An analysis of Canadian farmland risk and its return on investment shows that a Farmland Real Estate Investment Trust (F-REIT) and gold would have significantly enhanced portfolio performance over the past 35 years. Investors who desire low-risk portfolios would not have benefited from an F-REIT or gold investment. However, investors in the medium-risk category could have improved the financial performance of their portfolios by including an F-REIT investment rather than gold. The financial gains from F-REIT result from a level of risk that is lower than gold, REITs, and stocks, an expected yield that is greater than for bonds, and a low correlation with other financial asset returns.
The worldwide recession in 2008 caused the evaporation of wealth due to declining residential and commercial real estate values and a stock market meltdown. The government policy response to the recession has been Keynesian fiscal pump priming, with governments around the world spending billions on government projects. The result is that some governments have grossly overextended their debt positions, with some countries in Europe having debt-to-GDP ratios of 120% and even the United States, long considered the world’s pillar of fiscal prudence, having a debt-to-GDP ratio of over 80%. The current worry is that the high government and personal debt ratios are not sustainable and will push the world back into another recession. This fear and uncertainty have been felt in the traditional financial markets such as the bond, real estate, and stock markets. Because of this uncertainty, average investors around the world are open to looking at different investment options for their retirement savings. There has been a flight to gold and safe investments like bonds but interest-bearing financial assets offer very low-interest rates which can barely keep up to inflation inside a tax-deferred retirement account and fall far behind on an after-tax basis. If higher inflation does materialize, interest-bearing assets will perform poorly as interest rates increase to combat inflation. Mutual funds have become the choice investment vehicle because they represent managed money where individual investors do not have to make many investment decisions. Diversification and asset allocation have become key words for investors and it has become much easier to achieve international diversification and asset sector flexibility within families of mutual funds. The financial industry can provide not only geographic diversification but also diversification across asset types (treasury bills, bonds, stocks, gold, options, futures, currencies, etc.) and industries or sectors. Choosing the right mix of geography, industry, sector, and asset types (debt/equity balance) is of key importance in achieving the targeted financial performance over an investment horizon. Residential and commercial real estate represent a significant percentage of world asset value and have been an important component of investment portfolios, either through Real Estate Investment Trusts (REITs) or personal direct investment in real estate.
Some of the investment qualities attributed to gold are also usually attributed to farmland investments, such as good hedge against inflation, low or negative correlation with other financial assets, and safety of principal. Farmland is an important real estate investment asset but it has not been easily available to average investors. This may be changing. Hancock Agricultural Investment Group is a US $1.3-billion farmland investment fund, managing 210,000 hectares in USA, 1,000 hectares in Canada, and 6,000 hectares in Australia (this is available to institutional investors only at this time). Bonnefield Canadian Farmland Fund, located in Ottawa, Ontario, was launched with a public offering in May 2010 and holds a diversified Canadian farmland portfolio. Agcapita is a Canadian farmland fund based in Calgary, Alberta. Assiniboia Capital Corporation, located in Regina, Saskatchewan, is publicly available for investment, was founded in 2005 and now manages 90,000 hectares of Canadian farmland. These farmland investment funds will be referred to as Farmland Real Estate Investment Trusts (F-REITs).
As average farm size grows, farmers need more sources of equity financing as not all growth can be financed with debt. Over 50% of farmland in Canada and the United States is now leased by farm operators and the demand for leased land is growing as average farm size continues to increase [
Markowitz [
Figure
Efficient investment and the capital market line.
A number of studies have assessed farmland investment efficiency. Barry [
An E-V model is used to assess whether a Canadian farmland real estate investment trust (F-REIT) would improve the financial performance of a diversified portfolio of financial assets, including REITs and gold and to determine whether F-REIT is a better diversifier than gold. The E-V model is used to derive the efficient set of portfolios at all risk levels, by minimizing the risk for various expected return constraints. The mapping of the minimum risk and the corresponding return combinations provide the efficient set or frontier.
Financial returns are calculated for each of the choice assets for the study period 1972–2009. The choice set of assets includes T-bills, long-term bonds, Canadian Farmland Real Estate Investment Trust (F-REIT), Gold, United States REITs, stock markets in Australia, Canada, Japan, United States, Europe, Hong Kong, and the MSCI World Stock Market Portfolio. For T-bills and bonds, average annual Canadian yields are calculated while for stock markets, average annual dividend, capital gain, and total yields are calculated, using Morgan Stanley International stock market data. Average annual income and capital gain yields are calculated for REITs (FTSE NAREIT US Real Estate Index Series) and a Canadian F-REIT. Average annual gold prices in USD were used to calculate annual investment yields for gold.
