Production Agriculture Investment

Any investment is risky, and before taking the step the investor understands. The investment type depends on the investor's priorities and goals. An investor is mainly concerned with benefit limit. In order to achieve its goals, however, the investment terms and conditions must be respected.
Production agriculture is one of the strongest investments since it maintains inflation. Furthermore, it entails minimum risks and benefit increases as time passes. Farming diversifies the portfolio and as the group profits from a tangible asset (BANK pp.140). How does an investment like this generate income? Take an instance of a farmer who invests in fruits or nut trees. It may take time before the investors can see returns. However, the trees will eventually reach depreciation stage. At this level, they will bear enough fruits, nuts or grapes depending on the investments. These trees will serve you as an investor for the next ten years making massive harvesting twice a year and selling them. The good thing is that once the trees have reached depreciation stage, they will not require much, maybe pruning. Many people never understand how to convert agricultural products into cash. Depending on the farm and investment type, investors can benefit from several ways; this is a business plan to investors asking them to consider investing highly in agriculture. As already established, this comes with some benefits of which one of them is few risks on the capital. Some other benefits are listed below:Selling yieldsAgriculture involves planting crops depending on the investment. A lot is invested in buying seeds, farm implements, labor, and fertilizers. Most of the crops are harvested annually even though in some locations harvests are done severally per year. Investors, make money by selling the harvested crops. One of the reasons for investors to take an interest in agriculture is that they can secure contracts that are long-term with tenant farmers, in this way they can guarantee yields. To ensure that maximum profits are attained, it is essential to minimize the risks that might be involved. Farmers should take crop insurance which protects them and the investors in cases of catastrophe. What that means is that even if the crops get destroyed, there will be a cover in which farmers receive funds to pay their lease. Sometimes the prices of the agricultural produce also go down, the insurance covers take care of that, and therefore investors have low chances of losing their money.Land appreciationLand available is a limited resource. Almost all the arable land in many countries is already in use. The farmable area has been decreasing over the years due to activities like land development and urban sprawl. The remaining land is therefore precious, and every day it appreciates in value. Such appreciation is very beneficial to investors. The most intriguing part is that residential development also causes farmland to increase its value. Any land located close to residential areas becomes valuable, that means as development encroaches, potential investors can buy at low prices and later sell them at an extra cost. During this process, they can make maximum profits.The other advantage of investing in agriculture is the freedom of the investor to add value to their property; this is attained by making improvements like in the cases of real estate. Some raw lands are very fertile for not being in use for a long time. They can be converted to pasture land or crops. In agriculture, the value of the investment can be increased. Take an instance of swapping out lower crops and instead introducing higher end crops like trees. Organic farming brings higher returns hence increasing the value of the investment. All these activities are referred to forced equity; it can also be built by making improvements to buildings and infrastructure. All these changes increase land’s value, and when an investor decides to sell it, enormous profits are expected to be made.Other incomeOther than getting income from selling of agricultural products, there are different ways through which profits can be made from farmland. Many of them have no connection to crops being grown at all. Take an instance of the farmland containing large water bodies, renting or selling them is possible. Another example is a farm located near major roads. A lot of money can be raised on billboards placed on the farm. In other cases, radio towers may be built on the farmlands raising enough money for both the farmers and the investors. These billboards and radio towers pay vast amounts of money just to have their advertisements on the farm. In addition to that, hunting leases on timberland or near waterways can be done on top of selling recreation. The last reason why investing in agriculture is essential is the principle of principal pay down. Just like real estate can accumulates equity during mortgage payments, income from the farm can be used to pay down a policy just in case it is in debt. All these activities of generating an extra coin are an added advantage to investors. However, investing in agriculture may not bring immediate returns on the capital, this is discouraging to many investors. For business people who are patient enough, over a long-term, such investments pay off substantially. As already established, incomes from agriculture come annually and therefore, adding it to your investment portfolio opens up opportunities for continuous stability source of revenue annually.Finance toolsTrend analysis: it is a tool that scans and computes the items of financial statements for various periods. The comparison is made accordingly by calculating the ratios. However, this is done during the prior years to show the trend and direction of the business according to HUDSON (pp.115). Using the trend analysis you as investors can track down the financial health of the business investment. It will be possible to make improvements where necessary to get back on track in case of a financial breakdown.Common size statements: the figures in a financial report are converted into percentages. It involves a balance sheet which is taken to be 100. Agricultural investments will include assets as mentioned earlier, for instance, land. All the items in the balance sheet are expressed to the ratio of each asset to assets total. Also, the rate of each liability to liabilities total hence showing how each component relates to each other (HUDSON pp.115).Module conceptsA module explains a self-contained model that will specify the inputs required for it to run smoothly and generate outputs. In the cases of agriculture investments, there are inputs which will contribute to increased productivity. Since the investment is in the production sector, productivity has to be measured by yields generated per hectare. Modern fertilizer, a variety of seeds that are modernized and water are the primary inputs that yield growth and increase production. In addition to that, other input models include human capital and ratios of land-labor.RisksInvestments in agriculture have operational constraints since all agricultural operations have to be done in the rural areas. Due to rural-urban migration, urban areas are not suitable for any activity involving agriculture. In rural regions capital revolves slowly because only one or two crops can be planted and harvested in one year as stated by FRANCIS & GORDON (pp. 66). That makes the returns slower on the money invested. Moreover, these areas experience high rates of poverty causing major crisis since there is lack of asset. Due to this, any production or sickness losses create a significant impact on the returns expected. In this case, a lot of investment is made on risk minimization rather than profit maximization. The reason behind this is that any business with limited assets gets exposed to a lot of risks. Such risks include lack of market due to geographical dispersion. An investor may have achieved in making large volumes of production but eventually, lack market for the products. The rural regions are characterized by low-density population with high dispersion, and the individuals operate on small transactions. In return, this leads to increased costs of operations like production and marketing. It becomes even more hectic to transact in those remote areas due to lack of proper communication channels to facilitate movement of information. Additionally, these areas have reduced transportation networks making the delivery of services more difficult. Investors have to transport their products to the urban areas to make satisfying sales. Though profits are expected to be made, it is challenging to maximize them. Poor communication and infrastructure create potential hazards risks because of the follow-up. The impacts of this are limited access to finance and investments. When it comes to the output models, an examination of the connection between total yields in cereals and the impacts on the economy including Gross Domestic Product (GDP) per head, agricultural labor shares and value added per worker in non-agricultural activities. Increase in cereal yields has direct and indirect impacts on the economy. GDP consists of the total income of individuals in a country. Therefore, maximum profit is gained by yields per hectare. Large volumes yields increase the sales which in return brings benefits to the investors. Economic growth in any country is realized when the majority of the workforce works in agriculture.ReferencesBANK, W. (2005). Agriculture Investment Sourcebook: State Building, Sustaining Growth, and Reducing Poverty. Washington, World Bank. http://public.eblib.com/choice/publicfullrecord.aspx?p=515785 FRANCIS, D., & GORDON, R. M. (2006). Managing hazards, reducing risks and increasing investments in agriculture: some perspectives. Port of Spain, Trinidad and Tobago, IICA. HUDSON, A. (2000). Modern financial techniques, derivatives and law. International banking, finance and economic law, v.16. The Hague, Kluwer Law International.