Brazil Property Investment News

Experts recommend agricultural land for investment

Reports of food shortages and rising prices of rice, wheat and vegetable oil in the news this week confirm what many investment experts have been predicting for some months - if your sole objective as an investor is to achieve the best possible return, you may do well to consider an alternative real estate investment: agricultural land.

After years during which agriculture has been associated with images of oversupply, ‘set aside’ land and the EU ‘food mountain’, we have now entered an era when demand globally is exceeding supply. This is having a knock-on effect on the whole economy, and creating a wealth of opportunities for investors.

Last year, according to the International Monetary Fund (IMF), “the world has experienced a substantial inflationary shock in the form of higher food prices”, and increased demand for food translates to an increased demand for agricultural land. According to the IMF, this is down to three main factors.

First of all, the demand for food has risen substantially. This is due to population growth (it is predicted that the population in 2010 will be three times the size it was in 1950), as well as the changing diet of increasingly rich countries such as India and China. The Organisation for Economic Cooperation and Development (OECD) forecasts that consumption of beef in developing countries will be up by almost a third by 2015, and with each kilogram of beef taking 7kg of grain in production, this means far greater demand for grain, and therefore higher prices.

Secondly, weather conditions have led to droughts in some areas, and this has impacted on levels of food production.

The final, and perhaps the most important, factor behind the rising prices of food is the demand for ethanol as a biofuel. With the most developed countries encouraging the production of biofuels, produced using corn, a large proportion of agricultural land has been turned over to fuel production.

The combination of these factors has opened up investment opportunities for all sizes of investor. Land all over the world is being bought up by large-scale investors and hedge funds – from Macquarie Bank planning on purchasing A$1 billion-worth of ranches in Australia to entrepreneur and writer Bill Bonner purchasing thousands of acres of land in Argentina. It is land in countries such as Argentina and Australia that is tipped as the best option for investors: the price of corn farms in Argentina has reportedly risen by 27% in a year.