Innovation as a driver of agricultural land value

Continuous innovation, driven by a fact-based understanding of where consumer markets are evolving towards in terms of the products produced off agricultural assets, are vital factors when considering agricultural investment.

The trend seen in South African agriculture is consistent with global development trends where the number of commercial farmers is declining, and the size of commercial farms is increasing.

This tells us an important thing: that we are not seeing a large number of new entrants entering the primary agriculture sector.  Therefore, agricultural land values are potentially rather being driven by the ability of the current commercial farmer base to gain economies of scale in existing markets through land expansion rather than being driven by new entrants coming in and tailoring farm production systems towards new or non-conventional markets.

The results achieved through combining economies of scale with existing value chain structures are often so disproportionate that they can prohibit innovation and direct market linkage within the sector. This in turn can lead to an imbalance between farm units producing for scale benefit versus farm operations and hence land rather being used for value added produce linked more closely to innovative and niche markets.

A deeper and fact-based understanding of how the farm and related processing units can be customised to take advantage of higher value market opportunities will assist in driving enterprise diversification. This in turn will contribute to the further development of new products and hence new markets which will impact the value of land. If the agricultural industry fails to take cognisance of where consumer markets are going and fails to actively plan and structure production and processing systems for these changes, the overall competitiveness of the agricultural sector will run the risk of becoming redundant.

Regional and global competitors to a large degree already understand that linking primary agriculture to high value markets is a key enabler to overall sector health and economic development. Existing players and potential new entrants into the agricultural property market must ask themselves the following key questions:

• What and where are the extended market opportunities for my primary agriculture investment?
• What investments and restructuring are needed to exploit them?
• Who will benefit from this investment and how are margins distributed across the specific agricultural value chain?
• Who can I partner with to provide the resources, skills and incentives to drive the reconfiguration required?
• What specific interventions will it take to maximise my return on investment?

These questions can be answered by looking way beyond the farm gate and by taking a broader value chain based approach to the quantification of agricultural related investment returns.

Article by Thinus van Schoor, managing director at Value Chain Solutions

Valuechainsolutions is an advisory and solution provider group based in Stellenbosch, South Africa. Our passion is to improve agricultural value chains for our clients across multiple African territories and in different product markets. We specialize in food and beverage markets across multiple crops as well as livestock and feedstock.

Posted by Anel Lewis