The rewards of smart agricultural investments in the right emerging markets can be tremendous. Emerging markets, also known as developing markets, are typically countries experiencing rapid economic and household growth and industrialization.
Compared to countries in the “developed” market phase, economies in the emerging market stage tend to see the most growth and development. In 2021, MSCI Emerging Markets Index recognized 27 emerging markets, including Colombia, Peru, Chile, Brazil, Mexico, the Philippines, and Thailand.
By contrast, so-called “developed” markets are characterized by more advanced economies, sophisticated infrastructure, and mature capital markets, as well as higher income levels and standards of living. The majority of developed markets are located in North America, Western Europe, and Australia, and include countries like the United States, Canada, the United Kingdom, New Zealand, and Japan.
Making up nearly 60 percent of the world’s population and generating around 40 percent of the world’s economic output, emerging markets are quickly becoming major players on the world’s stage. Despite their potential for volatility, they often come with stronger growth and higher returns. The International Monetary Fund’s 2021 “World Economic Outlook” report set growth projections for emerging markets and developing economies at 6.3 percent and growth projections of developed economies at 4.3 percent for the year.
As the world faces the challenge of feeding more people with less land, interest in farmland production as an investment is growing right along with emerging market economies, and the rewards can substantially outweigh the risks. These are four benefits of investing in the agricultural sector of emerging instead of developed markets:
Land and labor costs
As Farmfolio Founder and CEO Dax Cooke pointed out in our recent podcast on differing opportunities in emerging versus developed economies, much of the appeal of developed market investment comes down to pure cost structure. In emerging markets, the price of land and labor tends to be dramatically lower compared to developed nations.
Cooke points to the cost of farmland in Colombia, where arable land in rural regions can be less than a third of the cost of farmland in the United States. And while a farmworker paid minimum wage in the agricultural regions of the U.S. makes somewhere between $1,800 and $2,200 per month, a farmworker in Colombia paid minimum wage makes between $28 and $320 per month – including health insurance and other benefits, says Cooke.
“It’s so much more expensive in the U.S. to produce similar products,” Cooke says. “And there’s not a premium for those products—agricultural output is virtually the same wherever it comes from.
“In [Latin American countries], you produce a lot of the same products that they do in California, but the prices are the same,” he adds.
Favorable exchange rates
Despite some recent softening, the U.S. dollar remains the strongest and best-performing global currency. USD agriculture investors can get more “bang for their buck” by taking advantage of favorable exchange rates in emerging economies. As a prime example, Cooke again points to Colombia, where the USD conversion to the Colombian peso (COP) has hovered near 4,000 to 1 since March 2020.
Agricultural exports from emerging markets are set to excel in the coming years
When it comes to agricultural exports, emerging economies can actually benefit from a weaker currency, as their products become more appealing internationally due to their lower price tag. With economies reopening in the wake of the pandemic, there has already been an uptick in demand for food that will favor affordable exports from emerging markets. Worldwide, there has also been a surge in commodity prices spurred by rising demand and USD inflation concerns.
Emerging economies don’t necessarily mean emerging agriculture
An emerging economy doesn’t necessarily mean unsophisticated agricultural infrastructure, Cooke notes. For instance, Colombia may be considered an emerging economy, but it’s actually highly developed agriculturally, he says. According to Cooke, the country has been leading the world in exports like coffee and bananas for decades.
“If you can parlay the economic discount you get in the agriculture space, it’s a huge advantage,” says Cooke.
With ideal climatic conditions and a booming infrastructure sector, Colombia is an emerging market with enormous potential as an agricultural exporter. Specifically, the country currently enjoys status as the world’s fastest-growing lime exporter.
Source: Farmfolio By: Erik Miller
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