Chocolate or vanilla?
Gryffindor or Slytherin?
Row crops or permanent crops?
These are some of life’s quintessential conundrums. But while the first two questions have straightforward answers (chocolate and Gryffindor, clearly), choosing between investing in row or permanent crops isn’t so straightforward.
Before I break down the answer to this classic investor stumper, let me lay the foundation:
In the exciting, lucrative world of agricultural investing, there are essentially two different categories of assets: Row crops and permanent crops. Let’s talk a little bit about each one:
Our Pineapple Farm Investment in Panama
These are crops that are planted on a seasonal or yearly basis—think wheat, barley, cotton, and corn in the U.S. or our amazing pineapples in Panama. The name “row crops” comes from the way these crops are laid in condensed, machine-planted rows.
The best thing about investing in row crops? They become productive and start generating cash flow within a couple of years. Especially in tropical growing areas in Central and South America, row crops deliver reliable, steady yields, in addition to land appreciation over time. And when consumer tastes change—say, if everyone stops eating corn and starts eating more rice—it’s easy to switch from one crop to another.
The downside of row crops? A lower barrier to entry means the row crop market can get pretty competitive. And because of their relatively low risk, you can expect lower returns.
Which brings me to our next type of crop…
Our Coconut Farm Investment in Monteria, Colombia
As you may have guessed from the name, permanent crops are a little more, well, permanent, than row crops. These are the plants and trees that last for many seasons without needing to be replanted after each harvest. So we’re talking coffee, coconuts, almonds, avocados, and citrus fruits.
Permanent crops may take a little longer to yield fruit. Depending on the type of crop, it could be five or six years before some of these plants become productive. But once they do start producing, cha-ching!—you’ve got predictable, passive cash flow for decades upon decades.
Now, for the drawbacks. On a serious note, I witnessed one of the downsides of permanent crops firsthand when I visited Puerto Rico and saw the destruction left by Hurricane Maria. Among the hardest-hit were permanent crops like bananas, plantains, and coffee.
The island’s row crops are comparatively easier to replant. But because the majority of the losses were permanent crops, the result was an estimated $780 million loss in agricultural yields.
I don’t want to make light of this tragedy, but it does demonstrate the vital role location plays in permanent crop investments. For investors, it makes sense to invest in farmland in areas with a lower likelihood of getting hit by a hurricane or other natural disasters.
That’s why we put our investment dollars into crops like coffee, coconuts, and limes grown in Colombia. Their location outside the hurricane belt makes them less likely to suffer the tropical storms that decimate permanent crops.
Of course, a natural disaster isn’t the only thing that could deplete the value of a permanent crop investment. There’s also the issue of changing consumer taste—what if you invest in one crop, and by the time your investment bears fruit, the world has stopped eating it and moved to a different one?
So location and crop selection are critical but if you choose correctly, permanent crop investments can provide an amazing income stream for generations of your family.
So, row crops or permanent crops? You probably already guessed the answer: It’s both.
Our Pineapple Farm Packhouse in Panama
Our Coffee Farm Investment in El Salgar, Colombia
To diversify your portfolio and balance short- and long-term income streams, you want a mix of both row and permanent crops in your portfolio. Row crops deliver those lower-risk, short-term yields that will let you live the lifestyle you want today. Meanwhile, permanent crops may take longer to produce income but they come with long-term rewards, making them an investment that can generate cash flow for you and your family for years to come.
If you want to talk to us about how to strike a balance between row and permanent crops in your Ag portfolio, schedule a free session with me and my partner Karen. We can help you define your farmland investment strategy and discuss why Gryffindor is better than Slytherin ;-)
Or if you are still new to the agriculture investing space, please join us for a Free Investor Seminar - Farmland 101 on Friday this week. We love introducing people to this amazing asset class and explaining how Ag Investing has contributed to our wealth building goals.
Till the next time,
Peter & Karen