Investment Articles

Investing in agriculture is widely touted as one of the most profitable investment strategies of our time, with exponents such as Jim Rogers and George Soros all telling us that agricultural land is the safest, most profitable investment there is, bar none, more and more investors are looking for ways to access this asset without having to compile huge amounts of capital.

Therein lies the problem for the retail investor with less than £5,000,000 to invest, as agricultural land of a good enough size to produce a yield will cost you at least that, and most agricultural investment  brokers require minimum capital of $50 million, far beyond the grasp of retail investors with say $50,000. So how do we mere mortals with our limited capital access farmland? and once we own it, how do we profit from it?

If we can find farmland to invest in at the lower end of the spectrum of cost, there are 2 structures that will provide you with both income and capital growth and with some clever planning we can even build in a contractual exit strategy to realise our gains.

Our first strategy focuses on UK farmland, and leverages the lack of liquidity in the lending market, especially the near disappearance of lending in the agricultural sector. We locate competent farmers who need to raise capital to refinance current loans that are due for renewal, or to fund expansion of currently successful farming activities. As there is little to be had in the way of traditional debt (such as bank financing), we have built a structure to allow farmers access to capital, and investors access to both income and capital growth, the model is as follows:

The farmer makes his request to access our investor network and we undertake a severe and thorough due diligence and audit procedure to ensure that the farm, and the farmer, are financially buoyant and have an attractive debt to equity ratio, operate good business practices, are competent farmers, and enjoy strong cash flows.

Once the farmer has passed the audit process, we commission a RICS valuation on his cultivated farmland, which we then purchase from the farmer at the precise valuation.

The farmer commits to a seven year lease at an average rental of 7.3% of the value of the land, and also has the option to buyback the land from the investor at seven years, once credit markets are in a position to replace the investors cash injection with traditional debt. The farmer also commits to bi-annual audits and the hiring of an independent agricultural consultant to advise him on working the land in the most effective manner.

Rental income is paid by the farmer to the investor, via an independent solicitor, quarterly in advance, creating a strong income for the investor whilst the farmer earns a profit from working the land to produce crops as he has always done.

The investment is fully managed at a cost to the investor of 1% point of the of the rental income, the investor therefore enjoys a yield of 6.3% average.

At seven years the farmer may repurchase the land from the investor after revaluation, the management company take 10% of the investors NET profit. Should the farmer not wish to repurchase the land (very unlikely), then another buyer is located, or a new tenant found if the farmer no longer wishes to lease the land.

Both Savills and Knight Frank expect agricultural land in the UK to increase in value by 8% to 9% per annum due to lack of availability and an increase in demand.

So our investor benefits from a consistent income well above the bank rate, whilst their asset is growing in value, and the farmer benefits from access to much needed capital to refinance current loans or fund expansion.

For a more detailed breakdown of this model, of to request a detailed prospectus, click here.

Our second strategy allows the investor to profit from the production of crops by partnering with a management company to farm their newly purchased agricultural land.

Our farming partners are raising equity to cultivate more land, and to do this they have structured an excellent investment product allowing them to access the required capital whilst at the same time providing investors with income and growth. The model works like this:

The investor purchases cultivated, producing farmland, which is managed by the current owners to produce two yields per annum. The management company commit to provide the investor with a fixed income, with them taking the extra yield over and above the fixed payout. Income is tired from 9% to 12% annually providing an excellent income for investors.

The previous owner of the land uses the capital raised from the sale of the land to improve further land that it owns, purchase the required machinery, and do all the required work to bring their other land into production.

After five years, the original owner wants their land back, and therefore commits under contract to buy back the land at either five years or ten years (our client can choose either timeline), for a guaranteed capital uplift of 15% or 40% respectively. I.e. if the investor buys the land for $50,000, then the original owner will buy back at year five for $57,500, or in year ten for $70,000.

This provides not only an excellent income stream but also growth in capital for investors, if you would like a prospectus, a no obligation consultation, or to learn more, click here.