Agricultural Investment

Impressive fixed returns in an ethical investment

Investing in Farm land

Rising food prices

According to a recent report by the OECD and UN Food and Agriculture Organization (reported in The Daily Telegraph 28/10/10) the prices of wheat and other arable crops will rise by between 15% and 40% in real terms by the end of this decade.
Assuming a rate of inflation of 2%, this equates approximately to a rise in money terms of between 35% and 60%. The reasons for this expected rise are well‐known.
First, the world population will continue to increase; and every new mouth needs to be fed. Second, economic growth in Asia is causing rising demand for meat; and every kilo of meat requires several kilos of grain as livestock feed. Third, while agricultural productivity will rise, it cannot keep pace with rising demand.

Rising land prices

The price of agricultural land is directly connected with the price of the crops grown on it, combined with expectations of further rises. And while crop prices are prone to short‐run fluctuations, caused by variable harvests and speculation, land prices tend to rise in a more stable fashion. Moreover, the amount of agricultural land in the world is relatively fixed. So farmland represents an excellent investment.

Northern Argentina

Land in northern Argentina

While agriculture in the provinces around Buenos Aires is well‐developed, in the more remote northern regions much excellent land remains unused. The climate there is not sufficiently wet to sustain rain forest, but is ideal for arable cultivation. Yet lack of funds hinders the clearance of unproductive vegetation. Indeed, lack of funds has become chronic in Argentina, caused by a combination of high inflation and low interest rates, which starves the banks of capital. Yet the potential returns are huge. It requires approximately $1,000 per hectare to clear land for cultivation. Once under cultivation the value of the annual harvests, less the costs of production, are $1,000 or more – representing a return of 100% on investment.

Discounted price

A third form of security is that the Local Company sells the land to Investors at a discount of approximately one‐third of its value. This means that, in the event of major failure to pay returns, there is ample value in the Local Company to buy out the Investors entirely, giving them an immediate healthy profit.

Due diligence

While the Investor's Contribution is held in Escrow, prior to it being remitted to the Local Company, the Investor will receive documents confirming the local Company's title to the Land, and also the Administrators ownership of its shares.

External risks

There is inevitably a degree of political risk. However Argentina's legal framework, including its property rights has proved remarkably strong over the decades.

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