Farming is a potentially lucrative business, but few of us can afford to buy arable land, let alone a working farm.
Investors interested in agriculture need not despair, however, as there are innovative ways to invest in the sector. JustMoney.co.za, a personal finance site that helps South Africans make good money choices, explores some options.
Why invest in agriculture?
Volatility can play havoc with investments in equity markets, or markets where company shares are traded. This is due to factors beyond our control, making it difficult to manage or anticipate risk, says JustMoney marketing manager Shafeeka Anthony.
Investing in tangible assets can be a good way to diversify your portfolio, offering some protection from the effects of inflation or a weak currency. Many stokvels pool their resources to invest in agriculture to harvest higher yields.
“Seeking the advice of a reputable professional before making an investment decision is crucial, however, as their expertise can help you to make an informed choice that aligns with your financial goals,” says Anthony.
Investing in cattle
Cattle have powerful cultural significance in South Africa and have long been a symbol of wealth. Many people are interested in buying bovine to beef up their returns.
Livestock Wealth allows multiple investors to pool their funds via the internet to invest in livestock and grow crops on a working farm. Pooling funds in this type of venture is known as “crowdfarming”, which plays on the concept of “crowdfunding”. In this instance, investors can enjoy ownership benefits with some additional advantages. For example, cattle are insured by the farmer, making this a relatively low-risk investment.
You can start by investing R11,529* in a free-range ox, which delivers a guaranteed return of around R12,105 over six months, based on a minimum profit of R576, or 5%, depending on the weight of the ox and the price of beef. The farmer will buy back the asset once it’s fully grown, and you have the option of collecting your earnings or reinvesting your money.
The platform charges a R49 withdrawal fee when you cash in your profits, but all other costs are factored into the asset purchase.
- Read a JustMoney article on why you shouldn’t follow the herd and instead make decisions based on your personal circumstances.
Fractional ownership of a herd
SV Capital, a company that specialises in asset-backed investments, allows you to contribute to a collective herd of cattle managed on partner Beefcor’s feedlot. This fractional ownership means any risk is spread among investors, and insurance further mitigates the risk.
The cattle are in the feedlot for around 120 days.
“Your return on investment is determined by the weight of the cattle and the market price at the time of sale,” explains Ayanda Majola, co-founder and CEO of SV Capital.
The minimum investment is R500, and you can expect an average return of around 14.5% after 12 months, inclusive of fees and costs, when the investment matures. SV Capital charges an upfront fee of 3.8%, excluding VAT, on funds raised.
“This investment helps you to blend the overall return of your financial portfolio,” says Majola. “In addition, it’s a type of impact investment as it creates sustainable jobs.”
Other farming investments
Livestock Wealth has taken the crowdfarming concept a step further with its farmland investment option. The platform enables you to invest in a portion of an existing farm, which is then leased out. An investment of R50,000 over eight to ten years can deliver rental returns at a minimum of 4% a year – possibly suitable for a stokvel that wants to invest in land ownership.
“This aspirational investment is ideal for a diligent saver who would like to leave a legacy for family members, as assets can be bequeathed,” says Shezi.
For investors with less to spend, there’s the option of buying a macadamia tree for R2,000, for a six-year investment period. The farm benefits from the cash flow, to cover operational expenses, and you double your money when the farmer buys back the fully grown tree at the end of the investment period.
Livestock Wealth and SV Capital – both registered financial services providers – allow you to invest via an app or on their websites.
“Investing in agriculture, such as cattle ownership, has long been an attractive prospect,” concludes Anthony. “Agriculture offers a tangible and historically resilient asset class that can provide a hedge against economic volatility. The investor can diversify their portfolio, potentially generate income, and contribute to sustainable food production.
“Crowdfarming lowers the barrier of entry to this market, but as with all investments, there is no one-size-fits-all approach. Before making any investment decision, seek advice from your bank manager or a reputable financial adviser,” says Anthony. “You need to do your homework properly, if you want to find a cash cow.”
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Source: Meropa Communications