There is an emerging correlation between retirement savings and the future of food. Most of us don’t know where our pension funds and retirement plans are invested. In many cases, retirement funds end up in the hands of an institutional investor. Institutional investors handle large sums of money for high net worth individuals, pension plans, endowment funds and municipal treasurers. By far and away, the largest source of investment funds in the U.S. is the retirement arena.
Research, by the Investment Company Institute, reveals that at the end of 2008, assets in the U.S. retirement market totaled $14.2 trillion.
By year end 2014, that number was $24.7 trillion – a growth of $1.5 trillion a year for the last seven years.
While there is market appreciation in this number, there are also withdrawals from baby boomers and other retirees – making the $1.5 trillion increase all the more significant.
Institutional investors, wrestling to find a home for these funds have a similar problem to banks – finding enough qualified borrowers (or venues for investment). Owning farmland – as a retirement investment – has come of age. Farmers strapped for cash sell the farm to an institutional investor and cash in on their equity. The institutional investors – employing farm overseers – lease the farms back to the selling farmer or other farmer.
Retirement funds aren’t the only ones looking to own and control farmland. Also vying for farmland are high net worth investors, venture capitalists, food insecure nations, and farmers wanting to stay in the game. The entry into farmland by retirement funds, along with the other players, creates a tsunami of money ever more impacting on the food chain. Uploaded here is a short video by Barron’s Investment News on farmland investing.
The more money that goes into farmland, the more the land has to produce – a cost that adds to the grocery bill. The USDA reports prime cropland has doubled in value the last 9 years – going from an average of $2,060 an acre in 2005 to $4,100 an acre in 2014 (See info graphic 69-1). Highly desirable croplands can spike from $10,000 to $20,000 an acre or more.
As mainstream farming – with high priced land – must have more money for food, a higher price structure for food could improve the economics of urban and home gardening. One can only surmise that assessing the food production value of one’s residence, vacant urban lot, apartment grounds or containers is crossing more than a few minds. In Part 2 of this series, we look at one of the nation’s largest institutional pension-fund investors and the reasons they pursue farmland.