Investing in Farm Land could provide smaller investors wishing to diversify their portfolios with an inflation beating, income producing asset. In this article I will cover 10 of the key fundamentals supporting farm land investment in the UK, and why investors are set to profit from investing in farm land over the next ten years.
Lack of Supply and Increasing Demand
Real assets, that is to say tangible assets such as land or property, enjoy consistent value growth when there is a sustained or increasing demand for them and yet a lack of supply of good quality stock. Ask any farmer and all will tell you that despite swathes of greenbelt land in the UK, very little of that land is suitable for cropping, which means that little or no more UK farm land is coming available. Essentially we are pretty much stuck with the amount of agricultural land that we have right now, limiting supply.
At the same time as being unable to bring more farm land into production, the UK population is growing at a rate of more than 400,000per year. This means that by 2051 the population of the UK will have grown from 62 million to 77 million. So the limited amount of farm land that is available will have to feed 15 million more mouths which, even with genetically modified technologies, is a mathematical impossibility.
What does this mean for those considering farm land investment as part of a balanced portfolio? Well it means that you will be able to command a much higher price in seven to ten years time for farm land that you invest in now. In theory this means that a UK farm land investment will provide investors with an excellent capital growth asset, as well as income if the land is rented out to a farmer.
The expansion of agricultural land has slowed dramatically, and has been doing so for the previous 50 years, the following graph, taken from our Agricultural Investors Report, indicates the rate of expansion of arable land since 1961 and clearly shows that less and less land each year is brought into production for farming.
So in essence, the gap between supply of farm land and demand for food is getting bigger every year, pushing up land values and making farmland investment a very lucrative option for savvy investors. To put it into numbers, the human population increased by around 113% between 1961 and 2000, yet the amount of agricultural land producing crops to feed that expansion increased by only 10%.
In fact, the rate at which the global population has grown has resulted in the amount of farm land per person on the planet has halved in the last fifty years, this has meant that there used to be about half a hectare of land to support food, livestock feed, and biofuels for each and every human, now there is little over half the size of a football pitch!
ll of this is reflected in the cold hard facts produced by the Royal Institute of Chartered Surveyors whose records show that those who have already chosen to invest in farm land have benefitted from capital growth at an annual average of 11.1% per year for the last ten years and the rate of growth is actually increasing with figures now showing growth of 15.5% for the past 12 months.
So, if you are considering farm land investment, or investing in farm land as an alternative buy to let property investment with superior levels of capital growth, my suggestion would be to research the market well, and partner with an organisation that knows how to source and manage quality land that is most likely to grow in value over the next decade.
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