Seven Global Trends Supporting US Agriculture and Farmland Investment

As global economic conditions shift, the agricultural sector in the United States is witnessing dynamic changes. With rising food prices and inflation impacting consumer behavior, it’s essential to explore how these factors influence farmland investment. In this article, we will delve into the trends shaping the agriculture market and discuss the opportunities they present for investors.

Let’s examine these global trends, supported by insights from FarmTogether, a prominent platform in farmland investment.

Historical performance of farmland investments

Farmland has proven to be a resilient and profitable asset class over the decades. Investors primarily earn returns through two channels: income generated from crop sales and the appreciation of the land itself.

From 1992 to 2021, farmland investments yielded an impressive average annual return of nearly 10.75%. This figure surpasses the returns of traditional asset classes such as stocks, bonds, and real estate during the same timeframe.

The robust performance of farmland can be attributed to rising land values, particularly notable between 2020 and 2021, when the average cropland value in the U.S. soared by approximately 8% to $4,420 per acre. California, for instance, reported average prices nearing $11,000 per acre.

Additionally, the U.S. Department of Agriculture (USDA) indicated that the average cash rent for irrigated cropland in 2021 reached $217 per acre, reflecting a 1.4% increase from the previous year. This stability in rental income contributes significantly to farmland's appeal as an investment.

Growing interest from institutional investors

In recent years, institutional investors have increasingly recognized the value of farmland. Over the past three decades, the number of farmland funds has surged dramatically. In 2005, there were fewer than 20 such funds; by early 2020, this number had expanded to 166, boasting a combined asset under management (AUM) of $38 billion.

The historically stable and uncorrelated returns of farmland make it an attractive option for risk-averse investors. Understanding the factors driving this growth can provide valuable insights into potential long-term investment outcomes.

Key factors driving the growth of farmland investment

Several critical trends are fueling the increasing interest in farmland. Here, we explore seven primary factors:

1) The global population is increasing rapidly

The U.N. projects that the world population will reach about 9.8 billion by 2050, with nearly 11 billion by 2100. This significant growth will surge demand for food.

Simultaneously, the global middle class is expected to grow to 5.3 billion people by 2030, up from 4 billion in 2021. Increased income, especially in countries like China and India, will boost the demand for higher-value foods such as fruits and nuts.

This demographic shift necessitates that farmers nearly double their crop production by 2050, posing both challenges and opportunities for farmland investors. The U.S. agricultural sector is poised to play a vital role in meeting this burgeoning demand, as evidenced by a record-breaking year for agricultural exports in 2021, which saw an 18% increase from the previous year.

2) Decreasing global farmland availability

As the population expands, the availability of arable land is diminishing. In 2021 alone, the U.S. agriculture sector lost approximately 1.3 million acres of farmland. This trend is not an anomaly; since 2014, farmland has been disappearing at an average rate of over 1.9 million acres per year.

Factors contributing to this loss include:

• Deforestation
• Urban development
• Pollution and erosion
• Natural disasters and extreme weather

This shrinking supply of farmland, combined with rising demand, augurs well for the long-term value of existing agricultural land. As high-quality farmland becomes scarcer, properties with rich soils and sustainable water supplies will witness higher valuations.

3) A shift toward health-conscious consumer behaviors

The COVID-19 pandemic has accelerated a growing interest in health and wellness. Consumers are increasingly looking for foods that support mental health and promote a strong immune system. Many are also opting for plant-based diets, emphasizing sustainability in their food choices.

Statistics show that over 47% of individuals reported consuming more fresh produce post-pandemic, and nearly half of Americans sought ways to cook healthier meals at home. This shift is benefiting farms specializing in high-value crops such as:

• Apples
• Almonds
• Oranges

As the trend toward health-conscious eating continues, farmers producing these crops, particularly in California, are anticipated to experience growth.

4) The rise of agricultural technology (AgTech)

The AgTech industry is expected to undergo significant growth in the next 5-10 years, with projections estimating it will surpass $22.5 billion by 2025—an annual growth rate of nearly 40%. Some key statistics include:

• Artificial intelligence in agriculture is projected to increase from $671.6 million in 2019 to $11.2 billion by 2030.
• Farm robotics is set to grow from $4.9 billion in 2021 to $11.9 billion by 2026.
• Precision farming is expected to expand from $789 million in 2020 to $1.5 billion by 2028.
• Vertical farming is forecasted to rise from $3.2 billion in 2020 to $24 billion by 2030.

The rapid adoption of water-saving technologies, such as drip irrigation, has also transformed the agricultural landscape. California, for instance, has managed to increase food production significantly while only marginally increasing water usage over the past four decades.

5) Growing interest in ESG investments

Environmental, social, and governance (ESG) investing has gained traction as more investors seek to align their portfolios with socially responsible principles. This sector has expanded tenfold over the past decade, with a 36% increase in ESG funds from 2020 to 2021.

Farmland investments offer a distinct advantage for those looking to invest responsibly. By investing directly in farmland, individuals can help preserve agricultural land from urban development and support farmers in incorporating sustainable practices and technologies, thereby enhancing the land's long-term value.

6) A flight to defensive assets amid market uncertainty

In times of economic uncertainty, investors tend to gravitate toward safe-haven assets like farmland. Historically, farmland values have shown a strong correlation with inflation, with a 70% correlation to the Consumer Price Index.

Farmland investments have consistently outperformed inflation rates, making them an attractive option even as the Federal Reserve implements measures to control inflation. With farmland maintaining its value during market downturns, it provides a reliable investment alternative when traditional markets falter.

7) Evolving ownership dynamics in agriculture

The demographic landscape of farmland ownership is changing, with the average age of farmers nearing 60. The USDA estimates that 70% of family farms will transition ownership in the next two decades, yet only 9% of farmers are under 35 years old, indicating a shortage of young farmers entering the field.

This generational shift presents both opportunities and challenges. While more farmland may become available for sale, the high cost of farmland poses barriers to entry for new farmers. Creative investment solutions are necessary to bridge this gap.

Investing in trends impacting U.S. agriculture

The convergence of these trends has created a fertile ground for investment opportunities. Platforms like FarmTogether are leveraging technology to democratize access to farmland investment.

Founded in 2017, FarmTogether offers various investment products, including Crowdfunded Offerings, Sole Ownership Bespoke Offerings, and the Sustainable Farmland Fund LP. The platform specializes in row and permanent crops, providing investors with diverse options across over 40 active properties in the U.S.

For those interested in exploring farmland investment, visit FarmTogether.com to assess how farmland might fit into your investment portfolio.

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