High yielding agricultural land represents one of the most coveted assets of the 21st century. This is mainly due to the fact that several traditionally fertile areas for global agriculture are being depleted or becoming arid; as is the case in East Asia, where the demographic explosion is leading to more urban development and increased water usage at the expense of agricultural productivity. Likewise, the historically productive Sahel region in Africa is falling victim to the Sahara desert’s southward expansion year after year. Therefore, land for food production in regions like Central and South America are today more important than ever. Furthermore, Latin America has steady and moderate demographic growth projections when contrasted with the ongoing booms in Africa and Asia. This means that Latin American agricultural surpluses, achieved through investment, enhanced technologies, and new farming techniques, will play an essential role in filling the gap needed to achieve food market equilibrium in the future.

Investment Trusts and Agricultural Real Estate

Investors should be looking for ways to benefit from an opportunity to participate in the global supply chain for food production by owning socially responsible real estate that offers sustainable growth. Financial instruments such as Farmshares allow investors to benefit from the yields of Latin America’s food production and export capacities. In this sense, productive property ownership represents a unique asset class that is tangible, has high potential for value appreciation, and provides additional opportunities for economic yield by way of its usage. For instance, real estate can be rented, developed, or destined for agricultural production. However, participation in the profits of real estate investment through sole proprietorship is out of reach for many individual investors. Nevertheless, direct ownership is not the only way to benefit from the considerable yields that real estate investment can offer.

One of the options that investors of all sizes have when seeking to diversify their portfolios through real estate ownership is through Real Estate Investment Trust (REITs). These represent participation in a pooled trust that owns income producing real estate property, be it residential, commercial, or agricultural. Either listed on an exchange or privately held, REITs are generally liquid investments as they tend to be purchased, held, and traded as equity. Likewise, REITs have certain benefits and requirements under the United States IRS code. By law, REITs must pay most of the income generated out to the holders in order to maintain their legal status. This means that, since most of the Trust’s income must be passed onto the shareholders, no institutional taxes must be paid. Rather, REIT income is taxed at the individual level. Traditionally, REITs have invested in retail and residential property. Thus, agricultural and farmland REITs represent an innovative opportunity for investors to capitalize on the growing demand for agricultural commodities worldwide. Farmland REITs are a unique financial instrument that is becoming increasingly common, thus allowing access to an asset class still largely dominated by family farmers.

(Read more about Diversification through Equity in Agribusiness)

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