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How can I invest in agriculture?
There are many ways to invest in agriculture.
The easiest way is to buy shares in quality agricultural companies on your local stock exchange.
Buy and Lease – this involves buying a quality farm block and leasing it out to a good quality local tenant for rental income. Returns are between 3-5% plus capital gain of around 6%. Investment range of $500,000 – $100M
Buy shares in farmland – this is a new concept whereby a farmer puts up land for investors to buy shares in and they shareholders receive payments in rental income from the farm. This allows shareholders to buy shares in many different types of farmland and areas, thus de-risking the investment
Buy Shares in Production – similar to farmland investment but with the production side of the business, this can generate higher returns but is exposed to higher risk.
Buy & Operate – this is for high net worth and sophisticated investors, whereby a piece of land is secured and operated on their behalf..
Is it good to invest in farmland?
This depends on the goals of the investor. Farmland investments like any real estate investment generally have a longer timeframe than shares. Long term average returns from real-estate investments in agriculture can generate yields of 3-5% plus capital appreciation of 6-7%. Some areas can outperform on capital appreciation through smart purchasing and understanding the cycle of agricultural land valuations.
What is farm investment analysis?
Farm investment analysis is the process of pre purchase due diligence. This is the most critical factor in agricultural investment as the correct purchase of land will determine your returns. The scope of farm investment analysis can include but is not restricted to the following factors
- Suitability of farming property type to meet investor goals
- Physical inspection of the property
- Soils – Soil type and physical characteristics; production potential, agronomic capacity, remediation requirements, soil health, nutrient levels, soil test if required
- Detailed climate assessment – Rainfall, reliability of growing season rainfall, temperature, likelihood and effect of undesirable weather events (drought, floods, heat waves, frost etc).
- Farm opportunity and future capabilities
- Assessment of future expenditure required on the property
- Financial analysis of likely investment returns including economic assumptions
- Environmental – Soil or landscape degradation and risks, environmental standards compliance issues.
- Financial and investment analysis – Past performance, likely future performance, investment analysis, future lease rates, likely future returns (from tenanted and operational management models).
Can you make money renting farmland?
Yes – this is a fairly risk free way of making money from investing in agriculture. Rental returns are generally 3-5% plus capital gains. Farmland is usually easy to rent out as there are always farmers looking to grow their business this way. The key foundations to successfully making money form renting farmland is to purchase land for a good price in an area that is likely to see capital growth in the near future and to successfully choose the right tenant to look after your asset. To understand how to successfully purchase a farm click here
What is farm business analysis?
Farm business analysis is the process of assessing the strengths and weaknesses of a farm business. This is usually done in conjunction with some benchmarking analysis. The purpose of farm business analysis is to help farmers and their advisors set a strategic direction for the business