Report on Agricultural Land Investment: A 2025 Outlook on Financial Returns and Sustainable Development Goal (SDG) Alignment

This report analyzes the strategic case for investing in agricultural land in 2025. It outlines the primary drivers, investment vehicles, and due diligence requirements for this asset class. A significant emphasis is placed on how agricultural investment can generate financial returns while contributing directly to the United Nations Sustainable Development Goals (SDGs), including Zero Hunger (SDG 2), Climate Action (SDG 13), Clean Water and Sanitation (SDG 6), and Life on Land (SDG 15).

Rationale for Agricultural Land Investment in 2025

In 2025, agricultural land presents a compelling real asset investment, driven by fundamental global trends that align with key SDGs. Investment in this sector offers portfolio diversification, inflation hedging, and the potential for long-term impact.

Alignment with SDG 2: Zero Hunger

Global population growth, particularly in emerging markets, and evolving dietary preferences are increasing the structural demand for food. Concurrently, the supply of arable land is finite and diminishing due to urbanization and environmental degradation. Strategic investment in farmland can enhance productivity and food system resilience, directly addressing the targets of SDG 2 by working to end hunger and ensure food security.

Financial and Portfolio Benefits

Farmland demonstrates a low correlation with traditional equity and bond markets, providing significant diversification benefits. Returns are generated through two primary streams:

• Income Generation: Cash flows from lease payments or crop-share arrangements provide stable income.
• Capital Appreciation: Long-term value growth is supported by supply and demand dynamics.

Furthermore, new revenue opportunities are emerging from practices that support global sustainability targets. These include income from carbon credits, payments for ecosystem services, and public incentives aimed at enhancing climate resilience, directly linking financial performance to positive environmental outcomes under SDG 13 and SDG 15.

Investment Vehicles for Agricultural Land

Investors can access agricultural land through various vehicles, each offering a different balance of control, liquidity, and potential for direct SDG impact.

Direct Ownership and Operation

Direct ownership provides maximum control over land management, enabling investors to implement practices that directly advance sustainability goals.

• Description: Purchasing land parcels for direct operation or leasing to farmers.
• SDG Impact: Offers the most direct pathway to influence land stewardship, soil health, and water management, contributing to SDG 6, SDG 12 (Responsible Consumption and Production), and SDG 15. It can also support local economies, aligning with SDG 1 (No Poverty) and SDG 8 (Decent Work and Economic Growth).
• Financial Profile:
  • Estimated Total Return (CAGR): 6-14%
  • Typical Holding Period: 7-20+ years
  • Liquidity: Low (90-365+ days to exit)
  • Control: High

Farmland Real Estate Investment Trusts (REITs)

Publicly traded REITs offer liquidity and diversification across geographies and crop types.

• Description: Publicly listed funds that own and/or manage income-producing farmland.
• SDG Impact: Impact is determined by the REIT’s management policies. Investors can select REITs with stated commitments to sustainable agriculture, though direct control over practices is limited.
• Financial Profile:
  • Estimated Total Return (CAGR): 5-9%
  • Typical Holding Period: Open-ended
  • Liquidity: High (1-5 days to exit)
  • Control: Low

Private Equity and Pooled Funds

These vehicles provide access to institutional-grade management and operational expertise at scale.

• Description: Professionally managed funds that acquire and operate agricultural assets.
• SDG Impact: Many funds now integrate ESG criteria and pursue strategies like regenerative agriculture to enhance long-term value and meet investor mandates for sustainability, aligning with SDG 12 and SDG 13.
• Financial Profile:
  • Estimated Total Return (CAGR): 7-12%
  • Typical Holding Period: 7-12 years (subject to lock-up periods)
  • Liquidity: Very Low
  • Control: Indirect, through fund manager

Crowdfunding and Joint Ventures

These models lower the barrier to entry and can align investor interests with those of farm operators.

• Description: Platforms that pool capital from multiple investors for specific farm acquisitions or partnerships with existing farmers.
• SDG Impact: The potential for impact varies by deal. These structures can empower local operators and facilitate the transition to more sustainable practices, supporting SDG 8 and SDG 12.
• Financial Profile:
  • Estimated Total Return (CAGR): 6-11%
  • Typical Holding Period: 5-10 years
  • Liquidity: Low
  • Control: Varies by deal structure

Due Diligence Framework for Sustainable Investment

Rigorous due diligence is critical to mitigate risk and ensure that investments achieve both financial and sustainability objectives.

Land, Soil, and Environmental Integrity

This assessment is fundamental to achieving SDG 15 (Life on Land) by ensuring the long-term health and productivity of the ecosystem.

• Soil Quality Analysis: Evaluate texture, organic matter, pH, and nutrient levels.
• Topography and Drainage: Assess erosion risk and requirements for infrastructure.
• Environmental History: Investigate prior land use for potential contamination.
• Regenerative Potential: Identify opportunities to improve soil health through practices like cover cropping and reduced tillage.

