All investments contain risk, but investing in agriculture has a lower risk level than other asset classes. Real assets, like income-producing agriculture, provide a hedge against inflation and are an attractive investment for a diversified portfolio. Agriculture has no correlation with the stock market and produces solid returns compared to other asset classes. Agro-investment needs land to thrive.
Why invest in farmland?
Farmland investments can be lucrative for many reasons, primarily due to the fact that agriculture is an integral part of our lives: the food that we eat daily comes by the way of farming.
Farmland provides a high level of capital security and a low level of risk:
After a period of outstanding performance during the good times, many investors are now placing a greater emphasis on capital preservation during periods of severe market turmoil. An investment in farmland has a rock-solid asset which is unlikely to depreciate in value. Historically, data shows that farmland has exhibited strong capital protection characteristics over prolonged periods of time. Unlike other depleting resource plays like mining or oil & gas, well-managed farmland is a fully renewable resource that remains productive in perpetuity.
Direct investment in farmland is simple and transparent
Farmland investments are straight to the point and easy to execute, unlike other investments machinery which has complex investment structures attended to by investment managers who charge ridiculously high fees for below-average performance.
3. Farmland is a stable profit-producing asset
Unlike other popular inflationary hedges such as precious metals, farmland also provides a regular income to the investor, making it a useful replacement for lost ‘risk-free’ income on cash deposits and bonds due to low-interest rates. Generally, Agricultural real assets make room for reliable rates of income above 5% annually. Although not necessarily the highest return available in the real estate sector, this income is being earned on an asset that is unlikely to depreciate in value, with strong capital growth potential and a near 100% tenant occupancy rate (unlike commercial property, demand for quality farmland is always high, regardless of the economic environment).
Farmland has a great hedge against inflation
As an aggregate asset class, farmland has been shown to have a positive correlation with inflation. Facts over a period of time show that farmland values generally increase faster than inflation, making farmland an effective inflation hedge and capital preservation vehicle. This may be especially appealing to investors concerned about inflationary government policies.
Farmland investment provides for risk-adjusted returns
Studies have repeatedly demonstrated that farmland delivers higher risk-adjusted returns than mainstream asset classes. In other words, farmland rewards investors with a higher level of excess return (‘risk premium’) per unit of risk.
In essence, Investing in land in Nigeria is a fruitful option for creating long-term wealth and the first step to actualizing this wealth creation is to actually acquire it. Its profitability revolves around the acquisition.