CNBC.com | 8 November 2011
By James Longman
As the global financial downturn pushes investors into finding alternative business ventures, land investment has become an attractive proposition. With an increasing world population and dwindling land supplies, investment in the agriculture sector is emerging as both a money making—and money saving—exercise.
Clive Hopkins from real estate agent Knight Frank told CNBC: “During the recession, land has been pretty stable and resilient compared to other markets. We think the capital value of land will increase considerably in the short to medium period.”
Land investment offers a convenient way for high-wealth individuals, in Britain for example, to avoid inheritance tax, allowing the passing of assets down through the generations effectively tax free—which is a 40 percent saving in the UK. It can also mean an avoidance of capital gains tax which is particularly attractive to Europeans.
Investing in land, however, doesn’t necessarily mean owning your own farm, as there are a whole host of funds investing in arable land from Europe to Africa.
Susan Payne, chairman of EmVest Africa, which owns and leases land in sub-Saharan Africa, told CNBC: “Everybody seems to be waking up to the opportunity that Africa offers. In the two years to March 2011, the fund was up over 10 percent.”
Jonathan Davis, director of Genagre, which owns 4 farm clusters in Brazil, and develops land into farmland, is also optimistic. “The experience we’ve had so far suggests that it will continue to provide satisfactory returns and potentially very good returns.”
While obvious risks associated with agriculture are unpredictable weather as well as political instability, low yields are potentially the most serious drawback.
But investors are choosing land for its capital growth, not its yield returns. Since the 1930s, corn production has seen a six-fold increase in terms of crop generation per acreage, but this is unlikely to continue.
Geoff Burke, co-founder and managing director at Agro-Ecological Investment Management, explained why. “You’ve seen a significant drop off in the increase of yield per hectare…1-2 percent increase and even that is starting to flat-line, so the scope from producing more per hectare is relatively limited," he said.
“And you’ve also got increasing pressure on land use with populations expanding, so people have got to build more on land, which means they are taking that land out of agriculture production," he said. "Also climate change is having more of an impact.”
A larger number of extreme weather events, occurring more often and with a greater degree of intensity, have also affected land availability, Burke said.
Daniel Hough, agricultural product specialist at Macquarie Agriculture Funds Management explained how re-development is a good solution to the ever decreasing availability of land.
“Arable land on a per-capita basis has actually halved since the 1960s, so what you are seeing is the transformation of land," he said. “The Brazil story is a good one. They are not chopping down more rainforest; they are converting pastoral grazing land into higher value cropping land.”
As the global economy continues to face difficulties going into the New Year, commodities look to remain on the up despite volatility.
Organic specialist Burke continued: “Milk and protein commodities have seen good growth. You saw a bit of a dip when you saw the world economy go into recession but it bounced back pretty significantly."
“Demand out of Asia is very strong. North America is also a strong market," he said. Predictions are that commodities are going to be a little bit more volatile but the consistent pattern is that those values are going to go up.”
It seems then that as expected, the emerging consumer is continuing to drive prices up through constant demand of higher protein products.
Ending the discussion, both experts had their tips for good investments in the agricultural market. Burke suggested core proteins in the developing Asian market, whilst Hough recommended staples, such as grains and seeds, going into the international market.
By James Longman
As the global financial downturn pushes investors into finding alternative business ventures, land investment has become an attractive proposition. With an increasing world population and dwindling land supplies, investment in the agriculture sector is emerging as both a money making—and money saving—exercise.
Clive Hopkins from real estate agent Knight Frank told CNBC: “During the recession, land has been pretty stable and resilient compared to other markets. We think the capital value of land will increase considerably in the short to medium period.”
Land investment offers a convenient way for high-wealth individuals, in Britain for example, to avoid inheritance tax, allowing the passing of assets down through the generations effectively tax free—which is a 40 percent saving in the UK. It can also mean an avoidance of capital gains tax which is particularly attractive to Europeans.
Investing in land, however, doesn’t necessarily mean owning your own farm, as there are a whole host of funds investing in arable land from Europe to Africa.
Susan Payne, chairman of EmVest Africa, which owns and leases land in sub-Saharan Africa, told CNBC: “Everybody seems to be waking up to the opportunity that Africa offers. In the two years to March 2011, the fund was up over 10 percent.”
Jonathan Davis, director of Genagre, which owns 4 farm clusters in Brazil, and develops land into farmland, is also optimistic. “The experience we’ve had so far suggests that it will continue to provide satisfactory returns and potentially very good returns.”
While obvious risks associated with agriculture are unpredictable weather as well as political instability, low yields are potentially the most serious drawback.
But investors are choosing land for its capital growth, not its yield returns. Since the 1930s, corn production has seen a six-fold increase in terms of crop generation per acreage, but this is unlikely to continue.
Geoff Burke, co-founder and managing director at Agro-Ecological Investment Management, explained why. “You’ve seen a significant drop off in the increase of yield per hectare…1-2 percent increase and even that is starting to flat-line, so the scope from producing more per hectare is relatively limited," he said.
“And you’ve also got increasing pressure on land use with populations expanding, so people have got to build more on land, which means they are taking that land out of agriculture production," he said. "Also climate change is having more of an impact.”
A larger number of extreme weather events, occurring more often and with a greater degree of intensity, have also affected land availability, Burke said.
Daniel Hough, agricultural product specialist at Macquarie Agriculture Funds Management explained how re-development is a good solution to the ever decreasing availability of land.
“Arable land on a per-capita basis has actually halved since the 1960s, so what you are seeing is the transformation of land," he said. “The Brazil story is a good one. They are not chopping down more rainforest; they are converting pastoral grazing land into higher value cropping land.”
As the global economy continues to face difficulties going into the New Year, commodities look to remain on the up despite volatility.
Organic specialist Burke continued: “Milk and protein commodities have seen good growth. You saw a bit of a dip when you saw the world economy go into recession but it bounced back pretty significantly."
“Demand out of Asia is very strong. North America is also a strong market," he said. Predictions are that commodities are going to be a little bit more volatile but the consistent pattern is that those values are going to go up.”
It seems then that as expected, the emerging consumer is continuing to drive prices up through constant demand of higher protein products.
Ending the discussion, both experts had their tips for good investments in the agricultural market. Burke suggested core proteins in the developing Asian market, whilst Hough recommended staples, such as grains and seeds, going into the international market.
