They're Not Making Any More of It
High quality farmland is in finite supply. Recent reports site the loss of 31 million acres to development in the United States from 1992 to 2012. The majority of global expansion of arable lands is limited to sub-Saharan Africa and Latin America.
80% of the growing world demand for food and fiber will need to be met through increased production. There simply is not enough quality land in the world which contains the proper nutrients and rainfall to meet demand without increased production.
A Finite Supply
Growth & Demand
Along with population growth, per capita incomes are projected to be at multiples of today’s levels. The trend of developing countries economies growing at faster rates than developed countries will continue.
Projected world economic growth of 2.9% will continue to eliminate economic poverty. Consumers in developing countries first investment from increased economic activity goes directly to changing and increasing their diets.
To feed this new developed world, agriculture will have to increase production by some 60 to 70%. Developing countries will need to increase agriculture imports nearly three-fold by the year 2050.
The elasticity of demand decreases as a country’s economy grows. Simply put, once developing nations citizens change and increase their diet the trend does not reverse.
US Property Laws and Farm Policies
Farm policy and property laws make U.S. farmland the most attractive investment. The U.S. crop insurance program provides farmers with a safety net when yields and commodity prices are low.
The federally backed agriculture banking system allows lenders such as Farm Credit and Ag Credit to operate more favorably than private institutions. This insures a steady flow of investment capital into an industry critical to modern society.
By the year 2050 world population will grow to 9.8 billion and 11.2 billion by the year 2100. The majority of this population increase is expected to take place in developing countries.
Agriculture will face multiple challenges to safely and sustainably produce enough food and fiber with a smaller rural work force. More efficient methods will need to be introduced to meet the expanding demand. Food security will be of utmost concern.
Increasing Production Through Farm Tech
Unlike oil, natural gas, and mineral sources, farmland produces into perpetuity. Not only does it keep producing but increases output over time. According to the USDA, U.S. farm output has grown 170% from 1948 to 2015. This is an average annual rate of 1.48%.
Technology has played a huge role in this increase. Investing in U.S. farmland is an investment in ag technology without the risk. As new technologies are conceived, developed, fail, or succeed the farmland owner will directly benefit from the return these technologies create. The efficiencies and increase in production will be realized in the capitalization rate the property receives.