Why timber and agriculture?
There is a broader move by institutional investors into alternative investments due to the challenging conditions of the post-crisis years. Both timberland and agriculture are considered to be real assets.
Traditionally, timberland has been a particularly attractive investment for institutional investors, such as pension funds, because it is a relatively safe, long-term investment. It is a common belief that you need ten years to make a forestry investment worthwhile. Because timber is growing all the time it can ride out low-points in the market and you can profit during the high-points. Even though some wood products are subject to variations in demand due to market trends, overall forestry is seen as a stable investment.
It is a particularly good time for timberland investments at the moment. Demand for wood is also particularly high in China and India at the moment due to a growing middle-class and therefore a growing demand for new homes. China and India do not have a lot of forest to work with and they need to build as they urbanise.
Like timber, agriculture investments can also diversify the institutional investors’ portfolio. Traditionally, investment in agriculture has not been an option for investors as many farms were family-owned. However, many aging farm owners do not have someone to inherit their ownership as their children are simply not interested in farming. This has opened agriculture up as an opportunity for institutional investors.
Growing demand for agriculture has created an incentive for investors to enter the sector including increased demand for food commodities due to a growing population, increased purchasing power of populations in some emerging economies and increased demand for renewable energy sources (i.e. biofuels), which has created competition for scares arable land.
Therefore, while investors will often invest in both timber and agriculture, they serve different (but complementary) purposes in an investment portfolio and present different challenges of which investors much be wary.
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