Agricultural investments, as tangible or ‘real’ assets, form part of the alternative asset class and are increasingly in demand from investors.
Alternative investments are generally considered to be uncorrelated with more commonly held assets such as shares, cash, property and fixed income. This means there is no direct link between the performance of these markets and the performance of alternatives.
As a result, alternatives can be a powerful diversification tool which can be likened to an insurance policy, helping to smooth out the total return of a portfolio over time.
Agriculture and food production are fundamental to the function of society. The major global trends which are driving growth, innovation and opportunity for this sector include population growth, increasing demand for protein food sources, and technological change and sustainability.
The global population is expected to grow to 9.7 billion by 2050, an increase of 33 per cent from 2015. This growing population is expected to require 35 per cent more food by 2030.
Close proximity to high growth Asian markets and a reputation for clean, high-quality agricultural products makes Australia an important part of the global food supply chain, and well-positioned to help meet increasing demand.
The Australian agriculture industry has the capacity to produce food for 130 million people, thus supporting a population approximately five times larger than our own.
Over the long term, farmland – as a finite asset – has consistently appreciated in value. Agriculture is increasingly harnessing technology such as robotics, artificial intelligence and remote sensing, and sustainable land management practices, to reduce costs and improve productivity.
Investment in agriculture may produce returns in the form of both income and capital growth and is a proven tool to protect investment portfolios against inflation. With the current inflationary pressures caused by fiscal and monetary stimulus, supply chain disruption, and geo-political events, it is timely to consider assets which might offer inflation protection.
Access to agriculture investments has historically been limited to large scale investors and institutions. However, accessibility is now improving, with diversified managed funds offering exposure to horticulture, viticulture, irrigated or dryland crops, livestock, and fiber assets such as cotton, wool and timber.
An increasing menu of listed exchange traded funds (ETFs) allows investors to choose specific agricultural commodities, or diversified sectors such as food-related or agribusiness companies. Investors are also able to access agricultural infrastructure investments such as processing plants, and inputs to production including water entitlements.
The global themes of rising population and Australia’s natural competitive advantages provide opportunities for investors looking to diversify their portfolios and protect against inflation via investment in agriculture.
Please contact your HLB Mann Judd adviser if you would like to discuss the suitability of this asset class as part of your investment portfolio.
Authored by Jane Crombie, Head of Investment Research, Brisbane.
This article was first published in the Winter 2022 issue of Financial Times.