Farmland Investments: Passing fad or here to stay?

by Vins

Over the years farmland has become a huge money making opportunity for many private investors. This is because the value of farmland often increases with inflation, but doesn’t move with the stock market. So in turn, farmland is promoted as an “inflation hedge” and offers a great way to reduce any investment portfolio risk through a diverse and different form of investment.

National governments have also begun to join in on this new investment venture. These governments’ similar concerns—regarding food security and farmers, who hope to “expand their plantings in response to growing crop prices”—is what has led to their interest in farmland investments. This sudden interest in using farmland as a portfolio investment has begun to contribute to land grabs in developing countries and, in consequence, to rising land prices in the regions of those countries with already developed land markets.

Farmland has drawn investments from individuals who are extremely well off and/or well known. Aside from celebrity investors, like George Soros, who have invested in farmland and agricultural investment conferences, institutionalized investors have become increasingly involved as well. These institutionalized investors include pension funds, hedge funds, university endowments, etc.

Asset management companies, who also act as investment intermediaries, have responded to investor interest by creating access to new farmland funds, but the extent of the capital markets’ interest is still low. However, since 2007, farmland from all over the world has become an alternative investment for those who are no longer interested in traditional investments. Many investors have become drawn to farmland because of what they believe it can do for them financially. Farmland has become a store value and a consistent source of capital gains. Farmland has recently been compared to gold in terms of how it is limited in quantity and can provide a safe haven for investors during unexpected or sudden economic declines.

Although buying farmland has become a more common practice, it seems to be a quickly passing fad. At this point in time, especially when the economy is factored in, the only way investment in farmland will survive is if large institutional investors and companies continue to support farmland and utilize/promote it as a smart investment move.

Source: Madeleine Fairbairn, “Farmland meets finance: Is land the new economic bubble?” Third World Network, July/August 2014, http://www.twn.my/title2/resurgence/2014/287-288/econ2.htm.

Student Researcher: Brooks Brorsen (Sonoma State University)

Faculty Evaluator: Peter Phillips (Sonoma State University)