Ways to invest in agriculture
There are several ways to invest in agriculture, providing opportunities for passive or active participation.
Own land and farm directly
Some investors who have an interest or passion for farming may choose to invest in agriculture actively by owning the land and farming it themselves. While this method of investing in agriculture is by far the most time-intensive and requires substantial knowledge of how to properly farm land, it presents a unique opportunity to reap the financial benefits of agriculture while pursuing alternative farming practices such as regenerative agriculture or a smaller-scale sustainable agriculture operation.
In many rural or farming areas, smaller parcels of depleted land -- which many larger farming operations will overlook -- can be purchased for pennies on the dollar. The farmer can heal the land using sustainable development practices, in turn opening up the potential to help reverse climate change by sequestering carbon, leading to a higher crop yield than traditional farming operations.
Not all farmland models necessitate active farming of perishable and annual crops. If you're comfortable with a delayed return on capital and would like to avoid creating an actual job for yourself, you might consider planting timber crops. They require minimal attention, offer tax incentives, and typically have a strong return on investment (ROI).
Own land and rent to a farmer
An alternative to farming the land directly is buying the land and renting it to a farmer. According to the USDA, 39% of farmland is rented. It's a hands-off way to invest in farmland and agriculture without having to do the actual farming yourself. This allows the landowner to pay down the mortgage on the farmland while enabling the farmer access to land without having to come up with the money to purchase it. They are typically longer leases, meaning they offer a stable and low-risk way to invest.
Investors aren’t subject to only purchasing raw land or farmland to run and operate an agriculture business. Investors can choose to establish urban or indoor agriculture farms, either doing the work themselves or leasing it to a third-party farmer.
Invest in agriculture through crowdfunding or partnership
If you'd rather not own the farmland yourself, there are several options for investing in agricultural projects. There is a variety of real estate crowdfunding and peer-to-peer lending platforms -- like KIVA, Steward, or Harvest Returns -- where you can loan money directly to farmers in need from around the world. Some platforms will require you to be an accredited investor to participate, while others allow you to participate for as little as $25.
Buy stocks in agriculture companies
Purchasing stock in farming-related businesses offers the risk-averse investor exposure to agriculture without the risk of crop failure or managing the land themselves. You can purchase stock in publicly traded companies for fertilizer, farm equipment, seeds, packing operations, distribution services, biotechnology, or other related industries.
Buy stocks in agriculture ETFs
Exchange-traded funds (ETFs) offer a way to invest in commodities. In this case, that means contracts for crops that will sell in the future. Normally, investors need a tremendous level of understanding to invest in crop commodities, but this approach allows you to invest in an ETF, which is a group of different commodities that are hand-selected and managed by a fund manager. Take a look at our picks for the top 5 agriculture ETFs to invest in currently.
Invest in a REIT
A real estate investment trust (REIT) is a company that owns or finances income-producing real estate, including agricultural land. The majority of the taxable income is returned to the shareholders as dividends, which can offer a lot of upside to increased demand, without much risk for the investor. There are several agricultural REITs that allow investors exposure to a diversity of agricultural assets, meaning you won't put all your money into one operation. There are REITs that specialize in timber or farmland, for example.
Historically, the price of food increases over time, which means it can be an effective hedge against inflation and provides a safety net against the growing trend of food insecurity in our global economy. As with any investment, due diligence and a proper understanding of what you're investing in are critical. You may wish to consult with a real estate agent in the local market, an accountant, or an attorney after doing your initial research to get more detailed information on the specific implications of the agriculture investment you're interested in.