Fintech and Farmland: A New Investment Frontier

Farmland: A Resilient Investment Opportunity

Throughout numerous decades, agricultural land has consistently demonstrated its value as a dependable asset class for investors. Its historical performance reveals a notable negative correlation of -43% with the Dow Jones Industrial Average over a three-year investment horizon.

This characteristic positions farmland as an effective strategy for mitigating risk during periods of market fluctuation and instability.

Consistent Appreciation and Sustainability Potential

Since 1987, coinciding with increased interest from institutional investors, farmland has exhibited consistent appreciation in value. Integrating farmland into investment portfolios has become increasingly common.

Furthermore, investments focused on sustainably managed farmland offer a unique opportunity to shift agriculture’s role.

This shift could transform the sector from a significant contributor to greenhouse gas emissions into a substantial carbon sink, aiding in environmental sustainability.

Accessibility for All Investors

Despite its long-standing presence as an investment option, access to farmland has traditionally been limited.

Historically, investment opportunities were largely confined to high-net-worth individuals and large institutional entities.

The Rise of Fintech and New Platforms

Recent advancements in financial technology, coupled with the emergence of innovative startups, are actively reshaping the landscape of farmland investment.

These developments are democratizing access, allowing a broader range of investors to participate in this historically stable and potentially impactful asset class.

The Appeal of Farmland Investment

The COVID-19 pandemic triggered unforeseen global disruptions, significantly impacting financial markets. A substantial decline was observed in the S&P 500 during mid-March, with a loss of 34% from its pre-pandemic high.

However, in contrast to previous economic downturns, the index experienced a rapid recovery within a single month. This swift rebound doesn't necessarily indicate complete market stabilization.

Ongoing market fluctuations, characterized by both gains and setbacks, have prompted a shift in investment strategies for many. Consequently, investors are diversifying their holdings by reducing exposure to stocks.

It is within this context that farmland has emerged as a noteworthy investment option.

A Traditionally Resilient Investment

Significant swings in the stock market were prevalent even before the onset of the COVID-19 pandemic. A period of increased market volatility commenced in 2018 and persisted throughout the economic expansion preceding the global health crisis. Considering the inherent uncertainty within the equities market, investors are seeking methods to offset potential risks associated with stocks and mutual funds.

For over three decades, farmland has demonstrated a remarkable resistance to the pressures of Wall Street, remaining stable through events like the recession of the 1990s, the rise and fall of internet companies, and the financial crisis triggered by subprime mortgages.

Should market instability continue as the United States and global economies navigate the ongoing pandemic, this pattern of resilience is anticipated to persist in the coming months and years.

Furthermore, farmland has historically exhibited a strong ability to maintain its value even during periods of inflation. Its performance is closely linked to commodity price movements; as food prices rise, so too does the worth of the land used for agricultural production.

Historically, U.S. farmland value has shown approximately a 70% correlation with the Consumer Price Index (CPI). With the current economic environment characterized by stimulus-fueled inflation, it is reasonable to expect that farmland will continue to demonstrate similar robustness.

Key Benefits of Farmland Investment

• Stability: A historically stable asset class, less susceptible to stock market fluctuations.
• Inflation Hedge: Value is closely tied to commodity prices, offering protection against rising inflation.
• Long-Term Growth: Demonstrated resilience through multiple economic cycles.

Addressing the Challenge of Feeding 9.7 Billion

Investment in agricultural land isn't simply about historical gains; it represents a vital component in securing the global food supply for the future. Global population figures have been consistently rising, experiencing an average annual increase of 1.1%. Projections from the World Bank indicate a world population of 9.7 billion individuals by the year 2050.

To adequately nourish this expanding population, agricultural output must be increased by 70% – a substantial challenge for farmers worldwide.

However, the available area of farmland within the United States is diminishing due to factors like climate change and the expansion of urban areas. Recent agricultural censuses reveal a loss of 143 million acres of farmland between 2012 and 2017, and current indicators suggest this decline will continue.

Many American farms are facing difficulties in securing the financial resources necessary for modernizing their operations and adopting more environmentally friendly farming methods.

Consequently, there is a considerable demand for investment capital within a market where heightened demand is virtually guaranteed. The increasing scarcity of arable land is expected to contribute to rising land values, positioning it as a potentially strong long-term investment.

Farmland, therefore, presents a unique opportunity to capitalize on a fundamental human need.

Key Considerations

• Global population is projected to reach 9.7 billion by 2050.
• Agricultural output needs to increase by 70% to meet future demand.
• The US has lost 143 million acres of farmland between 2012 and 2017.
• Investment is crucial for farm modernization and sustainable practices.

Challenges Historically Facing Farmland Investment

Farmland investments have long been recognized as a potential source of passive revenue and a reliable safeguard against economic fluctuations. However, direct participation in this asset class has traditionally been limited.

The agricultural industry is characterized by significant fragmentation, with a substantial proportion of U.S. farms being small, family-operated businesses. This dispersed structure, coupled with a general lack of awareness regarding the investment advantages of farmland, has often resulted in its oversight by investors.

Interest in farmland from institutional investors started to grow significantly in the early 2000s, driven by the substantial pension funds and endowments responsible for managing assets for corporations and educational institutions. The number of dedicated farmland investment funds increased dramatically, from under 20 in 2005 to 166 by 2020.

Despite this growth, substantial initial investment requirements and the absence of a clear, open market have continued to restrict access to farmland for individual investors. Recent advancements, however, facilitated by innovative fintech companies, are actively dismantling these established obstacles.

Fintech's Role in Expanding Investment Access

The JOBS Act of 2012 instigated changes to SEC regulations concerning smaller businesses and startups. These revisions simplified the process of securing funding through crowdfunding initiatives.

Consequently, investors gained an additional avenue for portfolio diversification, prompting the emergence of numerous fintech startups focused on accessing previously untapped markets.

The fintech sector has significantly broadened investment accessibility. Retail investors are now capable of trading options and derivatives with fewer obstacles than existed in the recent past.

Investment platforms are even emerging that facilitate ownership of collectibles and rare vintages of wine.

Farmland represents the newest asset category benefiting from the fintech surge, presenting unique opportunities to a wider investor base.

Fractional Ownership and Farmland Investment

Fractional ownership models have rendered farmland investing a feasible option for accredited investors.

This approach allows for precise control over investment allocation, while still maintaining a direct ownership position, differing from investments in funds dedicated to farmland.

Accredited investors benefit from increased flexibility regarding the amount of capital they choose to deploy.

Benefits of Fintech-Enabled Farmland Investing

These developments enable a greater number of individuals to leverage the risk-mitigation benefits associated with farmland.

This is achieved through a technologically advanced and economically efficient investment process.