A world of opportunity

With the right product in the right place, farmland and agriculture around the world can offer real opportunities for top investment performance.

3 April 2014, Words by Ian Bailey

 

The outlook for global agriculture remains strong. This is backed by the latest OECD-FAO medium term forecasts, and is underpinned by the fundamentals of food and energy security driven by increasing wealth in many areas. Trade in agricultural outputs is becoming, albeit slowly, freer and in many places there is less or no reliance on subsidy with the WTO driving towards more free trade and less market distortion.

British farmland remains a safe, tax efficient investment with long term returns dominated by capital growth. However, the opportunities to purchase large scale farming operations are limited by the lack of market activity. In addition, the significant presence of non-farming lifestyle and tax driven buyers means that values have become somewhat disconnected from agricultural production.

Interest in farmland as an investment comes from a diverse range of sources. These range from Sovereign Wealth Funds (National governments) who are interested in food security to private high net worth individuals, who are looking to diversify their portfolios into large scale agriculture. Family offices have already seen the opportunities presented by investing in farmland around the world and many have taken substantial positions.

Maximising performance requires investing in large scale farming operations. The world is more accessible, in terms of trade, travel, and finance, and this has opened up real opportunities where scale is not a limiting factor. For the British investor, the opportunity to take advantage of Inheritance Tax Relief on investments around the world should not be overlooked.

Barriers to entry lowered

The market is now certainly open for business with London being an important hub of activity and regarded as one of the key locations from which to work the world. Barriers to entry have been lowered with improved access to finance and a greater freedom for the movement of funds around the world. Likewise, there are now a number of entry points into the global farmland market from the less risky sale and leaseback investment to outright acquisition.

The right product in the right place can result in income returns several times those achievable in Great Britain. Top this with strong capital growth and the potential performance becomes hard to beat, but as with any investment there are risks.

Infrastructure and location is vitally important to ensure cost efficient access to domestic and export markets. This is an issue in the emerging markets, but one that is increasingly being addressed by governments and external funds who are investing in national infrastructure thereby opening up more opportunities and routes to market.

Although top quartile farming is the main driver for investment, in many locations there are opportunities to link the global demand for food production with that of energy. Increasingly, we expect these two fundamental human needs to co-exist.

 
 

Key Contacts

Ian Bailey

Ian Bailey

Director
Rural Research

Savills Margaret Street

+44 (0) 207 299 3099

 

Hugh Coghill

Hugh Coghill

Director
International Farmland

Savills Margaret Street

+44 (0) 20 7016 3818

 

Subscribe to Savills research

 

Would you like to be notified via email about new research?