Agricultural investment has many fans in the investosphere, the likes of Jim Rogers for example, founder of the Quantum fund alongside George Soros has been quoted as saying that agricultural investment is likely to be the best asset class of out time. So firstly lets look at the different modes of agricultural investment that are available for retail investors.
Agricultural Investment Funds
Direct Farm Ownership- Hands On
Direct Farm Ownership – Hands Off
First we look at Agriculture Investment Funds. These managed investment vehicles – available under the banner of most major investment houses – operate in the same way as other types of investment fund, gathering together the capital of smaller investors and participating in larger transactions such as buying up 1,000´s of hectares of managed farmland in various countries and essentially positioning themselves as very large global farm owner operators. Investors profit from rent received from the farming tenants, the sale of crops, the resale of the agricultural land at a later date, or a combination of all three exit strategies.
Investors benefit from expert management, and portfolio diversification, and agricultural funds have performed very well recently, as have all agricultural investment modes.
Next we take look at the most hands on form of agricultural investment, direct farm ownership with a view to working the land and selling the crops. This type of agricultural investment is by far the most hands on, and high risk, of all investment strategies, and shouldn’t be undertaken by anyone without a serious level of expertise and experience in the farming sector. It really is not simply a case of fulfilling the country dream, farming is a serious business.
In terms of UK performance, 88% of farms in the UK were profitable in 2009, and farmer also receive EU subsidies in Euros, ensuring that farmers in the UK have also recently won big on currency swings and the devaluation of GBP Sterling.
Now we look at perhaps the best in terms of the middle ground, an investment strategy that allows us access to an appreciating asset in the form of farmland, and an income yield in the form of rent, whilst at the same time avoiding huge management fees and the issue of having to farm the land ourselves.
This middle ground strategy in agricultural investment involves buying arable land and leasing it back to a framer who farms crops. This is, I believe, the best strategy for investors wanting a hands-off investment, yet still utilising the asset to produce income, as well as benefiting from capital growth.
Annual income yields of up to 7% are absolutely achievable in the current climate, and when combined with capital growth, this option is possibly the best route to 100% ROI over 5 years with minimum risk.
David Garner is Managing Partner at DGC Investment Consultants – http://www.dgc-ai.com – a boutique offshore consultancy advising a community of High Net Worth Individuals, Family Offices and Institutions on a broad range of non-correlated assets.