The pros and cons of investing in the agricultural sector

PROS:

Strong long-term growth potential across a range of rural sectors;

Demand for food will continue to rise worldwide as the population rises and as developing countries industrialise;

The agriculture sector helps to meet a basic human need that won’t change as other hot sectors go in and out of favour;

Growth is not directly dependent on a continuation of the mining boom;

Consolidation at the corporate level and a finite amount of available land act as significant barriers to entry, and

Companies that provide fertilisers and farming equipment broaden the opportunities on offer and allow for indirect investment in agriculture.

CONS:

Can be highly volatile in the short-term; Investors should approach the sector with patience;

Returns will often be closely correlated to uncontrollable external factors such as commodity prices and the exchange rate;

There are few investment options open to retail investors. Most large-scale farming operations are held privately;

Small agricultural ventures will often lack the scale to benefit from some of the macro-trends that are making the sector attractive in the long-term; and

Overseas investment helps to push up prices.

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