Sim­ply Ir­re­sistible

In­vest­ing in farm­land makes fi­nan­cial sense, sup­ports fu­ture food sup­plies and of­fers the chance to be lord of the manor, writes Ru­pert Walker

Hong Kong Tatler - - Life | Art -

ric wong has owned a small farm in Hong Kong’s New Ter­ri­to­ries since 2008, where he tends a veg­etable patch, a herb gar­den, a small or­chard, and enough lawn for him to en­ter­tain guests for drinks and games of cro­quet. A for­mer UBS banker, Wong be­came an in­de­pen­dent prop­erty in­vestor in 2001 and has achieved an av­er­age an­nual re­turn-on-eq­uity of 36 per cent. More re­cently, he has turned his at­ten­tion to farm­land. Wong, as chair­man of Bricks and Mor­tar Man­age­ment, has vis­ited more than 40 farms around the world to eval­u­ate their in­vest­ment po­ten­tial and con­duct due dili­gence. Like fi­nan­cial gu­rus Ge­orge Soros and Ju­lian Robert­son, who re­spec­tively own vast farm­ing es­tates in Brazil and New Zealand, Wong reck­ons “the in­vest­ment case for farm­land is ir­re­sistible.”

Pri­vate-in­vestor de­mand for farm­land is ris­ing es­pe­cially strongly in Aus­trala­sia, Latin Amer­ica and sub- Sa­ha­ran Africa, notes Paul Dowl­ing, a prin­ci­pal an­a­lyst at Syd­ney­based bank re­search firm East and Part­ners. “In­vest­ment in agri­cul­ture is on the cusp of a tremen­dous growth tra­jec­tory. It’s likely to cre­ate its own mo­men­tum and now could be the best time for pri­vate in­vestors to gain ex­po­sure to the as­set class,” he says.

Agri­cul­tural land as­sets are worth about US$8.3 tril­lion in value, with around US$1 tril­lion be­ing in­vestable, ac­cord­ing to a Global Agin­vest­ing Re­search and In­sight pa­per from De­cem­ber 2012. Yet less than 5 per cent is in­sti­tu­tion­ally owned. Pri­vate in­vestors have al­lo­cated some cash to the sec­tor, but it re­mains a small pro­por­tion of their wealth— as lit­tle as 3 per cent of fam­ily as­sets glob­ally, ac­cord­ing to es­ti­mates in the UBS Global Fam­ily Of­fice Re­port 2014.

This is sur­pris­ing be­cause the in­vest­ment per­for­mance of agri­cul­tural prop­er­ties has been so im­pres­sive. The US bench­mark NCREIF Farm­land In­dex posted a re­turn of 19.61 per cent in 2013 and has out­per­formed stocks, bonds and real es­tate since 1970. Sav­ills’ Global Farm­land In­dex (based on 15 key farm­land mar­kets) saw av­er­age an­nual growth of 20 per cent (in US dollar terms) be­tween 2002 and 2012, with the high­est in­crease achieved in emerg­ing mar­kets.

Farm­land is a tan­gi­ble as­set with real in­trin­sic value and many com­pelling at­tributes. Most sig­nif­i­cantly, its value is boosted from ris­ing eco­nomic growth and migration to cities in emerg­ing coun­tries. The United Na­tions es­ti­mates that the world’s pop­u­la­tion will in­crease from around 7 bil­lion to 9.2 bil­lion by 2050—in other words, many more mouths to feed each year.

Fur­ther­more, the qual­ity of food con­sump­tion is also on a shift­ing trend. The Food and Agri­cul­ture Or­gan­i­sa­tion’s World Agri­cul­ture To­wards 2030/2050: the 2012 Re­vi­sion pre­dicts in­come per capita will grow by the mid­dle of this cen­tury, es­pe­cially in de­vel­op­ing coun­tries as peo­ple con­tinue to move from the coun­try­side to cities, in­creas­ing de­mand for pro­cessed foods and live­stock prod­ucts. Higher-pro­tein di­ets re­quire more re­sources to pro­duce than di­ets based on car­bo­hy­drates.

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