The total return on an F-REIT is divided into two parts: income return and capital gain return. The income return is based on the net lease revenue obtained from renting the farmland in the trust-to-farm operators. The capital gain return is the change from year to year in the market value of the land.
The income return to Canadian farmland in the trust is calculated using an average net lease value that could be obtained by a farmland owner for leasing their land. Canadian F-REIT returns are an average of the farmland ownership returns in the five major agriculture productive provinces: Alberta, Saskatchewan, Manitoba, Ontario, and Quebec. The method used in this study is based on the standard crop-share approach, where the F-REIT receives a percentage of the gross revenues produced (17.5% is a common crop-share arrangement in North America, which compares closely with cash rents that are usually in the 5–7% of land values range). The F-REIT is then responsible for paying property taxes and building depreciation (the value of farmland includes the value of farm buildings which means that building depreciation is an expense associated with farmland ownership) to arrive at a net lease amount or income return to the F-REIT. Hence, the annual income return per hectare to farmland ownership in a Canadian F-REIT is calculated as follows:
The annual income and capital gain yields for a Canadian F-REIT are calculated as follows:
The annual total investment yield for the F-REIT, or total return on investment (ROI), is the sum of the income and capital gain yields, calculated as follows:
Before an efficient frontier of investments can be assessed, it must be recognized that there are tax differences between various financial assets and F-REITs and adjustments must be made to account for these differences. Also, an F-REIT requires management so a Management Expense Ratio (MER) must be included to account for management costs.
The first tax adjustment is to the F-REIT income return (net lease revenue earned). The F-REIT must pay corporate taxes on net lease income before any distributions to unit holders can be made, just as a stock market company must pay corporate taxes before distributing dividends. An average Canadian corporate tax rate of 30% is used to adjust the income return in the F-REIT (after tax income return = income return × .70). The second tax adjustment is to T-bill and long-bond yields. In Canada, the average personal tax rate on interest is significantly higher than on dividends or capital gains, which means that to an average investor, a 5% pretax dividend or capital gain yield is significantly better than a 5% pretax bond yield. Since the study is using before-tax average yields, a discount must be applied to T-bills and long bonds to adjust for the higher rates of taxation. This is not an adjustment for risk but it recognizes that interest is taxed significantly higher and thus has less value to an investor on an after-tax basis. The average tax adjustment factor is calculated as follows:
Using average 2009 personal tax rates in Canada, the adjustment factor
An MER of 3% has been subtracted from the calculated F-REIT average yield to account for management expenses. A typical Canadian MER for equity funds such as Templeton Franklin, AIM Trimark, Investors Group, and others is between 2% and 3%. Since an F-REIT would require active management, the upper end (3%) was chosen as a reasonable estimate. Annual returns for all choice assets are listed in Table
Table Income yields and risk on F-REITs are very similar to dividend yields and risk on stock markets. Capital gain yields and risk on F-REITs are lower than for stocks, putting the total yield and risk for F-REIT in between bonds and stocks. The total REIT yield is almost entirely from the income yield. Also, the risk level associated with the income yield on REITs is higher than for dividends, while the risk level associated with REIT price movements is slightly lower than the price risk for most stock markets. Gold yields are the opposite of REIT yields in that there is no income yield at all—the yield is entirely from price movements. The gold yield is slightly higher than F-REITs but the risk is almost three times that of an F-REIT, making the gold risk similar to stock market risk.
Average annual investment yields for T-bills, long bonds, F-REIT, gold, REITs, and stock markets (1972–2009).
