What produces better risk adjusted returns - operating farmland or owning

farmland?

Sept 24, Calgary

There are two schools of thought on investing in upstream agriculture. One

perspective is to operate farms directly and the other is to own the farmland and
rent it back to a diversified portfolio of skilled operators on an arms length basis.

Enquirica’s research indicates that over the medium to long term, farmland
returns are directly tied to commodity returns and operating margin expansion
and that the value of operating a farming business is ultimately capitalized in the
land. In simple terms that means you can realize the upside from operating farm
returns simply by owning the land and renting it out. Owning and renting has
other significant advantages over operating a farming business – lower volatility
of returns and no need to put significant amounts of working capital at risk.
When you own the land your entire investment is tied into a non-depreciating
asset and not tied up in machines, fuel, fertilizer, herbicides, labor etc. In
addition, large scale farming is extremely complex from a logistics and operations
perspective, expertise is difficult to find and very few attempts appear to have
been successful – typically a poor crop year results in company destroying
losses, a testament to the extreme volatility of farming versus owning the
farmland itself. A large-scale farm is a “single point of failure” in engineering
terms with all the drawbacks of central planning while a farmland portfolio can be
leased to a diversified portfolio of farm operators more closely attuned to local
conditions to reduce risk even further.

The net result is that the risk adjusted returns to owning farmland are superior to
those that come from just operating a farm – an important data point for investors
considering exposure to the agriculture sector and trying to decide between farm
operating companies and pure farmland ownership vehicles.

Enquirica commented "We believe that investing in farmland directly and renting
it back to a diversified pool of skilled farmers is the lower risk way to gain
exposure to increasing agricultural commodity prices and improving operating
margins of farming businesses. Farmland returns, unlike the operating returns
of farms, are not particularly volatile and have over the long term produced
consistent real returns. ”

Enquirica Research is a Calgary based research firm focusing on independent

analysis of alternative asset classes and investment opportunities, primarily in
western Canada. For full copy of the report register at www.enquirica.com.

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For further information please contact:

Enquirica Research Inc.
Jim Faber
Email: jfaber@enquirica.com
Web: www.enquirica.com