How Does Agriculture Become An Asset?

Agriculture is an asset class that provides a diverse and attractive source of revenue.

Fremont, CA: Investors have progressively allocated to private markets as traditional asset yields have stayed at historic lows. While a substantial amount of investor money has flowed into private markets like private equity, private finance, and infrastructure, little has poured into agriculture.

Agriculture as an asset class

Investing in agriculture entails the production of raw materials for sale farther down the supply chain. Farmland comprises crops or livestock that wind up on supermarket shelves, and forestry, which incorporates the production of resources like lumber that may be utilized for construction, are the two main ways to invest in agriculture.

Using public or private equity, agriculture investing has extended to encompass agribusinesses. There is no evident definition of what constitutes an agribusiness, but approximately half of its revenue must be related to agriculture, either directly or indirectly. Companies intricated in any phases required to get an agricultural product to markets, such as production, processing, and distribution, will be incorporated.

Environmental, social, and governance (ESG) and sustainability factors

ESG(Environmental, social, and governance) concerns are vital in any venture, and agriculture is no exception. Specific components of agriculture, mainly farmland, present significant environmental dangers, and potential.

Food and crop production uses a lot of water, and animal-related production, in particular, produces many carbon emissions. Deforestation has resulted in using many lands for farming purposes, especially in rising countries.

The preservation of the environment & responsible farming offers an opportunity to decrease climate change risk. There is a growing interest in agroforestry, sustainable agriculture that blends growing trees with crops instead of intensive cropping. This approach benefits the soil, habitats, biodiversity, and insect control more. If agricultural operations are sustainable, there is enormous upside potential if carbon pricing or fines for excessive pollution or hazardous chemical use are implemented properly.

Regulatory requirements will probably be implemented, forcing corporations to meet particular ESG/carbon standards, resulting in increased forestry investment. Many businesses aim for net-zero emissions by 2050, so many may turn to forestry funds to offset their carbon footprints.

Also, an investment in agriculture could be utilized to mitigate the risk of portfolios with high carbon intensity. This implies that investors can get in early on this asset class and take advantage of the upside potential, as well as the expectation that the asset class will turn institutionalized and experience major inflows in the future years.

Apart from the environmental influence of agriculture, this form of investment has a distinct social benefit. With the world's population possibly continuing to rise in the next years, increased agricultural productivity and efficiency will be critical.