4 Compelling Reasons Agricultural Investors Should Consider Emerging Markets

Developing countries can offer many investment strategy benefits

Emerging markets, also known as developing markets, are typically countries experiencing rapid economic and household growth and industrialization. Compared to countries in the “developed” market phase, economies in the emerging market stage tend to see their most growth and development. In 2021, the MSCI Emerging Markets Index (also known as the MSCI Em Index) recognized 27 emerging markets, including Colombia, Peru, Chile, Brazil, Mexico, the Philippines, and Thailand.

By contrast, so-called “developed” markets are characterized by more advanced economies, sophisticated infrastructure, and mature capital markets, as well as higher income levels and standards of living. The majority of developed markets are located in North America, Western Europe, and Australia, and include countries like the United States, Canada, the United Kingdom, New Zealand, and Japan.

Making up nearly 60 percent of the world’s population and generating around 40 percent of the world’s economic output, in the past decade emerging markets have quickly become major players on the world’s stage. Despite their potential for volatility, they often come with  stronger growth and higher returns. The International Monetary Fund’s 2021 “World Economic Outlook” report set growth projections for emerging markets and developing economies at 6.3 percent and growth projections of developed economies at 4.3 percent for the year, and many advisors are giving investment advice to their clients that they should think about adding investment products, interests, and securities of companies in at least one emerging market to their portfolio. Not only can emerging market investments help reduce portfolio volatility and increase diversification, but they can offset the extremely volatile nature of other more speculative investments.

As the world faces the challenge of feeding more people with less land, interest in farmland production as an investment is growing right along with emerging market economies, and the rewards can substantially outweigh the risks. There are many reasons to invest in emerging markets, in addition to the fact that emerging market investments have a large number of medium term and longer term benefits for the receiving country, and this ultimately helps drive economic growth, raises overall per capita income, increases social inclusion, and lifts more of the country out of poverty.

These are four benefits of investing specifically in the agricultural sector of emerging instead of developed markets:

1. Land and labor costs 

Much of the appeal of developed market investment comes down to pure cost structure. In emerging markets, the price of land and labor tends to be dramatically lower compared to developed nations, which minimizes overall risk as well. 

Farmland in Colombia for example, you can invest in arable land in rural regions that can be less than a third of the cost of farmland in the United States. And while a farmworker paid minimum wage in the agricultural regions of the U.S. makes somewhere between $1,800 and $2,200 per month, a farmworker in Colombia paid minimum wage makes between $28 and $320 per month – including health insurance and other benefits. 

It’s often much more expensive in the U.S. to produce similar products, and it's important to take into account that there’s not a premium for those products—agricultural output and value is virtually the same wherever it comes from. In countries like Colombia, you can produce a lot of the same produce that they do in California, but the prices are the same.

2. Favorable exchange rates 

Despite some recent softening, the U.S. dollar remains the strongest and best-performing global currency. USD agriculture investors can get more “bang for their buck” by taking advantage of favorable exchange rates in emerging economies. As a prime example, looking again to Colombia, the USD conversion to the Colombian peso (COP) has hovered near 4,000 to 1 since March 2020. 

3. Agricultural exports from emerging markets are set to excel in the coming years 

When it comes to agricultural exports, analysis shows that emerging economies can actually benefit from a weaker currency and drive economic growth, as their products become more appealing to access in international trade due to their lower price tag.  With economies reopening in the wake of the pandemic, there has already been an uptick in demand for food that will favor affordable exports from emerging markets. Worldwide, there has also been a surge in commodity prices spurred by rising demand and USD inflation concerns, giving individuals more reason to consider emerging market investments. 

4. Emerging economies don’t necessarily mean emerging agriculture 

An emerging economy doesn’t necessarily mean unsophisticated agricultural infrastructure. For instance, Colombia may be considered an emerging economy, but it’s actually highly developed agriculturally. For example, the country has been leading the world in exports like coffee and bananas for decades . 

With ideal climatic conditions and a booming infrastructure sector, Colombia is an emerging market with enormous potential and financial benefits for many investors as an agricultural exporter. Specifically, the country currently enjoys status as the world’s fastest-growing lime exporter.

At Farmfolio, we’ve identified Colombia’s best-performing lime farms and are now offering subdivided portions of those farms to individual owners to invest directly through LOTs (Land Ownership Titles). To see what opportunities in the country are currently available, please visit our website at farmfolio.net/farms.

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