I recently had dinner with several savvy investors. At the end of the meal, each gave one word that they felt best represented the global economic trends in the next twenty-five years. The consensus was clear: Agriculture.
This probably isn’t a shock to you. The world’s developing economies will consume more and better foods, eat more calories, and require more agricultural output as time goes on. Improving diets in these countries have driven up prices for soybeans, animal proteins, and other crops. Recent demand from China alone caused pecan crops to double in value.
Even if you are a city boy like I am, you should be seriously looking at agriculture as one of the leading trends of this century. It is widely assumed that western economies like the US and Canada will be boosted by worldwide food demand, I suspect the effect will be more wide-reaching.
Upper-middle-income economies like Brazil and Chile, for example, offer vast reserves of untapped farmland that I believe will benefit from this. Between the need for more output to feed the extra billion people born in the next 17 years and my belief that western consumers will increasingly demand more quality organic foods, southern hemisphere countries with these will boom.
Additionally, as farm prices in the United States remain high and droughts remain a reality, American farmers will seek out other opportunities. They already are.
Frustrated American farmers have been snatching up “cerrados” in Brazil, so much so that the government has committed to stricter enforcement of its decades-old limits on land owned by foreigners in each village.
While prices have risen (in fact, doubled in recent years) from the pioneer days after deregulation, when a couple of acres would sell for as little as the price of a pack of cigarettes, they are still reasonable.
Relatively virgin land in Brazil can go for as little as $100-200 an acre, while highly productive land is still highly affordable. And because formal credit isn’t available (sellers hold notes as banks won’t typically finance farmland), yields are high as buyers demand higher returns than their counterparts in more developed economies with low interest rates.
And for cash buyers, prices are kept low through generous discounts.
Brazil’s cerrado covers an area larger than western Europe yet barely a quarter of it has been cultivated. It’s a vast opportunity in a country that is the world’s number one exporter of orange juice, sugar, and coffee.
The ability for small players to get in the game is much better there, as well, due to a lower barrier to entry and the lack of an 800-pound gorilla like Monsanto.
Similar opportunities exist in Chile, where soils are rich and yields can be as high as 11-12% for absentee owners. Obtaining residence in Chile is relatively easy and it has been dubbed “the new America” for its pro-entrepreneur, business-friendly attitude.
In Ecuador, $99,000 can get you several acres and a large furnished house in a small village near a large city. At that price, you’d be well above the $25,000 real estate purchase needed to qualify for residence there, where a second citizenship can be achieved relatively quickly.
Farmland could well be the new gold as demand for quality food is on an unstoppable ascent. Investment will be needed to modernize and improve upon farming techniques to maximize yield. Fortunately, the human labor costs in South America are considerably less than in the north, with farmhands earning as little as $200 a month.
I suspect that agriculture will offer increasing value as well as a built-in hedge against sovereign difficulties in the years to come.
Whether you want to live off your own land or invest in farmland improvements, agriculture should be on your list for consideration as the next potential gold rush.