A great report just released by Savills World Research last month describing the state of global farmland from 2012 to the present. The report is based on data from 15 different world agricultural markets and is designed to provide comparative data on global farmland prices and market summaries. Here a few highlights from the report
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The Global Farmland Index recorded an average annualised growth of 14.8% since 2002 and 6.6% over the past five years.
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Farmland values are less volatile than other commodities and were significantly less affected by the credit crunch in 2008.
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South America showed a 17.5% annualised growth since 2002. The above graph shows South America was only outperformed in index growth by Central Europe; now facing extremely unstable times due to the Brexit.
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The report describes an innovative way of benchmarking farmland prices to account for regional variables or more specifically investment spend relative to output by determining the cost of acquiring land in order to grow a tonne of wheat. Our ‘land cost for wheat production’ league (Figure 3 below) takes the average value of farmland in 2015 and divides it by the average harvest wheat yield over seven years (2008 to 2014). By taking a seven year period it allows for any weather fluctuations to be accounted for.
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Note that Uruguay and Argentina have some of the lowest costs of land per tonne of wheat values.
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Investor interest and demand to diversify investment portfolio’s will remain strong. Farmland performance tends to be counter-cyclical to other assets
Bottom Line to Investors
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Agriculture is a long term investment to iron out volatility.
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Diversify your portfolio to spread risk across different regions
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Due diligence, especially with a range of cultures, political administrations, ownership structures, tax regimes, foreign investment regulations, is essential to understand global markets.
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The right asset in the right market will yield positive returns for the investor in the long term.
