Why are Investment Firms Buying Farmland?
Investment firms can’t stop buying … farmland?
The 7 largest investment firms are picking up the pace and scooping up as much available farmland as possible, per NCREIF. Between 2008 and the second quarter of 2023:
- Farmland property ownership by investment firms surged, increasing by 281%
- The value of their farmland holdings climbed to $16.2 billion, increasing by 800%
So, why are they parking their money on farmland?
Resilience against inflation
Farmland has all the components necessary to be resilient to inflation. Farmland generates income through agricultural produce, which is always in demand. The farmland available continually decreases due to real estate development on that land and climate change, making it more difficult to grow crops in certain locations. And there is considerably less movement in lease arrangements with farmland than commercial real estate (e.g., if an office building with 10 tenants loses a major tenant, that will impact its valuation immediately).
As a result, as general prices rise, so does the value of the agricultural products and the farmland that they’re produced on.
Hedge against equity markets
Historically, farmland has been uncorrelated with the equity markets. Investors can hedge against any expected volatility in the equity markets by purchasing farmland.
We need to produce more food
Farmland will appreciate as global population growth drives increased demand for food. The global population is expected to grow to 50 billion people by 2050, up from our current population of 8.1 billion. The United Nations predicts that even if we produce 60% more food by 2050, we will still have 300 million starving people due to the lack of proper access to food.
The burgeoning interest of investment firms in farmland underscores its attractiveness as a resilient investment product during periods of high inflation, hedge against market volatility, and the pressing need to sustainably meet the demands of a growing global population.
