Farmland and inflation

In this commentary, Forbes Elworthy asks “How do farmland investments protect investors from inflation?”.

Craigmore was born out of the Global Financial Crisis

My brother-in-law Mark Cox, Che Charteris and I set up Craigmore Sustainables in 2010, when Quantitative Easing was getting underway. We wanted to find ways to protect our own and investors’ capital from possible future inflation, to invest in the “gold with a yield” that is farmland.

In fact, we hoped that farms would do better than just outpace inflation. Firstly, unlike gold (also a great inflation hedge), farmland generates a yield, even if modest. Secondly, farmers absorb new technology and genetics, which produce a steady productivity gain. Production yields and real costs improve by a small amount each year – which is capitalised into growth in the value of the farm.

Thirdly, because limited land means agri production is constrained, farm produce prices should out-perform the more elastic supply of manufactures, especially in climatically challenged years. By 2010 China was already becoming the foundry for the world, driving down cost-curves and increasing supply of many factory products.

How many lambs to purchase a laptop?

In 2011 I proposed a tongue-in-cheek “lambs-per-laptop” index to illustrate the terms of trade between agriculture and manufactured goods. At the time, a New Zealand lamb fetched NZ$125 at the farm gate, while a laptop retailed for approximately NZ$750 – roughly six lambs per laptop. I predicted food prices (lamb) would trend “toward one laptop for every lamb”.

How effective was Craigmore in protecting investors from inflation?

In the 15 years since 2010 New Zealand CPI inflation has averaged 2.5%. And over that period the NZ$ price of dairy commodities increased by 3.9% and the orchard gate price of green kiwifruit by 5.6%. Agricultural commodities did out-perform.

Meanwhile Craigmore’s flagship diversified farm and orchard portfolio, the “Craigmore Farming Partnership”, saw its EBIT / hectare grow from NZ$1,575 in FY17 to $2,250 in FY25, an annual increase of 5.3%.

So, our thesis bore fruit. Land which Craigmore has purchased on behalf of investors has seen its cash flow yields grow in a way that tracks and indeed out-performs inflation. However, as discussed in my February Commentary, capital market restrictions imposed by the previous New Zealand government mean that farmland prices lagged farm cash flow improvements.

As a result, farm and orchard ROAs (return on assets) are now as high as I have seen in my farming career. In many cases approaching 10% (before capex, taxes and overheads). Craigmore Farming Partnership has been able to pay average 6% annual cash distributions against NAV, over the past few years. Such portfolios of New Zealand farm and orchard land should now see solid capital growth, as land prices capitalise the strong EBIT per hectare (which is itself steadily growing, for the inflation and productivity reasons outlined above).

Afterword: Where have lambs per laptop got to?

Meanwhile, this year (2025), lambs have selling for NZ$175, while a budget laptop can be picked up for NZ$350. That’s two lambs per laptop. The trend is remarkable. Thirty-five years ago, a laptop cost 100 lambs and this fell to six lambs 14 years ago. Then their price fell to be worth two lambs.

This Commentary has sought to remind you that farmland is a useful hedge against inflation. I’ve also suggested it is an inelastic real asset that benefits from supply shocks in other sectors of the economy. My next Commentary will explore future inflation risks. While also commenting on possible economic impacts of AI.

Forbes Elworthy
Founder
forbes.elworthy@craigmore.com

Che Charteris
CEO
che.charteris@craigmore.com

Nick Tapp
Chairman CS LLP
nick.tapp@craigmore.com

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