Investing in agricultural land is a smart way to protect your assets against inflation. Agricultural land is a stable investment, thanks to the constant demand for food. Furthermore, the value of agricultural land typically increases in line with inflation, as the cost of raw materials follows the same trend. By placing your money in agricultural land, you can benefit from the continued increase in demand for food while shielding your portfolio from the destructive effects of inflation.
What is inflation and why is it important to investors?
Inflation refers to the general increase in prices that takes place from year to year. The inflation rate is a central economic concept, as it indicates how quickly an investment loses its real value and how one's purchasing power dwindles. Furthermore, it gives investors an accurate view of the return their assets must generate to maintain their standard of living.
The inflation rate provides investors with an accurate calculation of the required return (in percentage) to maintain their standard of living. For example, if stock ABC returns 4% and inflation is 5%, the real return on investment is minus 1% (5% – 4%). Inflation coverage also protects an investment's value. Although some investments may appear to generate high returns, they can cause losses when inflation is taken into account. Therefore, it makes sense for investors to seek asset classes that outperform the market during periods of inflation.
Agricultural real estate: Inflation protection
Traditionally, gold is often used as a form of protection against inflation. Recently, however, farmland has been compared to gold rather than stocks or real estate investments. This comparison is relevant as agricultural land is considered a reliable investment in times of inflation, even during economic crises. The main reason for this strong inflation coverage of farmland is that its value is closely linked to the Consumer Price Index and the Producer Price Index.
Agricultural real estate: A stable investment
There is a natural demand for agricultural land as food is a basic necessity for everyone. Agricultural land is essential for food production. According to the Food and Agriculture Organization, food production must increase by 50% by 2030 compared to the level in 2023 to meet the increasing demand. Therefore, the demand for agricultural land is only expected to increase, making it a reliable and stable investment.
During periods of high inflation, costs for distributors increase. Agricultural land as an investment can provide excellent inflation coverage as it plays a crucial role in the production of commodities that rise in price. Farmers demand higher prices for their products, which also increases the value of the farmland itself. In other words, by investing in farmland, you can benefit from the best of both worlds in times of rising inflation.
In conclusion, agricultural land as an inflation-safe investment
Understanding inflation and its impact on investments is crucial for investors. Inflation erodes the real value of assets and affects purchasing power. Investors need to consider the required return on their investments to maintain their standard of living, especially in the face of inflation.
Agricultural real estate emerges as a compelling option for inflation protection. While gold has traditionally served this purpose, farmland's close correlation with inflation indices makes it a reliable choice. The natural demand for agricultural land, driven by the necessity of food production, ensures its stability as an investment. Moreover, during periods of high inflation, farmland can offer excellent inflation coverage, benefiting from rising commodity prices.
In summary, farmland stands as a resilient and inflation-resistant investment option, providing investors with stability and growth potential in uncertain economic times.
Mediation of agricultural real estate
Jesper Kjær ApS has been facilitating investment projects in Poland, Lithuania, Latvia, and Estonia since 2001, with a particular focus on agriculture since 2003. Over the years, we have developed an extensive and efficient network, enabling us to collaborate closely and offer our investors the best possible opportunities.
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