November 25, 2019

Why California Is An Agricultural Powerhouse

by Artem Milinchuk

Founder & Head of Strategy

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Why California Is An Agricultural Powerhouse
FarmTogether's Knights Landing Almond Orchard - Crowdfunding Property
This mid-latitude region has a temperate climate perfect for agriculture: a long growing season, plentiful sunshine, and defined seasons. Coupled with the ideal climate, the U.S. has a disproportionate share of the world’s best farmland.

The United States won the geography lottery. This mid-latitude region has a temperate climate perfect for agriculture: a long growing season, plentiful sunshine, and defined seasons. Coupled with the ideal climate, the U.S. has a disproportionate share of the world’s best farmland. It is similar in size to China but with 1 billion fewer people. The U.S. ranks a close second to India in total arable land and has relatively vast surface water and groundwater resources, compared to other regions.  

Americans spend a smaller share of their income on food than fifty years ago. Between 1948 and 2015, the real price of agricultural commodities decreased by 65% as the growth in productivity outpaced the growth in demand for food. Tremendous gains in genetics, technology, and the integration of world markets have allowed us to grow more with less (and spend less). Over that 67 year period, farm output increased 170%. Meanwhile, over 90% of the increase in output was due to utilizing land, labor, and capital more efficiently while the balance was due to increasing inputs.

World of Tomorrow - The Future of Agriculture

The world faces a long term food supply challenge. By 2050, the UN projects that world population will climb by 2 billion people to reach nearly 10 billion individuals. At the same time, the average global citizen is expected to have a more energy-intensive diet, with greater overall caloric intake and more calories coming from protein sources. Higher rates of urbanization and increased wealth will be the primary drivers of this trend. On the supply side, most of the best agricultural land is currently under cultivation. This means that we will have to produce more with less. However, productivity growth has slowed or plateaued thus far in the 21st century.  

Row crops like corn, wheat, and rice are staple commodities comprise the bulk of global diets. These crops can be cultivated in many regions with temperate climates, and they cover 10% of the Earth’s surface. Meanwhile, permanent crops, such as nuts and fruit, cover just over 1% of Earth’s surface. As the global middle class grows and becomes wealthier, individual patterns of consumption will evolve to include more permanent crops, like almonds and grapes. The challenges of climate change, water scarcity, and stalling productivity will likely place upward pressure on food prices.

American Agriculture is the Most Efficient and Most Productive System in the World

The grain basket of the Central U.S. is the core of our food engine and a strategic resource. It is connected to global markets via the Mississippi River and its far reaching tributaries. This has enabled the U.S. to be one of the most efficient producers and largest food exporters. The Corn Belt is the most photosynthetic active region (a proxy for productivity) on the planet during peak growing months. U.S. corn yields are twice the world average and 30% greater than those of the European Union.

While the Midwest is America’s breadbasket, California is our salad bowl. Of the nearly 5 million acres of permanent crops in the U.S., two-thirds are in California. For comparison, the U.S. planted roughly 300 million acres of row crops in 2019. California produces 90% of U.S. grapes, 80% of nuts, and 40% of citrus. Farming is concentrated in the fertile Central Valley, which is surrounded by over 1,000 miles of nearly continuous mountain ranges. Eons of erosion from the adjoining mountains deposited rich sediment to create deep topsoil and prime farmland. Along with great soil, California has a Mediterranean climate that allows it to produce over 400 different agricultural commodities, more than any other place in the U.S.

Golden State - Why California is an Agricultural Powerhouse

Mediterranean climates are warm and dry in the summer and receive the bulk of annual precipitation during a short span in winter. There are five regions in the world with a Mediterranean climate, and these regions collectively cover less than 3% of the world's land mass. These regions are conducive to highly productive farming and the cultivation of a range of crop types. Most of the world’s exportable supplies of almonds, walnuts, and more than half of global citrus (mandarins and lemons), grapes and pistachios are grown in Mediterranean climates. Accordingly, these lands are referred to as the “orchard lands of the world.”

The unique features of California’s Central Valley make it the only place suited for growing the majority of America’s permanent crops. Well-developed transportation and water infrastructure, proximity to major ports, cheap credit, and high human capital entrenches California’s agricultural advantages. There are around 9 million irrigated acres in the state and one-third are planted to permanent crops. This makes California the largest investable space for high-yielding permanent crops on the planet.

The global food system faces unprecedented future demand and greater potential supply disruptions. The best land, water, and climate for producing food is often far from where demand is the highest. The U.S. is well positioned to continue leading the world in food production. The challenges facing agriculture provide an opportunity for owners of prime farmland. Owning U.S. farmland has historically been an excellent investment but with significant barriers to entry for retail investors. FarmTogether removes those obstacles to make owning a slice of prime U.S. farmland affordable and accessible.

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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.

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