The wave of fund investment in farmland has reached only a
fraction of its potential, even after hitting up to $40bn, with the
potential to hit $1,000bn as it gains a "natural home" in portfolios.
Macquarie, estimating that institutional investment in
farmland had reached "a modest" $30bn-40bn, said there was "significant" scope
for funds to increase their ownership of a sector worth an estimated $8,400bn overall.
"What may be surprising to some is that this interest is
only just starting to ﬂow into the sector in the form of investment by
institutions," the bank said, estimating the total amount of "investible" land
"Investors and advisers alike are looking to better
understand the size and structure of the investable asset base before committing
However, the sector offered a "compelling" opportunity, including
changing the "predominantly fragmented" nature of land ownership, creating larger
blocks which are more efficient to farm.
"While areas such as the US have higher levels of institutional
investor ownership, farmland ownership globally is heavily dominated by family
farmers who both own and operate their farms," Macquarie said.
Farmland value by country and (% of value attrbuted to arable land)
US: $2,640bn, (59%)
Brazil: $692.5bn, (48%)
Argentina: $425.3bn, (51%)
Australia: $298.1bn, (73%)
Canada: $209.4bn, (8.8%)
Russia: $177.6bn, (21%)
Sources: FAO, Macquarie
"Given the small scale of the average farm globally, and the
challenges for such businesses accessing capital, the scope and need for institutional
capital to be deployed in agriculture in order to improve efﬁciencies and generate
higher returns is signiﬁcant."
"One of the attractive factors from an investment
perspective is the opportunity for consolidation given the importance of scale
in driving returns from agriculture."
Separately, Oakland Institute said that the "private
financial sector" had invested $10bn-25bn in farmland since the 2007-08
financial crisis raised the profile of agricultural investments as an asset
class little correlated with many mainstream assets such as shares.
And "given current investment trends, this amount might
double or triple in the coming years".
However, the group - which campaigns for increased
transparency about land deals, amid concerns over the social and environmental
implications of some investments - cautioned that this investment represented a
"Although agricultural funds are portrayed as positive
social investment to help alleviate hunger… evidence demonstrates that large
land deals are often detrimental to food security, local livelihoods, and the
environment," the US-based organisation said in a report into investment in
The "large buying power" of the funds buying farmland "warrants
an investigation into the overall impact of this investment activity on
economic development, food production, rights of local communities, and the
environment", Caroline Bergdolt, one of the report's authors, said.
Macquarie's research also flagged the appeal to investors of
farmland given movement in prices which correlates little with that of many
This is an important consideration for many investors in
times when many apparently unrelated investments tend to move in line, swayed
by "risk on" or "risk off" market moods.
"Owning farmland has the potential to deliver uncorrelated,
positive returns over the long term," Macquarie analyst Samuel Morris, said.
"An internationally-diversiﬁed portfolio of agricultural
land could contribute signiﬁcantly to delivering positive, uncorrelated capital
returns compared to other asset classes, while lowering portfolio risk."
Farmland also offered the potential "to provide exposure to soft
commodity price inﬂation, without the volatility that comes from pure exposure
to the commodities".