UK: Growing returns: investing in agriculture
Is now a good time to invest in agriculture?
Given that the yields on traditional assets have remained at historic lows, investors have increasingly been allocating to private markets. Whilst there has been a large amount of investor money flowing into private markets across private equity, private debt and infrastructure, there has been very little flowing towards agriculture.
Agriculture as an asset class
In the simplest sense, investing in agriculture involves the production of raw materials to sell further along the supply chain. There are two main routes to investing in agriculture:
- Farmland, which includes crops and/or livestock that end up on supermarket shelves; and
- Forestry, which includes the production of materials such as timber that can be used for construction.
Environmental, Social and Governance (ESG) and sustainability
ESG factors are important to consider in any investment and it is no different for agriculture. There are some clear environmental issues with certain aspects of agriculture, particularly farmland. A lot of land, especially in emerging markets, that is used for farming purposes is a direct result of deforestation. Food and crop (e.g. beef and nut production) also requires a significant amount of water resource and animal-related production in particular generates a staggering amount of carbon emissions.
Preserving nature and farming responsibly is part of the solution to address climate change. If agricultural projects are profitable today, there is significant upside potential if we see the appropriate pricing for carbon and/or fines for excessive pollution or harmful chemical use.
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