Farmland Seen Returning Up to 12% by U.S. Pensions Manager

Farmland investments may return an average of 8 percent to 12 percent annually as global food demand increases, said the largest U.S. pension manager for teachers and academic researchers with $469 billion of assets.

The company has $2.5 billion invested in farmland and owns about 600,000 hectares (1.48 million acres) mostly in the U.S., Brazil and Australia, said Jose Minaya, 40, a managing director and head of natural resources and infrastructure investments at New York-based TIAA-CREF.

“From a historical point of view, farmland has generated returns of 8 percent to 12 percent a year and we expect that to continue over the long term,” Minaya said.

Farms are attracting investors such as billionaire George Soros as rising incomes in China and India and a growing world population increase demand for food and fuel. Food production will have to climb 70 percent by 2050 as the population rises to 9.2 billion from 6.9 billion in 2010, according to the United Nations. Global food costs reached a record in February after weather ruined crops from Canada to Australia and Russia.

The Standard & Poor’s Spot Index of 24 commodities has dropped 21 percent from its April high on concern the European debt crisis would slow growth and curb demand. The gauge had more than doubled since the start of 2009. The MSCI All-Country World Index of global equities lost 22 percent from its May high.

‘Pretty Steady’

Farmland is an asset class that’s “pretty steady” and delivers stable income returns with capital appreciation that tracks slightly above inflation, said Minaya, who previously worked for AIG Global Investment Group and Merrill Lynch & Co.

The company is seeking to expand in grain-exporting countries and hold investments for as long as 30 years, he said in an interview Sept. 30. “We can easily be twice the size that we are today” if the right opportunities arise, he said.

The pension manager buys land and leases it back to farmers, he said. The investments are in “mature and established” regions, in “the bigger farms” and in countries that export grain, he said. Returns in the past few years have been at the high end of the 8 percent to 12 percent range, he said Sept. 30.

“On aggregate, it does look like a pretty good bet,” said Michael Creed, an agribusiness economist at National Australia Bank Ltd. “We’re entering a period of rapid growth in emerging-market demand for higher protein,” which is increasing use of grains to feed poultry and livestock, he said from Melbourne.

Farmland Values

TIAA-CREF is one of eight institutional investors representing $1.3 trillion in assets that have endorsed a set of Farmland Principles ranging from environmental sustainability to transparency and respect for land rights, it said on Sept. 6.

Farmland values in one of the most-productive regions in the U.S. Midwest soared 17 percent in the second quarter as higher grain prices made real estate more attractive, the Federal Reserve Bank of Chicago said on Aug. 17. The increase from a year ago in the area including Illinois, Indiana, Iowa and Wisconsin was the biggest since the 1970s, it said.

A fund controlled by George Soros owns 23 percent of South American farmland venture Adecoagro SA, Bloomberg data show. The company is involved in the production of grains, oilseeds, dairy, sugar, ethanol, coffee, cotton and cattle meat, and has operations in Argentina, Brazil and Uruguay, its website said.

Shrinking land and water supply in countries including China and India, will limit their capacity to boost food production, creating import demand, Minaya said. That’s going to be met by the major exporting regions in North and South America, Australia, and parts of Central and Eastern Europe, he said.

As well as the U.S., Australia and Brazil, the company has a smaller level of investments in Poland and Romania, he said.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE