Why Warren Buffett and Bill Gates love farmland as an investment

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Most serious investors are at least familiar with the names Warren Buffett and Bill Gates. Buffett is the famous chairman and CEO of Berkshire Hathaway. He is also known as the Oracle of Omaha, one of the most successful investors of all time. Gates is the founder—along with the late Paul Allen—and former chairman and CEO of Microsoft. The Forbes Real-Time Billionaire list for 2022 shows that Bill Gates is the fifth richest person in the world, with a net worth of approximately $111 billion, while Warren Buffett is the seventh richest, with a net worth of approximately $101 billion. Gates and Buffett are personal acquaintances — Gates once served on the board of Berkshire Hathaway.

One thing both Warren Buffett and Bill Gates have in common is that they both love farmland as an investment. Buffett bought his first farm before high school in his home state of Nebraska for about $10,000. Gates owns over 242,000 farmable acres. Buffett also reportedly owns a 1,500-acre family farm in Pana, Illinois, and three foundation-operated research farms, including more than 1,500 acres in Arizona and 9,200 acres in South Africa.

Why Farmland?

The early 20th century American humorist Will Rogers once said, “Buy land. They don’t make other things.” Apparently, Buffett and Gates took Rogers’ advice to heart. Over the past 30 years, the average return on agricultural land, adjusted for inflation, has been about 5%. This is a pretty solid investment for long-term investors, especially those who can buy and hold hundreds or even thousands of acres over the long term. This has been discovered by others besides the super rich. The US Department of Agriculture (USDA) reports that 30% of US farmland is owned by owners who do not farm themselves. Such long-term investors – such as Buffett, Gates and others – understand that there is no real downside, but potentially significant upside, to investing in farmland. This sentiment is probably more true today than ever, especially given the threats to the world’s food supply from climate change and the war in Ukraine.

Related news: Farmland investment platform AcreTrader has released results for its three fully realized investments over the past year with annualized returns ranging from 15.4% to 30.3%.

Past risks in agricultural land investment

There was a time, however, when investing in farmland was a pretty risky proposition. The USDA reports that

In the mid-1980s, farm prices fell due to surpluses, inflation slowed, and demand for farmland declined. These factors caused the second major decline in farmland values ​​during the century. Land values ​​fell from $801 in 1984 to $599 in 1987, a 25 percent drop. This sharp decline caused great hardship to the farming community. Many farmers and ranchers who had taken on heavy debts, based on inflated land values, were unable to continue their operations. Farmland values ​​have risen steadily since 1987 to the current US average value of $1,050 per acre.

Because of what happened in the 1980s, the US government has since taken as much risk out of agriculture as possible with the crop insurance program. Government spending on the program in 1981 totaled about $200 million, while in 2021 more than $8 billion was spent. Annual government subsidies also protect farmers from falling prices and poor yields. Such subsidies cost taxpayers more than $5 billion annually. Most recently, more than $29 billion was paid to agricultural concerns in COVID-19 relief funds through the CARES Act, and a December 2020 stimulus bill provided agriculture with an additional $13 billion.

Warren Buffet’s high view of crops

Warren Buffett especially believes that farmland is a wise investment. Hear what he had to say when he compared investing in farmland to investing in Bitcoin:

“If you said 1% interest on all farmland in the United States, pay our team $25 billion, I’ll write you a check this afternoon,” Buffett said. “[For] $25 billion I now own 1% of the farmland. [If] you offer me 1% of all the apartment buildings in the country and you want another 25 billion dollars, I’ll write you a check, it’s that simple. Now if you told me you owned all the Bitcoin in the world and offered it to me for $25, I wouldn’t take it because what would I do with it? I’d have to sell it back to you one way or another. He’s not going to do anything. Apartments will produce rent and farms will produce food.”

Investing like Buffett and Gates

Average investors don’t have the deep pockets of billionaires to buy acres upon acres of farmland. An investor might be able to buy a small farm somewhere, but there would still be the matter of who would manage the property, who would plant the crops in the spring and who would harvest in the fall, not to mention the dozens of other things that would have to be done. done

However, the average investor can participate in farmland investing by purchasing farmland shares or agricultural mutual funds, exchange-traded funds (ETFs), or real estate investment trusts (REITs). You can buy these types of investments through your brokerage or retirement accounts. With a little research, you should be able to find one that meets your investment goals.

Accredited investors are also able to invest in farmland through investment platforms such as AcreTrader with minimum investments ranging from $10,000 to $20,000 for most offerings.

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