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SOVEREIGN MAN

The fundamentals of farmland

August 3, 2010
Vienna, Austria

There’s something I really like about the rural areas of Central Europe.  Whether you’re in Poland, Slovakia, Hungary, or Ukraine, just about everyone you meet outside of the major cities is an amateur farmer.  As this area was the breadbasket of the old Soviet Union, it’s truly an ‘agriculture culture.’

Their gardens are generally small, usually about an acre at most.  But in this small space, locals will raise an impressive variety of grains, vegetables, fruit trees, and even a few chickens and pigs.

It’s not a question of money– it’s not like these people are so broke that they can’t afford to buy a head of lettuce at the grocery store. Many of them simply want to know exactly what they’re putting their bodies, and it’s worth the extra 30-60 minutes in daily chores.

For most, though, their reasons are largely cultural– they were taught farming at a young age by their parents, and having a garden is simply the normal thing to do.

On a personal level, I could write to you all day about how delightful it was to have home-cooked meals all weekend where every ingredient came from my friends’ gardens… right down to the artesian well water.

Taste buds aside, though, I think that on an economic level, there’s hardly a safer bet than agricultural land.

On the demand side of the equation, one only needs to look at the world’s population explosion, especially in the developing world.  These are people and cultures whose dietary habits will shift from vegetables and grains to resource-intensive meats.  Their wallets and waistlines will get fatter together.

If you have any doubt, take a trip to China one of these days and check out all the fat kids running around town eating donuts and McDonalds.

Unquestionably, it takes far more land, grain, and water to raise one pound of beef than it does to grow a pound of rice or carrots. As millions of babies are born into rapidly expanding economies and increased disposable income, they will be brought up with new dietary norms– a chicken in every pot, two all-beef patties in every lunchbox.

Among everything else, this dietary shift may end up having the greatest impact on the world. For example, people talk about “the China effect” when addressing rising oil or copper prices. I’m not dismissive of that argument, but I believe that technological advances and alternative resources will dampen the rise of those commodities.

On the other hand, there really is no substitute for food. Agricultural yields and production methods have certainly improved over the years, but two things prevent technology from holding back food prices, at least for the time being:

First, the emerging dietary trend in the developed world is towards natural production methods that eliminate the hormones, pesticides, and industrial harvesting. This organic approach is much slower and less efficient when strictly comparing yields.

Second, a lot of the new agricultural technology these days is focused on things like carbon capturing rather than improving yields or production efficiency. Some of the greatest scientific minds in the world are toiling away trying to figure out how to contain bovine flatulence rather than dealing with the coming resource imbalance.

Furthermore, regardless of where you stand on climate change, it’s indisputable that arable land around the world is declining– soil erosion, development, drought, etc. are actually reducing the amount of land available for farming. And as they say, they ain’t makin’ any more of it.

To me, all of this makes a very compelling case for owning agricultural land. Given that land prices in many parts of the world are depressed at the moment, I think it’s an absolute no-brainer.

A few weeks ago I wrote about South American farmland, for example, that can be purchased for as little as $25/acre. This price point is not uncommon in the remote areas of Paraguay and Brazil. Frankly, 20 times that price would still be quite a bargain.

Even at higher prices, there are great deals to be had; for example, I have seen small homes with 5-10 acres of land in Paraguay and Ecuador selling for less than $39,000– they’re basically selling the house for the cost of construction and giving away the land for free.  This is a deal by any standard.

There are a lot of other places in the world where I’m looking as well– including certain countries in Asia and Africa.  To be clear, though, the best deals will never be published online. Don’t expect to Google “farmland in Paraguay” and find the bargains.

Sniffing out the best properties, negotiating the best price, and finding the best people to work with requires boots on the ground.  It has taken me several years to build up a network of trustworthy contacts who can source these opportunities, and I plan on sharing their knowledge with you when we launch a private forum in a few weeks.

For today, though, I simply want to plant a seed (ha) and get you thinking in this direction. Allocating a few thousand dollars of your savings to agricultural land somewhere outside of your home country is a simple, cost-effective no-brainer. In the end, you’ll have an escape hatch, a means of survival, and an excellent store of value.

About the author: Simon Black is an international investor, entrepreneur, permanent traveler, free man, and founder of Sovereign Man. His free daily e-letter and crash course is about using the experiences from his life and travels to help you achieve more freedom.

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Comments on this entry are closed.

  • Iporter

    Simon,

    I agree wholeheartedly with your take on Ag land as an investment.

    You don’t need to go to the far reaches of developing countries to find farmland deals though.
    Saskatchewan, Canada has almost 1/2 of the country’s grain land and an abundance of water (in fact there are millions of acres where water rights are available for free and the government would like to have the land irrigated). Add to that oil and natural gas reserves arguably greater than Alberta’s, massive reserves of potash, Uranium and other minerals, and a population of only 1 million people. The Provincial economy is growing strongly (one of the best in the country).
    We have been buying producing grain land, rented to farmers with an existing return of about 5% per annum, for C$250-C$400 per acre.
    On top of that, the Federal government farm financing company (Farm Credit Canada) will finance the purchase of raw farmland up to 85% at residential mortgage rates (we are currently financing at variable rate of 3%). Example, I just purchased 1,440 acres of mostly grain land for C$270,000 (+/-$190 per acre) that is partially irrigated. This particular parcel does not have a farmer in-place renting the land, but we will get one in place. Financed 75%.

    Provincial rules on foreign ownership of farmland in the Province have artificially depressed prices, but the values are beginning to play catch-up. This, combined with the macro-level factors you describe and the stability and strength of both the Saskatchewan and Canadian economy make me think this is a good position.

