When inflation strikes, prices rise across the board. As the purchasing power of dollars, pounds, and euros declines, the amount consumers must pay for everyday goods soars.
This is the defining characteristic of inflation. However, inflation is not uniform across markets and sectors. The more volatile an industry is, the greater the impact of inflation on prices can be.
We’ve already taken a look at how owning farmland can be a powerful tool to fight inflation in your portfolio. Now let’s take a deeper look at crops themselves.
Prices Are Rising For Food
All it takes is a quick glance at food prices at your local grocery store to see inflation at work. Grocery store prices have increased by an average of 3 percent since August 2020. This is significant but lower than the corresponding increase in restaurant food prices – just under 5 percent.
At the same time, real estate and commodity sectors have endured far less exposure to the perils of inflation. This is why the typical advice you hear from investment columnists is to buy land or gold in order to hedge against inflation.
However, a small but growing number of clever investors have learned that there is an exciting opportunity to play between these markets. Farmland is a real estate asset that produces agricultural commodities whose buyers are highly forgiving of short-term price fluctuations.
In short, farmland is the best asset for beating inflation. To illustrate this, we’re going to look at historical price and demand information for an important crop: coconuts.
Coconuts Retain Strong Demand Even in Difficult Environments
Coconuts are a versatile perennial tree crop with a wide variety of uses. As a commodity, coconut has been a central element to the economic, social, and cultural lives of hundreds of societies throughout history. Coconuts were considered luxury goods in Ancient Egypt, Imperial Rome, and Medieval England, and now are a vital part of Polynesian and South Asian cuisine.
Today you can find coconuts widely available at grocery stores and marketplaces around the world. But they also serve upscale, non-food market demands that most tropical crops don’t. As a modern commodity, coconuts feed four primary markets:
- Food and Beverage: These include coconut beverages, coconut cooking oil, processed coconut snacks, and fresh coconuts for sale in the produce section of many grocery stores.
- Cosmetics: Coconut is an important ingredient in many cosmetics products. For example, cosmetics manufacturers prefer coconut oil as a scented moisturizer because it helps nourish the skin.
- Healthcare Products: Coconut oil contains natural saturated fats that may boost heart health and encourage fat-burning weight loss. As a result, there is a powerful and dynamic market for coconut-based healthcare supplements and products.
- Textiles: The natural fiber of the coconut husk is called coir. Eco-friendly manufacturers use coir to make brushes, upholstery, floor mats, insulation, fishing nets, and more.
Coconuts, like many agricultural commodities, change in price in response to market conditions. However, strong demand for coconut products ensures that price increases will not lead to people preferring other, cheaper products for the same purpose.
For example, coconut cooking oil is already more expensive than almost all other cooking oils. A modest increase in price is not likely to drive consumers who prefer coconut oil to switch to canola or corn oil. Coconut is also safe as a cosmetic ingredient—there is no danger of retail consumers switching to using corn oil in their daily facial treatment.
Coconuts enjoy similarly resilient situations in most of the markets they’re a part of. Coconut demand is stable even during difficult economic periods.
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Coconut Production Has Been Shifting Towards New Producers
In recent history, the vast majority of coconut exports have come from three Southeast Asian countries – India, Indonesia, and the Philippines. These countries have historically made up more than two-thirds of coconut world production. All three underwent significant agricultural and political changes in the 1970s, ramping up coconut production to become major exporters by the 1980s. But because farmers planted most of their crops during this time, and with a productive life of 30-40 years, the vast majority of coconut trees currently located in these countries are nearing the end of their productive life.
This means that coconut production will have to shift towards new producers in the next decade. Latin American countries, particularly the emerging agricultural leader of Colombia, have already seized this opportunity and started growing coconut trees that will meet global demand as yesterday’s major producers can no longer keep up.
Why Is Today the Best Time to Invest in Coconut Farmland?
The global demand for coconut products has risen steadily since the early 2000s, when researchers first announced the health benefits of coconut water and oil. Strong niche markets for coconut milk, coconut cream, and coconut flour have developed over the past few decades, and they are poised to grow even more as people seek healthier alternatives to the staple foods they’re used to eating.
Between 2000 to 2016, global coconut production has grown from roughly 50 million metric tons to 60 million metric tons, a growth rate of about 17 percent. During the same period, global coconut exports have grown by an astounding 600 percent.
You can see the impact of demand outpacing supply by taking a look at the price of coconut oil, which has risen sharply in the past few years. In June 2018, a metric ton of coconut oil cost $931 on the commodity market. As of June 2021, a metric ton of coconut oil cost $1670. That’s a 65% increase in value compared to the U.S. dollar’s inflation rate of just under 9% for the same period.
Relatively fixed supply paired with surging demand has led to an explosion in profits for coconut producers, and the pattern doesn’t appear to be going away any time soon.
Become a Farmland Owner Ready for Tomorrow’s Market
Agricultural experts know that the future of coconut production is undergoing a dramatic shift to new suppliers, and income-oriented investors have a unique, once-in-a-lifetime opportunity to prepare themselves for a decade of inflation-hedging investment by acquiring coconut farmland. Our previous coconut farm opportunity, El Principio, sold out in record time, and we’re close to announcing the next one. Stay up-to-date about all of Farmfolio’s currently available farmland opportunities by clicking here, or schedule time with one of our farmland specialists to be one of the first to know when our next coconut opportunity is ready.