Farmland II: Capita Selecta

Population growth, resource scarcity, and climate change are the three defining economic trends of our modern times. Any sector positioned at the nexus of their convergence will offer investors the best midterm opportunity and the potential for stellar returns over the long term. Agriculture is one such sector. The consequent increasing scarcity of farmland has resulted in rapidly rising farmland prices across almost all regions of the world. Farmland values are determined by the relationship between demand on the one side, driven primarily by the profitability of agricultural enterprise, and the supply of productive farmland on the other. More specifically, rising demand for agricultural commodities will exert demand-side pressure on farmland values, while restrictions on cropland expansion will exert supply-side pressure. The interrelationships between supply and demand for farmland are complex. Demand for land increases when commodity prices rise. In response, supply increases if further land is brought under cultivation. However, there are many other factors at play. For example, efficiency increases or yield-enhancing technologies might mean that less land is required to produce the greater supply of commodities required in the future. On the other hand, losses in productivity from climate change and land degradation could have the opposite effect. The core objective of this chapter is to assess prevailing and emerging trends in supply and demand in the agricultural sector.1