High Demand for Grains Makes Farmland a Promising Investment
As the global population increases, so does demand for farmland. It’s predicted that by 2050, farmers around the globe will need to produce more food than they have in the past 250 years combined to sustain the human population —an increase of 70 percent. As a result, owners of farmland are uniquely poised to reap healthy returns on investments.
In this post, we are answering a question many readers might have: Is farmland a good investment in the current macroeconomic environment?
A population boom means more grains
It’s predicted that the global population will increase by 34% by 2050, rising to 9.3 billion people. This will place extensive pressure on farmers and farmland to produce enough food to feed everyone. Technological improvements will continue to slowly increase yield, but population growth outstrips the pace of yield growth.
Surprisingly, in recent years, the amount of farmland used to produce food has actually been decreasing. Thanks to new technologies, harvest yields, and overall farmland productivity, has been on the rise, so farmers have been able to keep up with the increasing population demands. But this isn’t expected to last as the demand for cereal grains increases.
Cereal crops, such as corn, rice, wheat, and soybeans, make up more than half of the calories people consume each day. In order to feed the growing global population, cereal crop production will need to increase significantly. And it’s not just human consumption of grains that will see an uptick as the population grows; since livestock feeds off grains, more will be needed to produce enough meat.
It takes six pounds of grain to produce one pound of cattle beef, and three pounds of grain are needed to produce one pound of pork.
Urbanization will fuel a higher consumption of protein
Though many Western countries have seen birth rates remain stagnant or drop, populations in developing countries are doing the opposite. According to the Food & Agriculture Organization of the United Nations (FAO), sub-Saharan Africa’s population is slated to grow the fastest in the near-future, and urbanization in the region is forecasted to accelerate.
Urbanization is also taking place all over the globe. By 2050, 70% of the world’s population is projected to live in cities or urban environments. When people leave rural, agrarian lifestyles in favor of urban ones, their standard of living typically increases, and this can result in the consumption of more expensive, protein-rich diets.
Historically, as countries’ GDPs and income levels increase, people consume larger amounts of chicken, pork, and beef. With developing countries increasing their growth per capita over the next few decades, the global demand for grains will increase even further. This demand for animal protein can potentially cripple the agriculture industry given livestock producers can only raise more livestock with an increase in grain production, and the human consumption of grains will already be at an increase.
The only way to keep up with the increased demand for grains and protein sources is through fruitful farming, which requires quality farmland. Since farmland is in limited supply, both in the US and around the world, it holds great promise as an asset class, both now and in the coming decades, attracting more and more investments.
In our next article, we analyze the ways in which sustainable farming can support a stable food supply for the future and mitigate the effects of climate change. Have a read: "Scaling Sustainable Cropping: Changes Now For A Better Tomorrow"
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Disclaimer: FarmTogether is not a registered broker-dealer, investment adviser or investment manager. FarmTogether does not provide tax, legal or investment advice. This material has been prepared for informational and educational purposes only. You should consult your own tax, legal and investment advisors before engaging in any transaction.