There is a perception that returns from agriculture are risky and as a consequence there is reluctance among potential investors who look at the sector. It is true that returns from year to year are much more variable than in many other sectors. In fact, it is quite unlike, say, commercial property that gives a nice, steady year-by-year return, often indexed to the CPI. The volatility brings with it particular issues that need to be considered in any investment, but it also brings opportunity. Figures 1 & 2 shows the long-term operating yield of two farms over an 18-year period. One is a grazing farm and the other is an irrigated cropping farm. The grazing farm, as is typical, has a less variable return. In comparison the irrigation farm has something of a roller-coaster ride with some highly profitable years and some shockers on the downside. In this example the average returns are similar for the two (7.4% versus 6.6% respectively) though over a larger number of farms the average returns from the irrigation farm will usually exceed that of the grazing farm - as it should to provide some reward for the volatility of returns.
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