), and overall the fact that the monetary strategies deployed by many central banks in the world have perverted the proper pricing of risk of pretty much every asset around as pricing of assets ultimately feeds into the central banking rate. No wonder most investors were or are looking for hard tangible real assets that have a core capital value embedded, preferably with a pricing mechanism that shows no correlation with securities on the mainstream financial markets, where capital growth is driven by solid fundamentals, and where direct ownership (versus paper ownership) is a distinct possibility.2 Productive agricultural land ticks all those boxes, explaining the frenzy around agricultural land worldwide and the snapping up of land in often developing or even frontier nations by large overseas investors with a view toward benefiting from capital appreciation of farmland.