Updated: May 18
What are emerging markets? Emerging markets aka "developing markets" are typically countries experiencing rapid economic and household growth and also industrialization. Compared to countries in the “developed” market phase, economies in the emerging market stage tend to see their most growth and development. In 2021, MSCI Emerging Markets Index recognized 27 emerging markets, including Colombia, Peru, Chile, Brazil, Mexico, the Philippines, and Thailand.
“Developed” markets are located in places like North America, Western Europe, and Australia and include countries like the United States, Canada, the United Kingdom, New Zealand, and Japan. These "developed markets" are characterized by more advanced economies, sophisticated infrastructure, and mature capital markets, as well as higher income levels and standards of living.
Emerging markets make up about 60 percent of the world’s population and generate around 40 percent of the world’s economic output, emerging markets are quickly becoming major players on the world’s stage.
As the world faces a booming population and is faced with having to feed more people with less land, farmland production as an investment (Agribusiness) is growing right along with the emerging markets and the benefits could substantially outweigh the risks.
Let us look at 4 reasons why investing in emerging markets as opposed to developed markets are beneficial in the agricultural sector:
#1 EMERGING ECONOMIES AREN'T NECESSARILY EMERGING AGRICULTURALLY
Just because we consider these markets to be emerging, it doesn't mean that these countries are unsophisticated when it comes to their agricultural infrastructure.
For example, Colombia may be considered an emerging economy, but it's actually HIGHLY DEVELOPED AGRICULTURALLY. Colombia is poised for leadership in Ag. exports. After declining for several years (2012-2015), Colombia agricultural exports have been on the rise and making substantial gains each year, approaching nearly USD $3 billion in value.
Colombia: FOB Ag Exports by Value (Source: CEIC Data)
With ideal climatic conditions and a booming infrastructure sector, Colombia is an emerging market with enormous potential as an agricultural exporter. Specifically, the country currently enjoys status as the world’s fastest-growing lime exporter.
#2 FAVORABLE EXCHANGE RATES
Despite the recent softening of the dollars value, the US dollar is still the strongest and best-performing global currency at this point. When we look at the USD conversion to the Colombian peso (COP) in particular, which has hovered near 4,000 to 1 since March 2020, we are looking at an excellent opportunity for USD agricultural investors to "get more bang for there buck" by taking advantage of the favorable exchange rates.
#3 COSTS OF LAND AND LABOR
When comparing the differences in developed market agricultural investments and emerging markets, most of the appeal comes from the dramatically lower price tag on land and labor. In certain emerging markets arable land in rural regions can be less than a third of the cost of farmland in the United States!
In reference to the huge economic advantage for Ag Investors, Farmfolio founder and CEO Dax Cooke says, “If you can parlay the economic discount you get in the agriculture space, it’s a huge advantage,” says Cooke. He adds, “It’s so much more expensive in the U.S. to produce similar products,” .........“And there’s not a premium for those products—agricultural output is virtually the same wherever it comes from. In [Latin American countries], you produce a lot of the same produce that they do in California, but the prices are the same.”
Not only does investments in farmland in emerging markets beat out developed markets, while a farm-worker paid minimum wage in the agricultural regions of the U.S. makes somewhere between $1,800 and $2,200 per month, a farm-worker in Colombia paid minimum wage makes between $28 and $320 per month – including health insurance and other benefits.
#4 ACCORDING TO NEW DATA AGRICULTURAL EXPORTS ARE SET TO EXCEL IN EMERGING MARKETS
When it comes to agricultural exports, emerging economies can actually benefit from a weaker currency, as their products become more appealing internationally due to their lower price tag. With economies reopening in the wake of the pandemic, there has already been an uptick in demand for food that will favor affordable exports from emerging markets. Worldwide, as an investor, you are probably paying attention to the surge in commodity prices spurred by rising demand and USD inflation concerns.
Stay tuned for some amazing opportunities coming up to invest in emerging markets. We will bring you the latest opportunities to create a passive income in the Agricultural Business (AgBusiness) space.
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