Farmland may still be an unknown asset among most retail investors, but agriculture is one of the largest global markets. American farms contributed over $134 billion to the United States’ gross domestic product (GDP) in 2020 alone.
The critical role farmland plays in both society and the economy, coupled with a growing demand for food, has made it a staple in the portfolios of ultra-wealthy and institutional investors for decades. Now, individual investors are gaining access through FarmTogether’s investment platform.
Farmland as an Asset Class
The total value of farmland globally is approaching approximately $10 trillion. This asset class has historically proven to be resilient to economic downturns and can offer a strong hedge against inflation.
It’s no surprise that institutional investors have been increasingly attracted to farmland. Over 60% of the nearly $1 trillion that goes into the total U.S. agriculture value chain each year comes from institutional investors, like pension funds and private equity funds.
Bill Gates made headlines last year when he became the largest private owner of farmland in the U.S. with 242,000 acres across 19 states.
See Research from FarmTogether: Farmland's Superior Performance Over The Past 30 Years
Access to farmland as an investment has traditionally been limited for retail investors. This is mainly because this asset class has several unique characteristics in terms of choosing acquisitions, valuation, and management not seen with other property types.
The U.S. farmland sector remains fragmented, with small family farms dominating the landscape in terms of number of farms and total acres operated. This has left a lot of opportunities off-limits for investors looking to gain access to this sector.
How Farmland Generates a Return for Investors
Farmland is a unique asset class in many ways, but the way it generates returns is similar to other types of real estate. The land is typically leased to an operator who farms the property, which can provide steady income to the investor. Farmland also tends to appreciate in value over time, given its scarcity value, so investors can often realize a gain when the land sells.
Passive Income: Most farm leases have a base rental rate that can provide consistent and predictable income to the investor. However, many leases include the potential for increased payments based on yield and commodity prices. For instance, a farm that produces corn may generate higher returns for an investor in years when corn prices are up or favorable weather results in larger crop yields.
Value and Demand: Farmland has increased in value almost every year over the past 20 years and that trend is likely to continue. The supply of agricultural land is shrinking because of climate concerns and will probably continue to do so. Additionally, as more people move out of cities and into suburbs, more farmland is converted into new developments.
The global population is also climbing at a steady pace, increasing the strain on the world’s food supply. What may be even more impactful, however, is the growth of the world’s middle-class population. As the middle class grows, particularly within developing nations, so does the demand for healthy foods, such as fruits, vegetables, and nuts.
Overall, there are a lot of signs pointing towards a growing demand for farmland well into the future, which should result in the continued growth in land values.
However, the average investor has had few resources available to gain access to this market, since farms are rarely listed on traditional real estate sites, like Zillow or Redfin.
Even if an investor came across a good opportunity, the capital required to purchase an operating farm can easily run into the millions of dollars. This alone has priced most retail investors out of the market.
How FarmTogether is Providing Access To Farmland Investments
FarmTogether has created an all-in-one platform that allows individuals to invest in the same types of farmland assets as institutional investors through a variety of channels, depending on investors’ needs.
The company is constantly reviewing on-market and off-market opportunities it puts through a rigorous review process, with only about 2% of the deals reviewed making it to the platform to become available to investors.
While they could easily take these deals to any number of private equity firms for funding, FarmTogether instead provides accredited investors with direct access through Regulation D offerings.
The preceding post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga. Although the piece is not and should not be construed as editorial content, the sponsored content team works to ensure that any and all information contained within is true and accurate to the best of their knowledge and research. This content is for informational purposes only and not intended to be investing advice.
© 2022 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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