    Regards,

    Ian

  • Amosfella

    This still doesn’t change the fact that most people don’t know how to farm. Having farmland does not a farmer make.
    My dad has spent 30 years studying and experimenting with organic farming, and at one time had the largest certified family owned organic farm in the world.
    Gardening is a bit different, and a lot easier, but farming itself as I know it isn’t easy…

  • Charlie

    While I generally agree with the advice presented here, I must take some exception to your advice regarding investment in agricultural land. While it generally can be had at mostly reasonable land, it is not as secure an investment as one would like to believe. In many third world countries (especially Latin America, with which I am more familiar), there is a trend (and has been for many years) to break up large landholdings and redistribute the land to indigenous groups as a means of gaining popular political support. Absentee landlords, especially foreigners, are quite popular targets, since they generally do not wield sufficient political power to resist this trend. Recently, an American lost his ranch (which he had owned since 1969) to government confiscation in Bolivia. A single election in one of these countries can result in a radical shift in the political climate. While such shifts can be anticipated when one is intimately involved with the local society, an absent landlord may not be in a position to anticipate such political dangers…

  • John

    Brilliant article,Simon. I think farmland is undoubtedly a much better investment than houses right now. I live in Florida, probably one of the biggest real estate bubbles in history.The banks and investment firms around here doubt that housing prices will recover to 2007 levels till 2030 or so. My only qualm with purchasing land south of the border is the rather murky definition of land ownership. I’ve heard many horror stories about squatters and the like…Furthermore, the governments down there aren’t known for their stability. There does seem to a Marxist trend in south america right now which doesn’t exactly give an investor a sense of security. I’m curious what you have say about this…

  • yanez

    Agree. Great insigt. I think the real issue here is that you don’t have to actually farm the land,, you can just own it. its there if you need it for development later. true, farming is not simple, but help is cheap in SouthAmerica.

  • David

    Good job Simon and I agree. I believe farmland is one of the most inportant keys to the future. I am in the process of “trying to get it together to go look”. one of the points that you make is that you have to be on the ground to make it happen, or have been on the ground to do the initial work. David

  • David

    I intend to have some farmland in Ecuador or some other South American country including planting a flag. Preferably work with a group of small investors, likeminded. David

  • Steve

    I really think that a lot of people are overlooking the great state of Chihuahua. I live 3 hours from the USA border. There is a small ranch, not mine, 6 acres near by with a three bedroom house-incredible view of river and mountains, irrigation, river runs along property 50 yards in front of house-I cant give it away-why, because its an ejido property which means you own it but the land ultimately belongs to the people-the ejido. So what? You buy it and make sure you pay the $32 a year property tax a year and no one is going to tell you to leave-no one. Americans are so hung up on making everything like it is in the USA that they overlook great deals that are based on that countries form of ownership. I have lived here for twenty years, on a tourist visa. I bought my house for $1,200 and my taxes are $24 a year. My deed I think was written on a roll of toilet paper-who cares? As long as you pay your low yearly property tax its yours. We know farming here, we have water and gravity fed irrigation. Any seed you put in the ground and water grows here. There are people who will do you gardening for you for $14 a day. All the gold in the world might not taste as good as a bowl of frijoles grown on your own land-like they say you cant eat gold. To use the excuse that Juarez is in the grips of Narco Violence would be like me saying New Jersey is full of mafia so don’t move to New York City. Chihuahua is a big dang state. Plus its so close you can probably drive here in a day from almost anywhere in the USA-well maybe two..

  • David Evans

    Steve, I have been trying to find a place in Mexico for years but not the tourist stuff. My wife is from Monterrey origionally and is now a USA citizen. We are trying to get back to sanity.

    David Evans (facebook)

  • Charlie

    Steve-
    I, too remember Chihuahua as a beautiful, under-appreciated region from years ago (but it gets too cold there for my liking!). One fact that many people tend to ignore is that in the United States, ultimately the government has the right to reclaim your land as well, albeit with compensation (although the compensation may not reflect the true value of the property). There are frequent stories of homeowners being evicted by the state for some right of way, or to make room for some mega-project. The difference between the US and much of Latin America is that, in the US it is most likely the small holder that will ultimately be targeted (can you imagine Texas going after the King Ranch, or Wyoming after the land holdings of the Queen of England?), whereas in the third world, it is the large land holders that are targeted, mostly with the idea of redistribution. If one limits one’s holdings in Latin America to smaller parcels, one should be safe. The land, no matter what the legal strictures might pretend, ultimately belongs to those with the power to enforce their claim to it.

  • Kelly

    Great Article Simon. I think getting some arable land is one of the smartest things we can do these days. I’m a US Citizen who has been living in Vancouver, Canada for the last 6 years. I love the city of Vancouver but can’t take much more of the gray weather, so arable land in Canada is probably out for me.

    I wondered if you might be putting together a report on the best places to purchase arable land? I would definitely buy it. I’m currently looking into Latin American and focusing on things like Freehold land, warm enough weather to not need heaters, lots of sunshine to run some appliances on solar (and because I like sunshine) good soil, and access to fresh water. I’ve visited Boquete but am a little worried about the torrential rain that seems be ruining some crops. If anyone has suggestions about good land options I’d love to hear them! Thanks!

  • Toni Reid

    loved the article….need information outside the USA…I think we get lots of propaganda….”filtered news “and when was good news…. news, mind you?…what about the green movement going overseas? because of the oil lobbyists?….anyway glad for the information…thanks, Toni Reid

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