Agriculture-focused private capital funds have shown impressive performance: a 7.4% average net internal rate of return from March 2023 to June 2024, as reported by investment data company Preqin. The highest-performing quartile of these funds achieved a net IRR of 12.5%.
Improved farmer sentiment and increased land values also drove agriculture loans to increase in recent years. US banks booked $190.42 billion in agriculture loans in the second quarter of 2023, up from $183.60 billion in the first quarter.
This is not surprising, as more investors realize that agriculture is the next big business. It provides steady income returns similar to fixed-income assets and acts as an effective hedge against inflation. Agricultural investments also don’t typically move in tandem with stock or bond markets, therefore providing excellent diversification.
Farmland in particular appreciates in value over time. With farming techniques improving and productivity increasing, the net income per acre also rises — these gains are then reflected in the rising value of the land and the overall worth of the investment.
Who are the largest investors in agriculture?
Large institutional investors such as pension funds, sovereign wealth funds, and endowments are the largest holders of agricultural investments.
Preqin’s report states that public pension funds account for 20% of institutional investment in agriculture and farmland. Endowments contribute another 14%, while private sector pensions and foundations account for 12%.
Family offices and government agencies each hold 6% of the investment pie, with asset managers and investment firms each holding 5%. Approximately 20% of agricultural investors fall into the ‘other’ category.
Notably, Chinese foreign investment in agriculture surged to $27.115 billion in 2021, up from $3.956 billion in 2013. PGIM Real Estate, one of the larger US institutional investors, manages $10.3 billion in agricultural assets.
TIAA and its subsidiary Nuveen are also prominent players with over $11.6 billion in agriculture assets. A long list of venture capital and private equity firms are likewise active in this sector, including SG Ventures, Plug and Play Tech Center, Unigrains, and ImpactAssets.
Interestingly, the Canadian Public Sector Pension Investment Board stands out as one of the world’s largest agricultural investors with over 4 million hectares of natural resources, 2.9 million hectares of which are dedicated to farmland and the remainder to timberland.
Is now the time to invest in agricultural land?
Agricultural land — particularly in US farmland — is becoming very attractive to real estate investors, from beginners to experienced CRE professionals who are looking to add diversity to their portfolios.
While many CRE investors still focus on traditional segments like multifamily, office, retail, and industrial due to their familiarity and perceived simplicity, a growing number are now dipping their toes into US farmland, which presents a unique (albeit less understood) opportunity.
US farmland offers multiple advantages for those willing to learn the ropes. Aside from providing predictable and profitable returns, it can provide an anchor for anyone looking to build a balanced portfolio and protect against market ups and downs.
Beyond that, it’s increasingly seen as a way to invest in a more sustainable future — which is why it attracts investors who want to use their money to contribute towards social responsibility and environmental sustainability. This perspective is attracting forward-thinking investors who value both financial returns and positive impact.
The state of modern farming in the US
Farmland represents approximately 45% of the nation’s two billion acres — an extensive scale that makes it a compelling investment for those who appreciate the dynamics of this asset class.
The demand for agricultural land is also on the rise, driven by a global population projected to require up to 50% more food by 2050 — a trend that clearly demonstrates the lucrative potential returns of farmland investment.
American farming can be broadly divided into two main types: growing annual crops like corn, soybeans, wheat, and potatoes on cropland, and cultivating permanent crops on trees, vines, and shrubs. These permanent crops include things like nuts, apples, citrus fruits, grapes for wine, and stone fruits. Each category is suitable for various investment strategies and goals as they present different investment opportunities and challenges.
Investing in farmland encompasses not only the land and equipment but also the farming operations themselves — a unique aspect of this industry niche. The success and profitability of these operations heavily influence the returns from farmland investments.
Big agriculture vs. small independent farms
Farmland production has increasingly been controlled by large multinational corporations (such as Monsanto) in recent decades. These companies have heavily invested in developing chemicals and GMOs to boost productivity, and these innovations have allowed large farms to dominate the market: about 30% of US farmland is owned by large corporations and accounts for more than 60% of total agricultural production.
