Any investment comes along with a specific amount of risk. And while those who are risk-averse might consider buying land an investment that they can be at peace with, the fact is that buying land also comes with specific risk, and this is often directly related to land use.
For example, buying a residential land parcel might not present many dangers that one can readily see. But when it comes to agricultural land, there are several risk factors that need to be considered before signing your name on the dotted line.
Most farmland comes with a history of land use that needs to be understood. And along with this, there are many dynamics involved in agricultural investments that you may not be aware of that can present a danger to ROI.
Here, we’ll explore a few of the hidden dangers that come along with investing in agricultural land.
Previous Land Use
If you’ve ever bought an older home, then you know full well that the condition the home was left in was a result of the upkeep and maintenance (or the lack thereof) that was performed by a previous owner. And this could be either a good or a bad thing.
When it comes to farmland, the previous landowners may have affected the land in ways that may not be evident at first glance. And this is where the use of herbicides and other chemicals can play a huge factor in an investment.
For example, many farmers use commercial herbicides such as Paraquat to control weed growth. And if the application of these chemicals was improper, or if chemicals were overused, you could have these chemicals present in the soil in large amounts.
In addition to chemical persistence in the soil that can affect the growth of crops, the presence of large amounts of herbicides like Paraquat can pose a huge health risk for future landowners. And this is why there are firms like RIL representing victims of Paraquat exposure.
Natural Disasters & Weather Events
As mentioned, no investment comes without a specific level of risk involved. And farmland, as farmers and farm workers know all too well, is highly susceptible to damages from natural disasters and inclement weather.
It’s been estimated that just one hard freeze occurring with the right timing can kill an entire harvest. And this places any return you may be expecting from an agricultural investment on hold. In fact, this is an event that you may have to recover from slowly over time if your investment includes collecting revenue from harvested crops.
Further, large tracts of farmland are open and exposed to many influential elements. As such, significant weather events must be closely monitored in order to take preventative measures.
A few significant events and natural disasters to consider are as follows:
- Wildfires
- Tornados
- Ice and snow
- Freezing temperatures
- Drought
- Crop disease
- Pest infestations
Just one significant event can damage the yield of any area of farmland. And as profits from agricultural production are a key factor in ROI, knowing the risks involved before you invest in farmland, and the financial repercussions that can ensue, is highly recommended.
Political Influences
Agricultural production is highly influenced by local and federal politics. And no matter which way the pendulum swings during election years, laws and funds associated with agriculture can often affect how valuable the land becomes, or how much value it stands to lose.
For example, trillions of dollars worth of farmland changed hands during 2020 alone. And anytime farmland changes hands, these actions can directly affect entire rural communities, global climate, and even local wildlife. These effects can be both positive and negative, depending on several factors.
Basically, political influence regarding the purchasing of land often places interests in the hands of those who may not have a direct connection with the land itself. And this can result in large private farms being converted for other uses, often involving government contracts with billions of dollars tied to them.
Before attempting to invest in farmland, paying close attention to the local and federal politics and the interests of politicians within the agricultural sector can help you to form a better decision regarding a large purchase.
If you’re considering investing in farmland or in any type of agricultural land, knowing the risks associated with your investment paints a much better picture that you can use to help form your decisions. Because in the world of farmland, anything can happen at any time. So it’s best to be thoroughly prepared before investing.