Income/div yield | Cap gain yield | Total yield | Coefficient of variation | ||||
Avg yield | Std dev | Avg yield | Std dev | Avg yield | Std dev | ||
T-bills | N/A | N/A | N/A | N/A | 5.1% | 0.0% | N/A |
Long Bonds | N/A | N/A | N/A | N/A | 6.1% | 2.9% | 0.48 |
Borrowing | N/A | N/A | N/A | N/A | 7.9% | 0.0% | N/A |
F-REIT | 2.7% | 0.7% | 7.4% | 9.1% | 7.1% | 9.4% | 1.36 |
REITs | 8.9% | 2.7% | 0.3% | 20.4% | 9.1% | 21.8% | 2.40 |
Gold | 0.0% | 0.0% | 8.7% | 26.6% | 8.7% | 26.6% | 3.06 |
Canada | 2.6% | 1.0% | 6.9% | 22.4% | 9.5% | 22.8% | 2.40 |
Australia | 3.2% | 1.2% | 6.4% | 26.6% | 9.6% | 27.6% | 2.88 |
USA | 2.4% | 1.1% | 6.1% | 18.3% | 8.5% | 18.7% | 2.20 |
Japan | 1.2% | 0.8% | 7.8% | 33.6% | 9.0% | 34.1% | 3.79 |
Europe | 3.1% | 1.0% | 7.1% | 22.1% | 10.1% | 22.7% | 2.25 |
World | 2.4% | 0.9% | 6.4% | 18.4% | 8.8% | 18.8% | 2.14 |
Hong Kong | 4.1% | 1.7% | 9.7% | 46.6% | 13.8% | 47.7% | 3.46 |
The investment attraction of F-REIT appears to be reasonable investment yield with relatively low-risk, as indicated by the lower coefficient of variation (standard deviation/yield: risk per unit of return) on F-REIT than on stocks, gold, and REITs.
The other attraction of F-REIT is its low and/or negative correlation with bonds, stocks, and REITs, which gives it significant diversification advantages for an investment portfolio. Table F-REIT is negatively correlated (simple correlation) with REITs as well as with every stock market and has very low correlation with T-bills and bonds. Gold is also negatively correlated with many stock markets, REITs and both T-bills and bonds, implying that it has significant diversification benefits as well. F-REIT has high positive correlation with gold, implying that F-REIT and gold may be interchangeable as diversifying agents in portfolios. Diversifying across stock markets alone does not appear to be efficient, based on the relatively high correlation with each other.
Correlation matrix for the choice set of assets (1972–2009).
T-b | L B | Gold | REIT | Can. | Aus. | USA | Japan | Europe | World | HK | ||
---|---|---|---|---|---|---|---|---|---|---|---|---|
T-bills | 1.0 | .94 | −.09 | .05 | −.16 | −.17 | .10 | .04 | −.03 | .04 | −.04 | |
L Bonds | 1.0 | −.09 | .12 | −.17 | −.14 | .14 | .14 | .01 | .09 | −.01 | ||
Gold | 1.0 | −.19 | .11 | .23 | −.25 | .10 | −.12 | −.10 | .12 | |||
REITs | 1.0 | .47 | .52 | .57 | .16 | .40 | .52 | .44 | ||||
Can. | 1.0 | .79 | .66 | .43 | .63 | .74 | .59 | |||||
Aus. | 1.0 | .60 | .44 | .70 | .77 | .64 | ||||||
USA | 1.0 | .34 | .77 | .88 | .53 | |||||||
Japan | 1.0 | .46 | .65 | .58 | ||||||||
Europe | 1.0 | .89 | .53 | |||||||||
World | 1.0 | .64 | ||||||||||
HK | 1.0 |
The combination of reasonable return, low total risk, and low correlation makes F-REIT attractive for an internationally diversified investment portfolio. But is an F-REIT necessary if gold can provide the same diversification benefits? The E-V model was applied to the choice set of assets to produce efficient portfolios and the Capital Market Line (CML). Figure
The capital market line with and without F-REIT and gold included (1972–2009).
Tables T-bills, Long Bonds, and F-REIT; T-bills, Long Bonds, REITs, and Stocks; T-bills, Long Bonds, Gold, REITs, and Stocks; T-bills, Long Bonds, F-REIT, Gold, REITs, and Stocks; T-bills, Long Bonds, F-REIT, REITs, and Stocks.
Comparison of low-risk portfolios under five scenarios (1972–2009).
Portfolio performance for low-risk category | |||||
(6% investment yield) | |||||
Investment yield | 6% | 6% | 6% | 6% | 6% |
Risk (std deviation) | 2.2% | 2.0% | 1.9% | 1.7% | 1.8% |
T-Bills | 23.6% | 34.6% | 40.3% | 42.9% | 42.0% |
Long bonds | 64.3% | 59.4% | 51.0% | 42.4% | 42.8% |
F-REIT | 12.1% | — | — | 8.1% | 9.6% |
Gold | — | — | 2.9% | 1.0% | — |
REITs | — | 0.1% | 1.2% | 0.8% | 0.6% |
Stocks | — | 5.8% | — | — | — |
Comparison of medium risk portfolios under five scenarios (1972–2009).
