In farming, planting different crops one after the other — called crop rotation — can help improve soil health and boost yields. During the same growing season, planting more than one crop at the same time, or intercropping, can also boost productivity.
A similar principle can apply in investing, with a diversified portfolio of stocks, bonds, cash and alternative investments making for a better overall return over time.
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One of those alternative investments is farmland. Bill Gates and his investments in farmland, for example, has been a topic of conversation. Responding to a question on Reddit, the billionaire tech founder, entrepreneur and lightning rod for conspiracy theories, said: “I own less than 1/4000 of the farmland in the U.S. I have invested in these farms to make them more productive and create more jobs. There isn’t some grand scheme involved — in fact, all these decisions are made by a professional investment team.”
Meanwhile, in 2022, foreign holdings of U.S. agricultural land increased to nearly 2% of all the land in the country, up from 1.8% the year before, according to the U.S. Department of Agriculture. That comes out to 43.4 million acres held by foreign investors, up 8.5% from 40 million acres the year before.
There are plenty of reasons, and ways, to invest in farmland, says Charlie McNairy, founder and CEO of International Farming, an institutional investment manager focused on agriculture. He cites stable returns, negative correlation to the stock market and long-term resilience.
A growing global population means there is higher food demand, he says, allowing agricultural assets to increase in value driven by the growing need for food production.
“Like real estate, the value of farmland benefits from inflation,” says Chris Rawley, CEO of Harvest Returns, a platform for investing in farming. “Farmland is also a non-correlated asset, meaning its price does not track with the stock and bond markets. High-net-worth investors and institutions allocate a portion of their portfolios to agriculture and farmland to diversify their investments.”
“There are CDFIs that enable retail investors to invest as little as $20 into a variety of organizations that create positive social and environmental impacts [in] a range of industries, including agriculture and food.” – Charlie McNairy, founder and CEO of International Farming
Beyond making money, some agricultural investing can be about sustainability
, Rawley says. That can include organic or regenerative farming that supports healthier soils and watersheds.
Sustainable farming practices focus on using resources efficiently, reducing agriculture’s economic impact and aligning with environmental, social and governance considerations, McNairy says.
“Sustainable farmland management can have positive social impacts by promoting fair labor practices, supporting local communities and contributing to food security,” he says. “Institutional investors increasingly prioritize investments that align with social responsibility goals, making farmland an appealing option.”
Another dynamic is that rural and farming groups are concerned about the rising cost of land, as 40% of farmland is expected to transfer ownership over the next 20 years. The Farmland for Farmers Act, introduced this summer by Sen. Cory Booker and endorsed by multiple farm groups, would curb future ownership and leasing of farmland by both foreign and domestic large corporate investors and keep them from using U.S. Department of Agriculture farm programs.
That said, it’s not just institutional investors who can get exposure to farmland. Here are several different ways and reasons for retail investors to invest in farmland:
Own Land Yourself
One way to invest in farmland is to buy the land yourself and rent it out to farmers.
“Direct ownership of farmland requires no shortage of expertise,” according to Bravante Farm Capital, a farmland crowdfunding platform. “A savvy investor needs to know many things — soil quality, water availability, weather patterns, crop cycles, threats from pests, market conditions for corn and cattle, just to name a few.”
Thankfully, for investors interested in farmland without the headaches of direct ownership, there are simpler options.
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Real Estate Investment Trusts
Real estate investment trusts, or REITs, own, operate or finance income-producing real estate, such as apartment complexes, medical facilities, warehouses and, you guessed it, agriculture. REITs distribute a portion of that income to shareholders.
“Investing in these REITs provides exposure to farmland without requiring the investor to directly manage or own the physical land,” McNairy says.
One of these is Farmland Partners Inc. (ticker: FPI). This REIT buys, leases and manages farmland in North America. Its portfolio as of the end of September included more than 178,000 acres.
Another such REIT is Gladstone Land Corp. (LAND). This REIT owns farmland in 15 U.S. states and says it is actively looking for other farm properties to buy across the country. The 169 farms it owned as of Nov. 7 totaled about 116,000 acres.
Crowdfunding Platforms
“One of the easiest ways to access farmland investments is via equity crowdfunding platforms,” says Rawley. “Their investment minimums, deal structures and crop types vary.”
These companies buy property and divide it up into small pieces so investors can buy in with smaller chunks of money than would be required for purchasing whole properties. In addition to Bravante and Harvest Returns, farmland crowdfunding companies include FarmFundr, FarmTogether and AcreTrader.
“Some crowdfunding platforms and investment networks focus on agribusiness startups,” McNairy says. “Retail investors can contribute funds to support innovative agricultural ventures, often in exchange for equity or involving other investment structures.”
Community Development Financial Institutions
Community development financial institutions (CDFIs) are lenders that provide financing to underserved communities including low-income areas. They include banks, credit unions, loan funds and venture capital funds.
“There are CDFIs that enable retail investors to invest as little as $20 into a variety of organizations that create positive social and environmental impacts,” McNairy says. “These CDFIs can touch a range of industries, including agriculture and food.”
Large banks have been investing in CDFIs for decades, but it has been challenging for regular investors to get in, according to CNote, a platform for investing in CDFIs. But that is changing.
CDFIs involved in agriculture are one of the focus areas for CNote.
“As the world population continues to grow at an alarming rate, a projected 9.7 billion by 2050, and as we continue to fight to raise people out of poverty, it’s paramount to invest in smarter solutions,” according to CNote’s website. “We aim to fund the CDFIs supporting innovation to safely and sustainably produce more agricultural output to feed the nation and protect our environment. This includes helping small farmers align their agribusinesses with sustainable standards, support water conservation, and spreading increased awareness of alternatives that improve the extended supply chains of commodities which have negative social and environmental impacts.”
Another option is Calvert Impact’s Community Investment Note, a fixed-income security. One of its portfolio investments is Partner Community Capital, a CDFI that lends to enterprises in Central Appalachia and the Southeast, including those involved in healthy local food and specialty agriculture.
“By providing flexible capital and advisory services to small businesses, nonprofits and farms, Partner Community Capital catalyzes environmentally and socially responsible business development and wealth creation in rural, minority and low-wealth communities,” writes Beth Bafford, vice president of syndications and strategy for Calvert Impact Capital.
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Seed Capital: How to Invest in Farmland as a Portfolio Diversifier originally appeared on usnews.com