Because larger farms have invested in more advanced technology, they’re producing significantly more than smaller farms — this productivity difference is driving down crop prices and leaving smaller farmers no choice but to adopt the same technologies to compete. This trend is also contributing to a growing resistance against big agricultural firms, as smaller farmers increasingly advocate for organic and sustainable farming practices in an effort to differentiate themselves.Investors need to have a nuanced view of these dynamics. It’s important to understand that farmland investment is not a homogeneous market — it is incredibly diverse and influenced by local conditions such as soil quality, water availability, and crop economics, among others.
It’s also crucial to keep in mind that big agriculture, while influential, is not monolithic. Although large corporations produce a majority of the agricultural output, direct farmland ownership by investment firms is still a small percentage of total farms. In fact, institutional ownership remains relatively small — while there are over 2.2 million farms in the US, only 3% are owned by institutional investors, creating a substantial opportunity to invest in supporting smaller independent farmers.
The benefits of investing in US farmland
The biggest advantage of investing in US farmland is the potential for solid returns. Farmland has historically delivered an average annual return of 10% since the 1960s. Moreover, the rising value of crops enhances profitability during inflationary periods, making farmland a good hedge for diversifying portfolios and mitigating market volatility.
Beyond the financial aspects, US farmland appeals to socially conscious investors because it offers tangible environmental and social benefits. Investments can support sustainable farming practices that improve soil health, conserve water, reduce carbon emissions, and create healthier food systems. All these contribute to greater climate resilience and stronger local economies.
Farmland investments and the changing climate
The immediate and evolving risk of climate change is reshaping the global economy and investment priorities.
Agriculture was responsible for 9.9% of US greenhouse gas emissions in 2018. But projections suggest that climate-smart agricultural practices can reduce these emissions by more than half by 2025, and that by 2035, US agriculture could effectively remove more carbon than it emits.
ESG investors that were once wary of the sector due to its association with pesticides and GMOs are now increasingly drawn to sustainable agriculture. This shift is evident — in fact, ESG investments have grown to $17 trillion, a significant portion of which is directed towards sustainable agricultural practices.
Technological advancements are also leveling the playing field for small to mid-sized farmers to make them more competitive. Initiatives like Farmer Mac provide low-cost agriculture loans similar to those offered by Fannie Mae and Freddie Mac, facilitating access to high-speed broadband in rural areas. With this connectivity, farmers can start using advanced digital management systems and precision agriculture technologies (such as satellite imagery and drones) to enhance their productivity without relying on harmful chemicals or GMOs.
The rising demand for organic
There is increasing consumer demand for organic and sustainably produced food as the public’s awareness of GMO’s potential health impacts grows. Technologies that boost crop yields without GMOs — such as enzyme-based seed treatments that enhance nutrient uptake — are being developed.
This push towards organic farming supports health and environmental goals while boosting local economies. Analysts estimate that organic farming creates three times more jobs than industrial farming — it provides employment opportunities for a diverse workforce, including those with disabilities.
Aside from creating jobs and strengthening local food systems, organic farming also invests in community members through training programs, therefore building economic resilience in rural areas. Investors who support these local farms are directly investing in the economic vitality of the communities they serve, alongside environmental and social benefits.
Explore agriculture loans
Private Capital Investors are private commercial real estate lenders who offer direct agriculture loans for investors who are ready to take their farming ambitions from idea to reality.
Our agricultural land loans are tailored to support your farm’s growth and sustainability, whether you’re expanding existing operations or starting fresh, and whether you’re involved in full-time or part-time farming activities. These agriculture loans can be used to purchase cultivable land and construct essential farm infrastructure, including irrigation systems and barns.
We offer flexible repayment plans and competitive rates. With loan amounts ranging from $3 million to $50 million — and up to 70% LTV ratios — we can provide you with the financial muscle you need to scale up efficiently. You can also rely on our quick closing times (often as short as two weeks).
Private Capital Investors understands the cycles and challenges of the agricultural sector. Our team will work with you to design an agriculture loan solution that matches your project and your circumstances.
