Seed Capital: How to invest in farmland as a portfolio diversification | Invest

In agriculture, planting different crops one after the other, called crop rotation, can help improve soil health and increase yields. Planting or intercropping multiple crops during the same growing season increases productivity.

A similar principle applies to investing, with a diversified portfolio of stocks, bonds, cash, and alternative investments increasing your overall return over time.

One alternative investment is agricultural land. For example, Bill Gates and his investments in farmland are a hot topic. In response to a question on Reddit, the billionaire tech founder, entrepreneur, and conspiracy theory lightning rod said, “I own less than 1/4,000th the amount of farmland in the United States. We are investing in these farms to increase productivity and produce more.” There is no grand plan involved; in fact, all these decisions are made by a professional investment team. ”

Meanwhile, according to the U.S. Department of Agriculture, foreign ownership of U.S. farmland increased to nearly 2% of the country’s total land in 2022, up from 1.8% the previous year. Land held by foreign investors totaled 43.4 million acres, an 8.5% increase from 40 million acres a year earlier.

There are many reasons and ways to invest in farmland, said Charlie McNairy, founder and CEO of International Farming, an institutional investment firm specializing in agriculture. He cited stable earnings, an inverse correlation with the stock market, and long-term resilience.

A growing world population means increased demand for food, and the increased need for food production increases the value of agricultural assets, he says.

“Like real estate, farmland values ​​benefit from inflation,” says Chris Rowley, CEO of Harvest Returns, an agricultural investment platform. “Farmland is also an uncorrelated asset, meaning its price is not linked to the stock or bond markets. High-net-worth investors and institutions often allocate a portion of their portfolios to agricultural or agricultural land to diversify their investments. is assigned to.”

“CDFIs exist where individual investors can invest as little as $20 in a variety of organizations that have a positive impact on society and the environment. [in] It covers a wide range of industries including agriculture and food. ” – Charlie McNairy, Founder and CEO of International Farming

Some agricultural investments are about sustainability, not just about making money, says Rowley. This includes organic and regenerative agriculture that supports healthier soils and watersheds.

Sustainable farming practices focus on using resources efficiently, reducing the economic impact of agriculture, and harmonizing with environmental, social and governance considerations, McNairy said.

“Sustainable farmland management can have a positive impact on society by promoting fair labor practices, supporting local communities and contributing to food security,” he says. “Institutional investors are increasingly prioritizing investments that align with social responsibility goals, making farmland an attractive option.”

Another development is that rural and agricultural organizations are concerned about rising land prices, as 40% of agricultural land is expected to change ownership over the next 20 years. The Farmers’ Farm Act, introduced this summer by Sen. Cory Booker and supported by several agricultural groups, would curb future farmland ownership and leasing by large domestic and foreign corporate investors, allowing them to control U.S. agriculture. It would prevent them from taking advantage of the department’s agricultural programs.

However, it’s not just institutional investors who can gain exposure to farmland. Here are the different ways and reasons why individual investors invest in farmland.

One way to invest in farmland is to buy the land yourself and rent it out to a farmer.

According to farmland crowdfunding platform Brabante Farm Capital, “there is no shortage of expertise to directly own farmland.” “A smart investor needs to know many things, including soil quality, water availability, weather patterns, crop cycles, pest threats, and market conditions for corn and cattle.”

Thankfully, there are easier options for investors interested in farmland without the hassle of direct ownership.

Real estate investment trusts (REITs) own, operate, or finance income-producing properties such as multifamily housing, medical facilities, warehouses, and, you guessed it, agriculture. REITs distribute a portion of their profits to shareholders.

“Investing in these REITs provides exposure to agricultural land without requiring investors to directly manage or own the physical land,” McNairy says.

One of them is Farmland Partners, Inc. (ticker: FPI). This REIT buys, leases, and manages farmland in North America. At the end of September, the portfolio included more than 178,000 acres.

Another similar REIT is Gladstone Land Corp. (LAND). The REIT owns farmland in 15 U.S. states and says it is actively searching for other farm properties to purchase across the United States. As of November 7, the company owned 169 farms totaling approximately 116,000 acres.

“One of the easiest ways to access farmland investment is through equity crowdfunding platforms,” says Rowley. “Their minimum investment amounts, deal structures and crop types vary.”

These companies buy real estate and break it up into smaller pieces, allowing investors to pay less than buying the entire property. In addition to Bravante and Harvest Returns, farmland crowdfunding companies include FarmFundr, FarmTogether, and AcreTrader.

“Some crowdfunding platforms and investment networks are focused on agribusiness startups,” McNairy said. “Private investors can provide capital to support innovative agricultural ventures, often in exchange for equity or by involving other investment structures.”

“There are CDFIs that allow individual investors to invest as little as $20 in a variety of organizations that have a positive impact on society and the environment,” McNairy said. “These CDFIs have the potential to impact a wide range of industries, including agriculture and food.”

CNote, a CDFI investment platform, says that while major banks have been investing in CDFIs for decades, it has been difficult for retail investors to gain entry. But that is changing.

CDFIs involved in agriculture are one of CNote’s focus areas.

CNote’s website states, “The world’s population continues to grow at an alarming rate, projected to reach 9.7 billion by 2050, and as we continue to fight to lift people out of poverty, we Investing in solutions is paramount.” “We aim to fund CDFIs that support innovation to safely and sustainably produce more agricultural products to feed our people and protect our environment. This includes supporting smallholder farmers to align their agribusiness with sustainable standards and spreading awareness about alternatives that support and improve water conservation socially and environmentally. It is the expansion of the supply chain of products that has a negative impact. ”

Another option is Calvert Impact’s community investment notes, or bonds. One of his portfolio investments is Partner Community His Capital, a CDFI that lends to companies in central and southeastern Appalachia, including those involved in healthy local food and specialty agriculture.

“Partner Community Capital provides flexible capital and advisory services to small businesses, nonprofits, and farms to support environmentally and socially responsible business development and support in rural, minority, and low-wealth communities. Accelerating wealth creation,” writes Beth Bufford, vice president of syndication and strategy. For Calvert Impact Capital.