top of page
Agriculture is one of the oldest asset classes in history yet still an emerging market financially as it is under-represented in terms of asset allocations. Although sub sector market fundamentals differ, on average agriculture has proven itself as a tangible, secure and growing storage of wealth.
Farmland values which are a key benchmark proxy for the asset class have risen substantially since 2002. During the past 16 years the Savills Global Farmland Index recorded an average annualized return of 12%. Importantly, the index does not even include emerging market agricultural based countries in Asia which we believe severely under reports the actual global average.
Global Farmland Index (Agriculture)
AFG (Agroforestry Goup) and Global Farmland Index, Savills
The fundamentals of agriculture make this asset class even most promising for the future. With global population expected to reach 9.8 billion people by 2050, the development of sustainable food production systems is crucial for our survival. This increase in global population will require a 70 percent increase in food production which means substantial investment into land, production and R&D will inevitably occur.
Forestry is similar to agriculture, in that they are both physical real assets that provide a stable, secure, diversified and sustainable cash flow. Both asset classes have also strongly outperformed traditional assets such as stocks, real estate and fixed income throughout history yet are still not widely held. A lack of sector specific knowledge and product availability has held asset allocations back from the mainstream.
Forestry assets also offer a key unique advantage, favorable profit postponement commonly known as “storing on the stump”. The ability to store on the stump means harvests can be postponed until market conditions or prices are more favorable. For example, when prices are low trees can be left untouched allowing them to increase in value further. This ability of forestry assets to be harvested at any time, makes it different to the cyclical nature of agriculture.
Forestry asset values have performed exceptionally well throughout history. The asset class has posted an average annual return of 11.47% since 1987 as measured by the industry benchmark NCREIF Index. The index however does not take into account resources in Asia which we believe under reports the true scope of sector growth.
Forestry & Agriculture vs Other Assets
AFG (Agroforestry Goup), NCREIF, S&P 500, AGG, KITCO, BP Dated Brent, S&P/Case–Shiller
Global demand for wood is expected to triple by 2050 as population rises and consumption for timber, paper and energy increases. The evolution of the energy sector has placed immense strain on forestry assets as wood based fuel provides 40% of today's global renewable energy supply. This is as much as solar, hydroelectric and wind power combined.
Without question, forests need to be conserved to preserve biodiversity, provide wildlife habitats, safeguard water catchments, store carbon, protect against climate-related risks, sustain livelihoods and provide recreational benefits. At the same time, more wood needs to be produced to meet rising global demand. The only solution is increasing the scale and production of sustainable forestry assets and implementing sustainable land management practices.
bottom of page