Many institutional investors are seeking assets which offer the potential for both attractive levels of income and long-term capital gains. Against this backdrop, we believe the case for investing in farmland is compelling.
Producers who are able to grow production will be rewarded: the global population is expected to increase by almost 60 million a year, peaking in 2050, with almost all of that growth concentrated in developing countries.1 The increase in the level of relative and absolute wealth in developing countries is resulting in changing diets, with a shift towards consumption that is richer in protein and higher in calories; the required growth in production to meet this increase in demand is over 60% across agricultural commodities. Growth in production has been slowing as the gains from intensification are diminishing and as agriculture is forced to compete for scarce resources.
High quality land is becoming a scarce resource: high quality land is under stress globally due to factors including over-intensification, pollution and climate change.
Investment characteristics are potentially very attractive as an addition to broad-based portfolios: historical
data suggests that farmland bears a low correlation to other asset classes and may incorporate an indirect link to inflation. Therefore, the asset class can increase diversification within a portfolio and also be a source of income.
WHY INSIGHT FOR FARMLAND?
Global strategy: we focus on investable countries with comparative advantage in production and target opportunities where we believe large scale inefficiencies exist.
Value-added approach: we seek to recommend investments in assets with scope for improvement and value creation.
Controlled mix of investments and approaches: we aim to mitigate exposure to varying commodity price cycles, manage the impact of local factors on production and demand, and take advantage of varying land price cycles to time entry and exit.
Highly experienced global team: we have in-house experience of managing large scale farming operations in key geographies and the ability to leverage a strong network of global relationships across the industry, as well as local experts to execute value-added plans. Our team also includes specialists in legal, taxation, financial management and governance.
Commitment to sustainable and responsible investment: responsible investment considerations are incorporated throughout the investment process, from asset allocation and due diligence to ongoing farm management. Farms are operated using the Integrated Farm Management approach.
We carefully select the commodities and geographies to invest in, focusing on:
- commodities with strong growth prospects
- countries with a comparative advantage in production
We apply filters based on a wide range of environmental and economic criteria to determine the subset of countries where we see the greatest opportunities, with a focus on:
- low production costs
- access to resources to sustain and grow production
- the right climatic conditions
- supportive policy frameworks
- access to markets where there is growth in demand
- limited or no restrictions on foreign investments
- local expertise to execute investment strategy
- robust legal framework that supports ownership rights
- investments with scope for improvement
1Source: United Nations World Population Prospects, the 2015 revision.
The value of investments and any income from them will fluctuate and is not guaranteed (this may be partly due to exchange rate fluctuations). Investors may not get back the full amount invested. Past performance is not a guide to future performance.
Farmland is exposed to the impact of government policy. Subsidies, renewable fuels, trade agreements and attitudes to ownership rights can vary between markets, and may change over time. Farmland is an inherently illiquid asset subject to the range of risks associated with primary production. Land values, like commodities, will experience large deviations from the equilibrium as a result of a range of market forces such as returns across other assets, level of interest rates, and investor sentiment.
Investments in emerging markets can be less liquid and riskier than more developed markets and difficulties in accounting, dealing, settlement and custody may arise.
The investment manager may invest in instruments which can be difficult to sell when markets are stressed.
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