Long, long ago, some ancient human decided that planting seeds and reaping the produce was a safer approach to food production than chasing larger, stronger and toothier animals. Since that time, the agriculture sector has flourished, withered, rebounded, crashed and bounced back again. With each passing year the world is seeking to feed more people with less land, so the interest in agriculture production as an investment has grown right along with the world increasing population. In this article, we’ll look at the agro business as an apportunity to invest
What Is Agriculture?
Like all sectors, agriculture is really a spectrum of activities that overlap with each other and even with other sectors. The simplified version is that producers grow crops and raise livestock to sell to processors, who prepare and package the product before it ends up on the grocery store shelves. Producers and processors are in the agriculture sector, while the retailers are part of the retail sector – nice and clean.
However, the reality is that the agriculture sector also holds agro business companies. There is no hard and fast rule on what makes an agro business, but if a company is pulling half of its revenue directly or indirectly from agriculture, then it is an agro business. To see how this can get confusing, consider a company like the Potash Corporation of Saskatchewan (POT). POT is basically a mining company, pulling stuff out of the ground and selling it. The stuff it pulls out, however, is fertilizer, so the big buyers are farmers; therefore, POT is an agro business despite the fact that it looks suspiciously like a mining company.
The same is true for manufacturers like Deere & Company (tractors) and other companies that, at first glance, don’t have anything to do with growing corn or slaughtering pigs. On the plus side, the range of companies with interests in the agro sector can open up interesting plays on the “people gotta eat” theme that sometimes drives agro investment.
As an investor, you will need to take a look at the levels or the processes it involves to put food on the average man’s table. It is either you own a farm (become a farmer), or the you process the produce of other farmers. No matter the dept of recession period, people like you and myself will always pay to buy food. We need food to face recession. While some are working hard in recession to make more money, farmers are there planting to collect the money.
It is a wise action to own a farm or to invest in agriculture.