In recent years we have witnessed a massive influx of capital into the world of agriculture worldwide.
Buying land, or leasing it on a long-term basis, is only the first step in what we might better call investment in agribusiness rather than in agriculture. If we look only at this first step of investment, the first thing that may come to mind is an idea of inflation in the value of the land itself and in the value of long-term rents, the latter aggravated in the Iberian territory by the “crazy” (I don’t know if even headless) proliferation of fields for the production of solar energy.
The increase in land values is undoubtedly more than appreciable, and land values have, in many cases, doubled in the last five years. If we add to this increase in prices factors such as the war in Ukraine, the increase in inputs, the difficulties in obtaining water guarantees to ensure production, and even the decrease in population growth of the main food importer, China, the increase in transport and processing costs in the face of the endless new media in the food sector, we might wonder why there is such an influx of money into the world of agribusiness?
In contrast to the factors outlined in the previous paragraph, there are many compelling reasons for the growth of the agribusiness sector as a new investment market from a financial point of view.
Land inflation cannot be considered, as other authors claim, as the beginning of a new financial bubble similar to the one experienced in the construction sector. As we have said, the purchase of land is only the first step in a process of agribusiness investment, and much greater efforts are needed to develop and bring the land to yield. Yields that will last for many years and in most cases outlast the duration of the financial vehicles created to invest in the sector. This last fact will be one of the first things the market will have to learn in order to accommodate its rigid and stultified investment structures to a productive sector unlike any other investment niche so far explored by the financial industry.
The second step in making investments in agribusiness profitable and now that the value increases, although growing, is a scarce and “book” value, is the fact of transformation. The financial industry may be flocking to invest in agribusiness, each with a different intention, which we will explain later; but the capacity for transformation, the knowledge to generate an optimal and lasting financial result, resides in the hands of very few actors.
The financial industry is watching its money flow into a sector that is fundamentally family-based, with knowledge and ownership passed down from generation to generation, but where the professionalisation and “industrialisation” of farm management resides in a very small handful of companies. It is surprising that the financial sector is not looking at this and that these companies are not their primary target when considering investments in agribusiness.
The ultimate goal of agriculture is to create food to feed a growing world population. It is not for nothing that the FAO determines the usefulness of production and land used for agriculture in terms of the cost needed to generate 100 g of a given foodstuff. This alone would be enough to justify any investment in agribusiness.
Previously we commented that the financial industry is approaching agriculture for different reasons, some of which are simply internal; for example, the compensation of their investment portfolios in the face of the new sustainable investment rules, and which once again have caught the financial world “looking the other way”.
Here again we find a factor intrinsically linked to the world of agriculture. Contrary to the widespread idea that agriculture is a polluting and “wasteful” factor of natural factors such as water, agriculture, the management of land over long periods of time, is the main investment asset that by its very nature is a source of environmental advantages. Its very functioning makes obvious the generation of circular economies, efficient water management (no sector has researched and introduced improvements in water management like agriculture), carbon sequestration… Agriculture, in short, has an impact, without any special effort, on 13 of the 17 SDGs.
Once again, in order to manage the concept of sustainability, the industry encounters the problem that there are very few actors who have the knowledge to implement these sustainability measures in their investments. Measures that also have a direct impact on reducing input costs and generating new revenue streams for their farms.
Without a doubt, sustainability is the common sense of agriculture.
In summary, we could say that land investment is not a fad, but only the first act of an investment industry that will have to evolve rapidly, because, once again, the underlying is more knowledge and expectations than the investment itself. It is our hope and expectation that the financial industry will focus on investments in agricultural technologies and agricultural operational capacity.
Investment in agribusiness, like sustainability, cannot have a partial vision, but must have a holistic vision.
Dimas Antúnez.
