Investing in the farmland sector offers stability, strong income, good total returns, and inflation hedge characteristics, among other benefits, according to Martin Davies, global head of Nuveen Natural Capital.
Speaking on the REIT Report, Davies also noted that “one very compelling theme is not being correlated to the economic cycle. Through the COVID-19 pandemic we’ve seen no dip-off in farmland returns. As we’ve seen historically through other economic crises, such as the global financial crisis and the tech bubble, farmland returns stayed strong through that period.”
Davies noted that while land values historically have been a function of what was actually produced, going forward there could be increased opportunities to monetize some of the additional benefits that exist, including water quality, biodiversity, and carbon sequestration.
“There's a level of sophistication that's required to invest in agriculture, to make sure that we're approaching some of these additional issues in the most thoughtful way, but that does without doubt bring opportunity for the future,” Davies said.
During the podcast Davies also noted that:
- How farmland returns are derived, what the risks are, how you diversify, and what the best operating model is, are concepts not particularly well understood by investors. “It’s a continuing process of education for investors who are coming to the asset class fresh.”
- Technology has had a “massive” impact on the farmland sector and will continue to do so.
- Diversification in terms of crop type and location is “critical” in farmland investment.
- The farmland sector is underpinned by a need to increase calorie production by 56% through to 2050, and protein production by 100%. At the same time, greenhouse gas emissions and the carbon footprint of the sector must be reduced.