Eggs Not Always What They’re Cracked Up To Be

ECONOMIST | Institutional investors see farmland as fertile ground

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Institutional investors such as pension funds see farmland as fertile ground to plough, either doing their own deals or farming them out to specialist funds. Some act as landlords by buying land and leasing it out. Others buy plots of low-value land, such as pastures, and upgrade them to higher-yielding orchards. Investors who are keen on even bigger risks and rewards flock to places such as Brazil, Ukraine and Zambia, where farming techniques are often still underdeveloped and potential productivity gains immense.

Farmland has been a great investment over the past 20 years, certainly in America, where annual returns of 12% caused some to dub it “gold with a coupon”. In America and Britain, where tax incentives have distorted the market, it outperformed most major asset classes over the past decade, and with low volatility to boot (see chart). Those going against the grain warn of a land-price bubble. Believers argue that increasing demand and shrinking supply—as well as urbanisation, poor soil management and pressure on water systems that are threats to farmland—mean the investment case is on solid ground.

It is not just the asset appreciation and yields that attract outside capital, says Bruce Sherrick of the University of Illinois at Urbana-Champaign: as important is the diversification to portfolios that farmland offers. It is uncorrelated with paper assets such as stocks and bonds, has proven relatively resistant to inflation, and is less sensitive to economic shocks (people continue to eat even during downturns) and to interest-rate hikes. Moreover, in the aftermath of the financial crisis investors are reassured by assets they can touch and sniff.

The private-equity approach can take the form of simple improvements, such as changing irrigation from antiquated dykes and canal networks to automatic spray systems: these are the equivalent of picking low-hanging fruit. Pricey robots can boost milk per cow by 10-15%. Using “big-data” analytics to plant and cultivate seeds can push crop yields up 5%. “This is an industry where the gap between the top and bottom quartile is greater than anywhere else,” says Detlef Schoen of Aquila Capital, an alternative-investment firm.

And yet the 36 agriculture-focused funds, with $15 billion under management, pale in comparison to the 144 funds focused on infrastructure ($89 billion) and 473 targeting real estate ($163 billion), according to Preqin, a data provider. TIAA-CREF, an American financial group, is a market leader with $5 billion in farmland, from Australia to Brazil, and its own agricultural academic centre at the University of Illinois. Canadian pension funds and Britain’s Welcome Trust are among those bolstering their farming savvy.

For more money to flow in, financiers and farmers will have to learn a lot more about each other. Money managers need to get their hands dirty and find out more about crops. Only a handful have the expertise needed; farmers gleefully share stories of Wall Street types wondering how chicks are planted. And farmers can do more to attract capital, for example by seeking out financial deals where investors’ incentives are aligned with their own, such as through joint ventures.

2015 may be big year for beer

A Young Generation sees Greener Pastures in Agriculture

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America’s heartland is graying. The average age of a farmer in the U.S. is 58.3 — and that number has been steadily ticking upward for more than 30 years.

Overall, fewer young people are choosing a life on the land. But in some places around the country, like Maine, that trend is reversing. Small agriculture may be getting big again — and there’s new crop of farmers to thank for it.

A Cultural Shift Towards Valuing Agriculture

In Maine, farmers under the age of 35 have increased by 40 percent, says John Rebar, executive director of the University of Maine Cooperative Extension: “Nationally, that increase is 1.5 percent.”  And young farmers are being drawn to other rural Northeastern states as well, he says. Maine, New Hampshire and Vermont were all hotbeds of activity during the previous back-to-the-land movement of the 1970s. Many of those pioneers stayed and helped create farming and gardening organizations that now offer support and encouragement for new farmers.

The social climate now is very different than the one Rebar encountered 30 years ago when he himself was an aspiring producer of cattle and sheep.  "I was called ‘Farmer’ by my classmates in high school. That was okay with me, but you could tell it wasn’t a term of endearment,“ he says. "There was a lot of negativity about encouraging young people to go into farming.

"So it’s a cultural shift that says we value this as part of our society. We want this to be part of our social fabric, so we’re going to figure out ways to make it work.”  Part of making it work means access to land. On their coastal farm, where acreage is more expensive than it is inland, Gelvosa and Gerritsen say they’re luckier than most; Gerritsen’s parents had bought the property years before, which made starting up for the couple a lot easier.

In Iowa, farmland prices are inching toward $9,000 per acre, which has some financial experts talking about a farmland bubble. But sparsely developed states like Maine still possess affordable lands, which savvy young farmers with a little money — and a lot of elbow grease — are starting to acquire.

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Food is to be enjoyed, not Instagrammed – live your peripherals 

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… of course, looks do matter, because they influence the experience that comes next. They narrow expectations. It’s important that things taste, and smell, and feel on the tongue at least as good as they look. But no one would ever eat say, fish pie, let alone turkey and brussels sprouts, if it were only about looks. In fact if you only ate food that looked beautiful you’d be more or less stuck with fresh fruit, raw vegetables and very expensive restaurants. Taking pictures of food is really just one more way of bragging.

And you know what? That “you are what you eat” thing? It’s not meant to be taken literally. And since the rouble is in freefall, maybe the oligarchs will just have to clear the plates and go home.