Portfolio performance for medium risk category | |||||
(8% investment yield) | |||||
Investment yield | 7.1% | 8% | 8% | 8% | 8% |
Risk (std deviation) | 9.3% | 9.5% | 8.1% | 7.5% | 7.6% |
T-Bills | — | — | — | — | — |
Long bonds | — | 55.1% | 44.9% | 19.9% | 14.4% |
F-REIT | 100.0% | — | — | 38.6% | 51.2% |
Gold | — | — | 17.3% | 7.4% | — |
REITs | — | 10.9% | 14.3% | 11.3% | 9.8% |
Stocks | — | 33.9% | — | — | — |
Comparison of high-risk portfolios under five scenarios (1972–2009).
Portfolio performance for high-risk category | |||||
(10% investment yield) | |||||
Investment yield | n/a | 10% | 10% | 10% | 10% |
Risk (std deviation) | n/a | 19.3% | 16.8% | 16.8% | 18.1% |
T-Bills | n/a | — | — | — | — |
Long bonds | n/a | 8.8% | — | — | — |
F-REIT | n/a | — | — | — | 25.8% |
Gold | n/a | — | 27.6% | 27.6% | — |
REITs | n/a | 24.9% | 19.5% | 19.5% | 11.4% |
Stocks | n/a | 51.3% | — | — | — |
Data appendix: annual investment yields for the choice set of assets.
Year | T-Bills | Long Bonds | FREIT | Gold | REITs | Canada | Australia | US | Japan | Europe | World | Hong Kong | Borrowing |
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
1972 | 3.6% | 7.2% | 14.0% | 43.8% | 11.2% | 32.6% | 20.0% | 15.6% | 125.8% | 14.4% | 22.5% | 161.7% | 6.0% |
1973 | 5.4% | 7.6% | 26.2% | 66.7% | −27.2% | −3.6% | −13.0% | −17.0% | −20.5% | −8.8% | −15.2% | −39.3% | 7.7% |
1974 | 7.8% | 8.9% | 34.8% | 58.1% | −42.2% | −27.1% | −34.5% | −28.6% | −16.1% | −24.1% | −25.5% | −57.1% | 10.8% |
1975 | 7.4% | 9.0% | 30.4% | 4.5% | 36.3% | 14.5% | 48.2% | 34.2% | 19.4% | 41.5% | 32.8% | 109.7% | 9.4% |
1976 | 8.9% | 9.2% | 25.1% | −22.5% | 49.0% | 9.1% | −11.4% | 21.9% | 25.1% | −7.8% | 13.4% | 40.1% | 10.0% |
1977 | 7.4% | 8.7% | 21.2% | 18.5% | 19.1% | −2.6% | 10.3% | −9.3% | 15.4% | 21.9% | 0.7% | −11.8% | 8.5% |
1978 | 8.6% | 9.3% | 23.7% | 30.8% | −1.6% | 19.8% | 20.2% | 4.3% | 52.8% | 21.9% | 16.5% | 17.8% | 9.7% |
1979 | 11.6% | 10.2% | 26.6% | 58.2% | 30.5% | 51.3% | 42.0% | 12.5% | −12.2% | 12.3% | 11.0% | 82.7% | 12.9% |
1980 | 12.7% | 12.5% | 28.6% | 101.0% | 28.0% | 22.1% | 52.7% | 27.9% | 29.7% | 11.9% | 25.7% | 71.9% | 14.3% |
1981 | 17.8% | 15.2% | 16.2% | −25.2% | 8.6% | −11.3% | −24.8% | −5.7% | 15.5% | −12.5% | −4.8% | −16.5% | 19.3% |
1982 | 13.8% | 14.3% | 3.2% | −18.3% | 31.6% | 1.2% | −23.7% | 20.0% | −0.9% | 4.0% | 9.7% | −44.4% | 15.8% |
1983 | 9.3% | 11.8% | 0.1% | 12.8% | 25.5% | 32.4% | 54.1% | 20.4% | 24.5% | 21.0% | 21.9% | −2.8% | 11.2% |
1984 | 11.1% | 12.8% | −0.5% | −14.9% | 14.8% | −8.4% | −13.7% | 4.5% | 16.8% | 0.6% | 4.7% | 47.0% | 12.1% |
1985 | 9.5% | 11.0% | −2.6% | −12.2% | 5.9% | 15.1% | 19.6% | 31.1% | 43.1% | 78.9% | 40.6% | 51.7% | 10.6% |
1986 | 9.0% | 9.5% | −1.8% | 16.1% | 19.2% | 9.9% | 42.3% | 16.3% | 99.4% | 43.9% | 41.9% | 56.1% | 10.5% |
1987 | 8.2% | 10.0% | 1.2% | 21.5% | −10.7% | 13.9% | 9.3% | 2.9% | 43.0% | 3.7% | 16.2% | −4.1% | 9.5% |
1988 | 9.4% | 10.2% | 5.8% | −2.2% | 11.4% | 17.1% | 36.4% | 14.6% | 35.4% | 15.8% | 23.3% | 28.1% | 10.8% |
1989 | 12.0% | 9.9% | 15.2% | −12.8% | −1.8% | 24.3% | 9.3% | 30.0% | 1.7% | 28.5% | 16.6% | 8.4% | 13.3% |
1990 | 12.8% | 10.9% | 11.2% | 0.7% | −17.3% | −13.0% | −17.5% | −3.1% | −36.1% | −3.8% | −17.0% | 9.2% | 14.1% |
