These days, global financial markets are both volatile and uncertain. But despite today’s rocky financial climate, some investors have turned to a type of investment that has been around for centuries: agricultural land.
Indeed, major players on Wall Street such as George Soros have been investing in agricultural land in a big way. Some like Perry Vieth have even given up hot-shot positions as securities lawyers or fixed-income traders to capture a piece of the ripening agricultural pie – which has been growing by the day as food prices increase.
True, investing in farmland may not be as sexy as putting money into the latest tech start-up, but when global financial conditions sour, primary production such as agriculture has proven to be a safe haven for investment capital.
After all, food is something that will always be in demand.
And with a rapidly growing global population and food security issues hovering on the horizon, food prices are poised to skyrocket, thus sending the value of agricultural land through the roof. In particular, the growth of China and India’s middle class has swelled demand for agricultural stock, including big-ticket goods like beef and dairy.
Already investors are seeing some sizeable returns on their agricultural investments.
The Standard and Poor’s GSCI Agricultural Index of eight raw materials gained 5.3% annually since 2008, with the S&P 500 Index dropping almost 1% annually over that same time period. One investment fund in particular, Ceres Partners, saw annual gains as high as 16.4% since 2008. The bulk of agricultural returns have been made on land appreciation and on tenant farmers who pay rent to grow and sell crops.
Major hotspots for investment have been in the U.S., parts of Europe, Latin America, and Africa. Agricultural land purchases have been particularly contentious in Africa, as they have forced many subsistence farmers off their land.
The huge influx of investment dollars in global agriculture has some whispering warnings about the emergence of an agricultural bubble. But of course with the ramifications of the latest financial crisis still being felt around the world, fears of an economic bubble are still fresh on people minds.
Do you think that agricultural investments will continue to be a profitable form of investment in the future? Are people’s fears of an agricultural bubble well-founded?
Image CC licensed by Tim Hyde: Wheat Field at Harvest