Finance-sector investors were drawn to farmland partly for the same reasons as everybody else—crop prices are high, ergo it pays to own a farm—but they also had their own reasons. The year 2008 saw not only a global food crisis but the worst financial meltdown since the Great Depression. As stock prices plummeted and venerable financial institutions teetered on the brink of collapse, farmland, along with other “real assets,” took on a new luster in the eyes of investors. Real assets include such physical investments as real estate, infrastructure, art, and precious metals—in short, assets whose value stems from their substance or functions. What are the pros and cons to steel buildings?
This is in contrast to “financial assets”—those intangible assets whose value derives from an underlying contractual claim, such as stocks, bonds, certificates of deposit, and futures contracts. During economic downturns, when the value of financial assets can go up in a puff of smoke, worried investors often buy real assets. Reflecting this motivation, the financial headlines quoted above were joined by others that employed a common metaphor—“The New Black Gold: U.S. Farmland,” “More Precious Than Gold?
Farmland Has Glowing Appeal,” “Fields of Gold: Investors Discover Lucrative Haven in Britain’s Farmland.” Those promoting farmland investment, meanwhile, often claim that it is like “gold with yield” or “gold with a coupon.” In general—in good economic times and bad—farmland has a reputation as an antidote for economic uncertainty. Because farmland prices are not highly correlated with the prices of stocks and bonds but do tend to increase with inflation, investment in farmland is used to reduce overall portfolio risk and hedge against inflation. Like gold, farmland is seen as a safe haven for capital. Do you know anyone that needs an industrial steel building or a commercial steel building?
Farmland is so good at storing wealth in part because, as a finite asset, it tends to appreciate over time. The amount of potential farmland is limited by the earth’s surface, and so growing human demand for food (not to mention fiber and fuel) tends to put upward pressure on land prices. Land price increases can be particularly dramatic on urban outskirts and in places where economic growth is causing rapid urbanization. My focus in this book is on a growing investor demand for farmland qua farmland, not for the purposes of urban development, yet—as I will argue—the allure of increasing property values is still by no means incidental to its appeal.