Thursday, February 17, 2011

Food Prices Skyrocket And Why and How You Should Invest in Farm Land

One of the topics this blog focusses is on food and commodities. Related to food is of course farm land. The Financial Post has a report on the top five reasons you should invest in farm land, for the same reasons we have writtwen about here.

Besides commodities in general (live tracking). Note that we are investors of Cresud chart above), basically farm land in Argentina, when the stock was about $8.

Says the FP:

"It may seem a radical investment made by those who believe the end times are coming, but with food prices soaring, farmland could be on the brink of a serious bull market.
It's not just investors like Jim Rogers in the market, but countries too seeking to secure their food future.

Of course farmland investment comes with its own challenges. It requires a long-term commitment. Weather is volatile, and could slam your investment in the short-term.

But if you have the patience, and the money, farm land could be of huge use to you.

1. Food Demand is Rising

This is the China story we have commented about so many times. The Chinese are getting richer, and are eating better. There is not enough land in China to produce what they need (see also our post earlier this week on why they are buying Africa).

"The fact that food inflation leads core inflation in most countries reflects the rising demand for food and soft commodities, like corn and wheat. With food security threats sovereigns are rushing in to buy up land and farmland is becoming increasingly scarce".

2. Inflation

"Farmland is like gold, because there's a limited amount in the market a demand causes a jump in prices. Globally, it has appreciated at a rate 2% higher than inflation since the 1950s according to Marketwire".

3. Returns

"The NCREIF Corn Belt Farmland Index has had total returns of 11.43% from January 1991 to December 2008 according to Agrinuity".

4. Diversification

"Developed markets are a better fit for investors concerned solely with wealth preservation, according to a report by Savills, even though values are higher, reflecting the sophistication of the agricultural industry. These include Western Europe, USA, Canada, Australia and New Zealand".
5. Tax breaks

"In the U.K. income off farmland investment benefits from tax planning advantages like IHT (inheritance tax) relief if you've lived on the land for two years. Property owners also benefit from a business relief for 5 years if their farmland makes a loss. The U.S. and Canada offer tax incentives as well."


They also report on Argentina.

"Argentina offers some of the best quality land in South America and gives investors legal titles.

Argentina's farmland value has appreciated 10% in 2010 and can cost up to $14,000 per hectare (approximately 2 1/2 acres) according to With upcoming elections in Argentina and potential policy changes to farmland investment, people are looking to Uruguay as well where prices can range anywhere from $3,750 - $9,000 per hectare, according to Savills.

DGC Business Consulting Ltd. has 5 - 10 year investment options in Argentinian farmland starting at $16,000, which promise up to 14% annual returns".

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