The pandemic has both introduced new problems and exacerbated old ones. Nowhere is this more clear than food-based industries.
From rampant labor shortages to mounting climate change, farmland investments have a mountain of obstacles to climb. You might have found yourself wondering if you should continue investing in agriculture, particularly when it comes to issues like cash flow.
Are farmland investments safe during a recession? We’re going to define what recession looks like for the food and beverage industry so you can make wise decisions going forward.
What Qualifies As a Recession for Farmland?
A recession isn’t just a dip in annual revenue. It’s defined as a significant economic decline over at least two quarters for a country or industry.
Farmlands have a tall order to achieve at the best of times. They have to create a certain volume of goods, time them according to demand, and make sure little goes to waste. A farm that can’t produce enough to keep up with the market will easily get steamrolled by the competition.
Climate change has been one of the biggest contributors to low yields and price spikes. This issue is unlikely to get better anytime soon, which means you need to prepare. There is a wealth of viable options you can start applying to your investment now, regardless of crop or niche.
#1: Farmlands are Very Recession Resistant
While it seems like farmlands are a prime source of instability due to their sensitivity to climate change, the opposite is true. Farmlands are actually quite resistant to recession.
Food is a necessary staple for day-to-day life, giving them an edge over products that rely on want more than need. That’s not the only reason farmlands do so well against recession. Some of their most prominent features include:
Investing in farmland is a lesson in low cost and high ROI. Recent studies have found farms average a 12% return year-after-year, a shoe-in for investors who want steady cash flow.
As stated above, safe and quality food products are always in high demand. Certain food industries have even higher demand than usual, such as corn, cotton, and wheat.
Multiple Income Streams
Farmlands are prime locations for multiple income streams, such as tourism or land rental. This makes it easy for them to stay afloat when their crop yields are affected or market demand has lowered.
Related: How It Works (Land Income)
#2: Diversity and Stability Are Key
Let’s continue from the first point on the importance of diverse income. When’s the last time you took a look at the true potential of your farm?
Multiple income streams are a fantastic way to generate income during a recession, but there’s another side to the coin. You can even switch up how you build up your farm. Crowdfunding is one such example, allowing greater transparency between farms and their audiences.
If you regularly keep your ear to the ground, you may also be interested in agricultural stocks. There are several industries ripe with potential for greater growth down the line, such as commodity coffee and avocados. While public crop production stocks aren’t the most common choice now, this is likely to change over the next few years.
How do today’s farms hold up to such uncertainty? Land Income is proud to provide today’s investors with specialized insight into market trends, scalability, and sustainability.
#3: Farmlands Still Have Several Unique Challenges
While this is a lot of good news, you still shouldn’t get complacent with your agricultural investments. Farmlands are facing more challenges than usual and need to start changing their approach as soon as possible.
When even a mild change in the weather can completely change a crop yield, it’s small wonder why climate change has been so devastating to farmlands. Both farmers and investors are currently worried about storms, fires, and unpredictable shifts in temperature.
Not only does climate change affect the land, it generates difficult working conditions. Labor shortages have hit the food and beverage industry hard lately, leaving many farms wondering how they’ll be able to keep up with market demand.
#4: Farmlands Have Fantastic Bounceback
To start wrapping things up: farmlands are not immune to recession, but they’re most resistant than other industries. Even should farms fall victim to reduced income, they bounce back quickly.
Farms provide everyday people with essential goods. They also regularly cross over with similar sustainability and technology industries, providing valuable insight into the environment. When you add multiple income streams into the mix, it’s no wonder farmlands don’t struggle under recessions for very long.
You can even consider additional marketing expenses for your farm. Due to the volume of land farmers need to create crops, they have plenty of opportunities to host billboards, signs, and banners for nearby businesses. If you’re worried about how sustainable your farm is, consider adding solar panels or wind turbines to the land.
Farmland investments are safer than most industries when a recession hits. While they can experience a dip in annual income, they bounce back quickly.
Reaping the benefits of a sturdy agricultural investment will become harder in the future, however. Farms are being faced with labor shortages, unsustainable harvesting methods, and increasing demand in a heavily populated world. Now is a great time to reconsider the foundation of your farm and start fortifying its weak spots.
Is your farmland able to hold up to a recession? Contact Land Income today to start analyzing the efficiency of your investment and shoring up your defenses.