1991 | 8.8% | 9.8% | 4.1% | −5.6% | 35.7% | 11.1% | 33.6% | 30.1% | 8.9% | 13.1% | 18.3% | 49.5% | 9.9% |
1992 | 6.5% | 8.7% | 2.3% | −5.1% | 12.2% | −12.2% | −10.8% | 6.4% | −21.5% | −4.7% | −5.2% | 32.3% | 7.5% |
1993 | 4.9% | 7.9% | 5.3% | 4.6% | 18.5% | 17.6% | 35.2% | 9.1% | 25.5% | 29.3% | 22.5% | 116.7% | 5.9% |
1994 | 5.4% | 8.6% | 9.2% | 6.7% | 0.8% | −3.0% | 5.4% | 1.1% | 21.4% | 2.3% | 5.1% | −28.9% | 6.9% |
1995 | 7.0% | 8.3% | 12.5% | −0.1% | 18.3% | 18.3% | 11.2% | 37.1% | 0.7% | 21.6% | 20.7% | 22.6% | 8.7% |
1996 | 4.3% | 7.5% | 11.8% | 1.0% | 35.8% | 28.5% | 16.5% | 23.2% | −15.5% | 21.1% | 13.5% | 33.1% | 6.1% |
1997 | 3.2% | 6.4% | 14.8% | −14.6% | 18.9% | 12.8% | −10.4% | 33.4% | −23.7% | 23.8% | 15.8% | −23.3% | 5.0% |
1998 | 4.7% | 5.5% | 9.2% | −11.1% | −18.8% | −6.1% | 6.1% | 30.1% | 5.1% | 28.5% | 24.3% | −2.9% | 6.6% |
1999 | 4.7% | 5.7% | 7.0% | −5.2% | −6.5% | 53.7% | 17.6% | 21.9% | 61.5% | 15.9% | 24.9% | 59.5% | 6.4% |
2000 | 5.5% | 5.9% | 6.5% | 0.0% | 25.9% | 5.3% | −10.0% | −12.8% | −28.2% | −8.4% | −13.2% | −14.7% | 7.3% |
2001 | 3.9% | 5.8% | 6.2% | −2.9% | 15.5% | −20.4% | 1.7% | −12.4% | −29.4% | −19.9% | −16.8% | −18.6% | 5.8% |
2002 | 2.6% | 5.7% | 9.9% | 13.2% | 5.2% | −13.2% | −1.3% | −23.1% | −10.3% | −18.4% | −19.9% | −17.8% | 4.2% |
2003 | 2.9% | 5.3% | 9.3% | 18.5% | 38.5% | 54.6% | 49.5% | 28.4% | 35.9% | 38.5% | 33.1% | 38.1% | 4.7% |
2004 | 2.2% | 5.1% | 8.7% | 12.8% | 30.4% | 22.2% | 30.3% | 10.1% | 15.9% | 20.9% | 14.7% | 25.0% | 4.0% |
2005 | 2.7% | 4.4% | 8.6% | 8.5% | 8.3% | 28.3% | 16.0% | 5.1% | 25.5% | 9.4% | 9.5% | 8.4% | 4.4% |
2006 | 4.0% | 4.3% | 8.2% | 35.7% | 34.4% | 17.8% | 30.9% | 14.7% | 6.2% | 33.7% | 20.1% | 30.4% | 5.8% |
2007 | 4.2% | 4.3% | 8.8% | 15.2% | −17.8% | 29.6% | 28.3% | 5.4% | −4.2% | 13.9% | 9.0% | 41.2% | 6.1% |
2008 | 2.4% | 4.0% | 13.4% | 25.4% | −37.3% | −45.5% | −50.7% | −37.6% | −29.2% | −46.4% | −40.7% | −51.2% | 4.7% |
2009 | 0.4% | 3.3% | 9.8% | 11.5% | 27.4% | 56.2% | 76.4% | 26.3% | 6.3% | 35.8% | 30.0% | 60.2% | 2.4% |
Geomean | 6.9% | 8.2% | 11.3% | 8.7% | 9.1% | 9.5% | 9.6% | 8.5% | 9.0% | 10.1% | 8.8% | 13.8% | 8.6% |
Stdev | 0.0% | 2.9% | 9.4% | 26.6% | 21.8% | 22.8% | 27.6% | 18.7% | 34.1% | 22.7% | 18.8% | 47.7% | 0.0% |
Scenario 1 is where the assets to choose from are limited to T-bills, long bonds, and F-REIT (farmland and debt securities only—this represents many farmers). Scenario 2 allows the investor to choose from debt securities, REITs, and stock markets, but not farmland or gold (this represents many nonfarmer investors). Scenario 3 is the same as 2 but adds gold. Scenario 4 allows investors to choose from all the choice assets, including gold and F-REIT. Scenario 5 includes all choice assets except gold. The EV model is used to calculate the most efficient portfolios for each scenario so as to compare the risk-return performance. This allows us to compare the performance when F-REIT, gold, or both are included or not. Table
In Table
In Table
In Table
