Turn-Key Agriculture Investments From Timber To Fruit

The best investment during the 20-year period from 1994 to 2013 was U.S. farmland.

That’s the conclusion of a recent report in The Economist, which also considered farmland in Britain, U.S. stocks, international stocks, gold, U.S. T-Bills, U.S. forestry, and commodities. Based on the annualized returns and including appreciation of the land, U.S. farmland outperformed every other asset class considered.

Factor in the low volatility, and U.S. farmland really comes out ahead.

On a volatility-adjusted basis, British farmland comes in as the second-best investment of the period, followed by U.S. property in general and then U.S. timber.

Looking forward, agricultural investments should continue to outperform every other asset class, I’d say by widening margins as populations grow and available arable land decreases. This is why institutional investors are scrambling to take positions in agriculture.

The challenge for them is finding investments where they can place billions of dollars. Small and medium-sized farms aren’t worth the due diligence and management investment. A friend was able to sell his 800-hectare timber plantation in Panama to a big hedge fund last year, not because 800 hectares was enough to get the fund’s attention but because they wanted a relationship with my friend. They needed his expertise both to help manage the trees they’d bought from him and to vet further acquisitions.

With big players taking aggressive interests in this asset class, what are the options for us little guys? In fact, they’re getting better all the time.

The decision you have to make is how hands-on an investment you want to make. If you decide you want to invest in a plantation or farm you own and control yourself, then, unless you have extensive farming experience, you need to find what a friend in the industry calls an “operator.” The operator is the guy or company on the ground managing the land and production for you. He could be your employee or your partner. In some places, the industry is developed enough that it’s relatively easy to find an independent operator to plant and harvest for you. Uruguay is a good example.

A colleague has put together a fund that is focused entirely on agriculture. The fund leases land in key markets (including Uruguay) and partners with local operators. This fund is relatively small scale, millions rather than billions of dollars, and is a good option for the smaller investor looking to take a position in agriculture without becoming a farmer or putting up a million bucks to buy his own plantation.

In this case, as I mentioned, the fund is leasing the land. The only returns to investors come from annual production. That could be seen as a downside. On the other hand, leasing rather than buying land leaves the fund flexible and allows investors to exit on an annual basis.

I prefer to own the land myself. A small but growing number of operators are putting together agricultural investments for small investors who, like me, want to own the land being cultivated. From timber to fruit, these plantation offers allow small investors to purchase a piece of a big plantation. You own the land and benefit from economies of scale of a large-scale operation managed by an experienced operator… but can get in with an investment of US$50,000 or less.

For me, this is the ideal strategy.

Lief Simon