Rail is an efficient way of transporting crops after harvest, especially in areas where roads are not paved or cannot handle heavy trucks. The U.S. has the most rails out of any country in the world, allowing for fast, efficient grain transportation. This is a breakdown of the amount of rails per kilometer in each country according to the CIA World Fact Book:
In the U.S., there is an even 50% distribution of freight on roads and railroads. In Brazil, where there is one-eighth the amount of railroads per square KM, only 20% of freight is hauled on railroads, according to a special report from the Economist. The World Bank's Growth Commission suggests that 25% of a nation's GDP be reinvested in the country and 7% of it should go into infrastructure. Brazil reinvests 20% of its GDP, but only 0.1% into its infrastructure.
Africa is another region with a struggling infrastructure. Only one-third of Africans have access to an all-season road, according to the World Bank. Sub-Saharan Africa looses economic growth by two percentage points every year and reduces productivity by as much as 40% because of its lack of its electricity, water, roads and information and communications technology, according to the World Bank's Africa Infrastructure Study.
Property Rights
Without a stable government, even the best farmland in the world isn't worth investing in. Farmland owners must be aware of the political condition of the country where the farmland is located in. The country must promote agriculture and land ownership rights.
Some countries do not fully support land ownership rights. In Brazil there is a 1.5 million strong Landless Movement (MST). The MST uses interpretations of Brazilian law to try to spread out the ownership of farmland through land reform. In Brazil, 3% of landowners own two-thirds of available cropland, according to the MST. Actions by the MST range from peaceful to ruthless. In the northern state of Pernambuco, MST members shot and killed four men earlier this year, according to a recent special report from the Economist. Land owners have complained of land invasions by the MST. Major land owner Fibria, a wood pulp company, reported land invasions by the MST in remote areas of the Bahia state, according to the Economist.
Across Russia, gangs are pushing land owners from farmland, according to the independent Moscow News. Russian gangs have seized agricultural land in rural areas around major cities. Once seized, the land is handed over to investors who use the land in nonagricultural ways; typically building on the land. The newspaper also reported that the Russian government is aware of the seizures and no action has been done to stop it.
In regions where the political climate is unstable, farmland owners face the risk of their land being seized. The land may be able to be acquired for a low price, but unless the owner is willing to guard their land, they face the risk of losing it. In today's weak global economic environment, property rights will become a significant issue. Farmland in the U.S. allows its owners to sleep well at night knowing that they have solid ownership rights.
Government Support
The U.S. Government has many farming subsidy programs available for domestic farmers and agribusinesses. These programs help balance the supply and demand of many commodities, as well as promote a greener environment. U.S. Government subsidies have been around for more than 75 years.
The Conservation Reserve Program (CRP) pays land owners not to farm their cropland. The payments help land owners protect areas where wildlife can grow and fertile land can take a break from producing crops. CRP contracts run for multiple years and proper upkeep must be done to the land throughout the contract. Other environmental programs include environmental quality incentives and wetland preservation.
Other programs subsidize commodities for farmers. A minimum base price will be set for a commodity, like soybeans. If the price of soybeans drops below the base price, then the government will subsidize farmers for the difference to get back to the base price. In addition, subsidies can be paid on top of any commodity price if the government feels that specific commodity's supply needs to be increased. These subsidies act as price insurance and they promote an increase in production.
Farm subsidies are given by other countries as well. China drastically changed their agriculture sector in 2004, by introducing subsidies and lifting agricultural taxes, according to the USDA's Economic Research Service (ERS). Ukraine has recently been trying to rebuild their subsidies since government subsidies were dissolved in the early 1990's after the Soviet Union broke up, according to the USDA's Foreign Agricultural Service (FAS).
U.S. Farmland Best Risk to Reward
A lot of factors need to be addressed when assessing a purchase of farmland around the world. We see U.S. farmland as the best opportunity for investors as it has some of the best soil in the world, the perfect climate for fertile crops, the adequate infrastructure for transporting grain, and a government that supports its farmers and property rights.
Read more about agriculture and farmland at farmlandforecast.colvin-co.com.