It appears that the biggest advantage of F-REIT is at the risk level where many investors choose to be—medium risk. The average stock market portfolio (world portfolio, US stocks) usually has a standard deviation of 18–20%. When medium-risk investors combine stocks, bonds, and real estate, they might typically end up with a portfolio risk level of 9–12%, which is where F-REIT can increase financial performance by lowering the risk to 7-8%, without sacrificing return. Investors looking for low-risk-low return or high risk-high return portfolios will likely not be interested in F-REIT.
Can investors improve financial performance by adding a farmland real estate investment trust and/or gold to their investment portfolios? This study shows that for the period 1972–2009, financial performance was significantly improved with the addition of F-REIT and gold to a portfolio of traditional investments of T-bills, bonds, stocks, and REITs. A Canadian F-REIT is considered relatively low-risk, enters the efficient portfolios at low-to-medium risk levels and adds the most financial improvement to medium-risk portfolios. Gold is a higher-risk asset with no dividend yield but because of its low correlation with other assets, it is able to reduce portfolio risk and adds the most financial improvement in high risk portfolios.
Is farmland as good as gold? The results indicate that in low-risk portfolios, neither farmland nor gold will improve performance because both have too much risk. In medium-risk portfolios, F-REIT provides more financial improvement than gold. Many medium-risk investors would hesitate to invest in gold because it has no dividend yield and is a high risk. However, F-REIT does offer a dividend yield and is much lower risk, making it more attractive to medium risk (average) investors. For high-risk portfolios, farmland is not as attractive as gold because it simply cannot offer a high enough return.
What are the implications for investors? For current farmland investors, including farmers, it implies that they should own REITs, stocks, and bonds to complement their farmland investment holdings, and possibly gold if they want a higher-risk portfolio (most farmers do not). Farmers might consider leasing instead of buying more farmland when they expand their farm operations (this is already happening as observed by the high proportion of farmland that is leased in Canada and the USA). As the number and size of F-REITs expand, retiring farmers will have additional potential buyers (bidders) for their farmland. For institutional investors, F-REITs can be part of the overall family of funds that are made available to their retail investor clients. Large pension funds can consider the diversification benefits of holding F-REITs as part of their portfolios. The main benefits for the agricultural market is that F-REITs inject new equity by purchasing land from retiring farmers and leasing to farmers who want to expand. The main benefit for the nonfarmer investor and institutional investors is the improvement in the overall portfolio financial performance.
In summary, F-REITs can add as much, if not more value to a portfolio than gold, in terms of being a hedge against inflation, diversifier, and stabilizer, and providing safety of principal. It is better than gold in some respects, including lower overall risk, less risk of price fluctuation, shorter price cycle, and providing an annual dividend.