Land is one of the oldest investment classes in existence, with the ability to generate massive wealth over many generations. While the value of gold or stock markets can decline more than 40% to 50% in any given year, farmland has shown positive returns and low volatility year after year. $10,000 invested in farmland in 1990 would be worth over $199,700 today, assuming the reinvestment of dividends. Like real estate, farmland investments provide capital appreciation and help hedge against inflation. When inflation occurs, the price of commodities, such as food, increases. Rising food costs make farmland more valuable and profitable, making it a safe choice for investors looking to maximize returns through periods of economic uncertainty.
One need only look at the meticulously curated investment portfolios of the ultra-rich for corroboration. The Land Report states that Bill and Melinda Gates (pre-divorce filing) had amassed the largest portfolio of private farmland in the US, comprising an estimated 242,000 acres. Gates isn’t the only one diversifying his portfolio with crops and soil. Megabillionaires Jeff Bezos, Stewart and Lynda Resnick, and Ted Turner are all on the list of America’s top farmland owners. According to a recent report by CB Insights, agricultural tech deal activity grew for the fourth consecutive quarter in Q1 ’21. Technology is transforming agriculture, making it even more attractive to corporate venture capital.
With the world’s economies still recovering from the pandemic, farmland investments could provide passive income and a hedge at just the right time. Still, directly investing in farmland is often difficult and unattainable for Main Street investors. This is due to factors such as a lack of transparency in the industry, the massive amount of land that is still privately owned, the generally long holding periods for real estate, and the financial barrier to entry at land auctions (created by the considerable institutional money thrown into the farmland game).
The grass is greener with Fintech
Fintech has now dug in to democratize farmland finance for the ordinary investor. Several farmland investment platforms have grown over the last several years that allow retail investors to benefit from the same return stability, inflation hedging and portfolio diversification that legacy landowners have enjoyed for decades—without the high-price entry fee or any prerequisite knowledge of agriculture or land stewardship.
One such platform is AcreTrader. AcreTrader conducts its offerings under Regulation D for accredited investors, with a typical minimum investment of $15,000 – $25,000. The company handles all aspects of administration and property management, from legal to insurance to accounting. As of this month, AcreTrader has closed more than 50 deals, representing $100 million in assets. Twenty-five percent of farms offered on the platform are Certified Organic—notable given the fact that farms that meet that criteria represent roughly one percent of all US farmland.
As with many Fintech investment platforms, there’s always the question of risk. The AcreTrader platform employs rigorous diligence when evaluating farms, including advanced geospatial analysis and data science. “We have strict criteria for approving farms and have become accustomed to saying no to deals that don’t meet these standards. We’ve researched billions of dollars’ more farmland that we ultimately have passed over for placement on the platform,” Carter Malloy, AcreTrader Founder and CEO, told me. The company has plans for a secondary trading platform to provide shorter-term liquidity for investors but has not yet released a launch date.
Another platform, FarmTogether, offers crowdfunded deals for accredited investors similar to AcreTraders’s model. FarmTogether’s minimum investment is $15,000, and it also offers “sole ownership bespoke offerings” for investors who prefer sole ownership and are willing to invest $1 million or more in equity per farm.
Farmland LP, a Certified B Corp, maximizes investor returns by converting conventional commercial farmland to sustainable land. The platform targets properties that could benefit from updated infrastructure, technology enhancements and other assets, aiming to improve their long-term profitability. Farmland LP emphasizes sustainability and regenerative landscape, which could be highly attractive to investors seeking to maximize environmental, social or governance (ESG) goals. Investment is open to accredited investors at a minimum of $50,000 for individuals and $1 million for institutional investors. The platform manages more than 15,000 acres and $175 million in assets.
These platforms share the common thread of domain expertise in local markets and access to a network of operators, transferring operational risk while gaining steady income through leasing contracts. As with any investment class, there is no optimal allocation of farmland that fits all risk profiles—it should reflect an individual’s investment objectives, risk tolerance, and liquidity needs.
Sowing it all together
As Malloy explained, “Allowing smaller investors access to farmland benefits all parties. The farm economy wins because they’re able to attract new investment capital to support American farmers, and the investors win because they get to reap the benefits of adding this valuable and reliable asset class to their portfolio.” This basic concept is the promise of Fintech: the democratization of investment opens up new capital to industries while allowing retail and armchair investors to get a piece of the action. Farmland is just one of the latest targets—I expect we’ll see the idea extrapolated to other industries as Fintech continues to grow.
Disclosure: My firm, Moor Insights & Strategy, like all research and analyst firms, provides or has provided research, analysis, advising, and/or consulting to many high-tech companies in the industry. I do not hold any equity positions with any companies cited in this column.