Agrinvestments

The recent volatile nature of the stock market has incited a new type of investment – in Farmland. Deemed as ‘getting rich slow’, The Canadian Investment Company, Agcapita Farmland Investment Partnership, has taken to buying up vast amounts of the Canadian Prairies. Their mantra of ‘food, feed, and fuel’ has been attracting investors who are seeking secure and steady returns on investment. According to the NCREIF US Farm Index and the Lehman US Bond Index, returns to direct investments in farmland have exceeded stock and bond returns over the past 5, 10, and 17 years, with less volatility. It is perhaps the necessity of 'food, feed, and fuel' that has insulated farmland from the economic crisis. Further, continual land development which encroaches on arable land, coupled with a rising world population – makes farmland an increasingly precious resource. It is currently estimated that 25 million acres of farmland are lost each year.


There are other factors that are (and will be) bestowing more stress on farmland in upcoming years. As developing countries gain wealth, Agcapita speculates their diets will become more 'western' in terms of caloric intake largely due to higher amounts of meat consumption. Currently, the developed world consumes approximately 600 more calories a day, most of which is attributed to meat. Because meat has a larger crop demand (8 times the grain calories as feed), the stress on the land increases exponentially. The estimated increase on Biofuel consumption in the next 10 years will present further pressure on agricultural land. Canada is expected to implement 5% biofuel transportation by 2010, while the United States targets 7.5 billion gallons of consumption per year in 2012. Despite the increase in alga-biofarms (which need not be sited on arable land), Agcapita still speculates that these combined factors will instigate a 'productivity gap' between the 1.7% growth experienced in the past 40 years and an increase of demand of 56%.

Agcapita has taken to buying up a large amount of Saskatchewan Farmland, feeling that it is particularly undervalued. While Saskatchewan houses forty-five percent of Canada’s arable land, this land is still extremely cheap. Priced between $400 and $450 per acre, Saskatchewan possesses some of the cheapest farmland in the world (Compare this, for instance to $1100/acre in Alberta). Perhaps more importantly, Agcapita has formulated a way to open farmland to individual investors. In 2003, Saskatchewan allowed unlimited ownership of farmland by Canadians, lifting the exemptions to out-of-province residents. While the restrictions kept prices of farmland low, they have since started to creep up (In 2007 alone, Agcapita’s prices increased by eleven percent). According to the USDA Land Values and Cash Rents 2007 Summary, Farmland values have increased over nine percent per year from 1998 to 2007 – allowing investors to get rich slow.

While the logic behind Arginvestments is quite sound, the discussion should perhaps be more focused on how ownership and risk is negotiated, particularly for farmers. The relationship between a landowner and farmer is often either a ‘crop share lease’ or ‘cash rent lease’. A crop share lease entails that the tenant and owner share the costs and profits (and their associated risks) for the crops. This removes a large amount of risk and pressure from farmers – which has been increasing due to recent erratic weather changes. It is no surprise that crop share leases are on the decline in the United States, as cash rent leases offer less risk and involvement for investors. While Agcapita does not give information on their relationship and negotiation with farmers – who provides the infrastructure, covers costs, and absorbs the risk, etc. – Agrinvestments could potentially rework the relationship between land, owner and farmer to alleviate stress on the farmer. Earlier this week, the Pakistan Times reported that 1500 farmers in India gathered in a mass suicide. The suicides were triggered by falling water levels in the state of Chattisgarh, drastically reducing yields and putting increasing strain on farmers that were already in debt. Depleting water levels were attributed to nearby forest depletion and poorly planned government dam projects. Most of these farmers could not afford water well infrastructure, leaving them with unproductive land and large loans. Perhaps the system of farmland ownership needs to be reevaluated to ensure that the onus and risk of changing climatic patterns is shared by more than farmers – even if this requires investors to get rich slightly slower.

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