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

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.