Focus: Investment funds stocking up on US farmland in safe-haven bet

Gladstone Land

16/11/2023 11:00

By Leah Douglas
       Nov 16 (Reuters) - Investment funds have become
voracious buyers of U.S. farmland, amassing over a million acres
as they seek a hedge against inflation and aim to benefit from
the growing global demand for food, according to data reviewed
by Reuters and interviews with fund executives.
    The trend worries some U.S. lawmakers who fear corporate
interest will make agricultural land unaffordable for the next
generation of farmers. Those lawmakers are floating a bill in
Congress that would impose restrictions on the industry’s
purchases.
    Though their acreage is a small slice of the nearly 900
million acres of U.S. farmland, the pace of acquisitions by
investment firms like Manulife Investment Management and Nuveen
has quickened since the 2008 global financial crisis drove firms
to seek new investment vehicles, according to Reuters interviews
with fund managers and an analysis of data from the National
Council of Real Estate Investment Fiduciaries (NCREIF).
    The number of properties owned by such firms increased 231%
between 2008 and the second quarter of 2023, and the value of
those holdings rose more than 800% to around $16.2 billion,
according to NCREIF's quarterly farmland index, which tracks the
holdings of the seven largest firms in farmland investment. 
        Farmland offers steady returns even in periods of high
inflation, and firms hope crop demand will remain steady as the
United Nations predicts the world will need 60% more food by
2050 due to population growth.
    Investment firm acquisitions are also outpacing farmland
purchases by foreign entities, according to data from the U.S.
Department of Agriculture (USDA). 
    Lawmakers debated this year whether to curtail foreign
farmland ownership, concerned that adversaries might buy land to
exert political influence. The Senate included a provision to
ban farmland purchases by China, Russia, Iran, and North Korea
in its version of the National Defense Authorization Act, which
has yet to be reconciled with the House version. 
    The number of acres owned by foreign entities increased 64%
to about 40.8 million acres between 2010 and 2021, with the
value doubling to about $72.5 billion, according to the most
recent USDA data available.
    NCREIF does not report the acreage owned by investment
firms, but a Reuters review of company websites, sustainability
reports, annual reports, federal filings and interviews with
executives from six of the seven companies who report to the
index found that together, they own about 1.65 million acres. 
    Paul Schadegg, vice president of real estate operations at
Farmers National Company, a farm management firm, said that when
investors enter the farmland market it can push up the price of
the land.
    "What they’ve done is establish a new floor," he said. 
    With the average age of farmers on the rise, high land costs
are a hurdle for young and beginning farmers, said Tim Gibbons,
communications director with the Missouri Rural Crisis Center,
an advocacy group.  
    "If the next generation isn’t enticed to come back to the
farm," he said, "then who’s going to own that land?" 
    The average price of an acre of cropland reached a record
$5,460 in 2023, according to USDA, up from $2,700 in 2010,
driven by high commodity prices and strong demand, among other
factors.
    About 60% of U.S. farmland is farmer-owned and -operated,
with the rest owned by non-farmer operators including
individuals, trusts, and corporations, according to USDA.
        
    "IT’S LIKE GOLD"
    Investment firms say they buy farmland because it is
resilient to inflation, offers stable returns through land
leases and has limited downside risk, features that became more
attractive after the 2008 financial crash pushed investors to
build diversified portfolios.
    "It’s a hard asset. It’s like gold. It’s not going
anywhere," said David Gladstone, CEO of Gladstone Land, a real
estate investment trust which owns 116,000 acres of farmland,
mostly growing blueberries, strawberries, almonds, and other
produce, across 15 states at a value of $1.6 billion.
    The NCREIF farmland index has averaged an 11.4% annual
return over the past 25 years, compared to 9.3% for the S&P 500
index, according to an August Gladstone investor presentation.
    Farmland also offers growth potential as the demand for food
rises globally, said the websites of Manulife, which owns
284,413 U.S. farm acres at a value of $3.3 billion according to
its 2022 agricultural investments report, and Nuveen, which owns
751,000 U.S. farm acres at a value of $6.6 billion according to
its 2023 sustainability report. 
    Both firms declined interview requests. 
    Policymakers are considering stricter guidelines on who can
buy farmland for the next iteration of the five-year farm bill,
which Congress was meant to pass this year but which will likely
be pushed to next year due to Congressional gridlock. 
    A bill introduced in July by Senator Cory Booker, a member
of the Senate Agriculture Committee, and endorsed by 70 farm and
rural groups, would curtail investment fund purchases and leases
of farmland and ban large corporate investors from using USDA
farm programs.
    Federal programs like crop insurance and commodity subsidies
can add to the appeal of investing in farmland because they curb
risk, said Bruce Sherrick, director of the TIAA Center for
Farmland Research at the University of Illinois.
    

 (Reporting by Leah Douglas; Editing by Richard Valdmanis and
Anna Driver)
 ((Leah.Douglas@thomsonreuters.com;))