Historic farmland investment performance has over many years been strong and consistent, often outpacing inflation and performing well as a capital asset over time compared to other investments.
The question is whether or not after the recent economic conditions investing in farmland will perform as well as it has done in the past.
Looking at the past, this is an interesting case. Global farmland prices rose by 28% during the global financial crisis of 2008 (compared with a fall of 31% on the FTSE 100 index) with values also moving upwards in 2009.
Inflation is also a factor; while prices of inputs have risen, prices of many key food commodities have experienced a similar upward movement. The disruption to cereal supply chains in the Black Sea as a result of the Ukraine war has further lifted commodity prices, making producer margins reasonably healthy.
Investor confidence is still strong. There is significant demand for either whole farms, smallholdings or bare blocks of farmland. Whilst the yields on farmland remains strong, the capital performance and interest in owning farmland often outweighs the lower yields compared to other property types.
In reality buyers of farms, that either being farmers or investors, are generally long term decisions that not only take some time to reach this point but also are considered as investments to pass down through the generations because of the benefits it provides from an inheritance tax point of view (until such time as there may be a change in Government policy of course).
So is there any downside to farmland values? There have been years where farmland prices have fallen, however these falls have generally been less acute compared to any price rises that have occurred. The predictions around population growth, diet changes and land available to constraints will possibly lead to a long term upward trend in commodity prices, farmland margins and as a result farmland values.
In summary, investors with a long term outlook could benefit hugely from holding farmland as an asset within their portfolio.
For further information, contact the Professional Services Team.