Water Rights and Management

Sustainable water management is a cornerstone of responsible agricultural investment and directly addresses SDG 6 (Clean Water and Sanitation).

• Legal Water Rights Verification: Confirm the legality, priority, and reliability of water rights, especially in water-scarce regions.
• Infrastructure Assessment: Evaluate the condition and efficiency of irrigation systems.
• Climate Resilience Modeling: Quantify the impact of potential water shortages on yield and profitability.

Zoning, Land Use, and Policy

Understanding the regulatory landscape is essential for long-term planning and aligns with SDG 11 (Sustainable Cities and Communities) by respecting land-use plans.

• Regulatory Compliance: Verify zoning, conservation easements, and environmental regulations.
• Policy Analysis: Model the impact of taxes, incentives, and agricultural policies on operational viability.

Production and Operator Verification

Ensuring operational excellence and ethical management supports SDG 2 (Zero Hunger) and SDG 8 (Decent Work and Economic Growth).

• Historical Performance Review: Analyze past yield data, input costs, and crop rotations.
• Operator Assessment: Evaluate the operator’s track record, commitment to stewardship, and adaptive management capabilities.

Valuation and Financial Returns

Valuation must extend beyond simple price-per-acre metrics to incorporate productivity and sustainability factors.

Core Valuation Methodologies

• Net Operating Income (NOI): The primary driver of value, calculated as revenue (from leases or crop sales) minus operating costs (taxes, insurance, management).
• Capitalization Rate: The ratio of NOI to asset price, used to compare investment opportunities.
• Discounted Cash Flow (DCF): A model that projects future cash flows, incorporating assumptions about commodity prices, input costs, and potential revenue from sustainability initiatives like carbon credits.

Integrating Sustainability into Valuation

Capital expenditures for transitioning to regenerative systems or upgrading irrigation efficiency should be modeled as investments that enhance long-term asset value, yield stability, and resilience, thereby contributing to SDG 13 and SDG 15.

Risk Management and Climate Resilience

A proactive approach to risk management is essential for safeguarding returns and ensuring the long-term viability of agricultural assets.

• Climate Risk (SDG 13): Mitigated through geographic and crop diversification, investment in resilient infrastructure like irrigation, and adoption of adaptive farming practices.
• Water Risk (SDG 6): Addressed by prioritizing assets with senior and secure water rights and investing in water-efficient technologies.
• Regulatory Risk: Managed by maintaining compliance and tracking policy developments related to environmental and agricultural standards.
• Commodity Price Volatility: Tempered through hedging strategies, conservative leverage, and operational models that lower input costs.
• Operator Risk (SDG 8): Reduced by partnering with experienced operators and aligning incentives through performance-based lease structures.

Sustainability, Carbon Revenues, and SDG Impact

By 2025, sustainability practices are becoming a direct driver of financial returns, primarily through carbon markets and other ecosystem services.

Generating Carbon Revenue (SDG 13)

Investing in practices that sequester carbon in soil can generate a new revenue stream while combating climate change. The process requires:

• Baseline Establishment: Measuring initial soil organic carbon levels.
• Additionality: Implementing new practices (e.g., no-till farming, cover crops) that increase carbon storage beyond a business-as-usual scenario.
• Measurement, Reporting, and Verification (MRV): Engaging third parties to validate carbon sequestration, the costs of which must be factored into financial models.
• Durability: Committing to long-term maintenance of these practices.

Broader SDG Contributions

Beyond carbon, investments can be structured to generate biodiversity credits and verify improvements in water quality, further contributing to SDG 15 and SDG 6. Traceability systems can verify sustainable practices throughout the supply chain, supporting SDG 12.

Financing, Taxation, and Exit Strategy

A comprehensive financial plan includes a prudent capital structure, tax planning, and a clear exit strategy.

Financial Considerations

• Financing: Leverage can amplify returns but also increases risk. Debt should be structured to withstand commodity price cycles.
• Taxation: Planning must account for property taxes, capital gains, and potential benefits from conservation easements.
• Exit Planning: A clear strategy for realizing value—whether through a sale to another investor, conversion to a higher-value use, or inclusion in a larger portfolio—is essential. The plan should ensure the continued stewardship of the asset.

Practical Recommendations and Frequently Asked Questions

Key Recommendations for Success

• Prioritize investments in regions with secure water rights.
• Partner with experienced operators who demonstrate a commitment to sustainable stewardship.
• Utilize robust data, including historical yields and satellite imagery, for diligence and ongoing management.
• Model financials conservatively, running stress tests for climate and price shocks.
• Structure investments to align financial incentives with positive SDG outcomes, such as improved soil health or water efficiency.

Frequently Asked Questions

1. Why is farmland a strategic allocation in 2025?

   It addresses structural demand for food (SDG 2), offers inflation protection, provides portfolio diversification, and presents new revenue streams from climate-positive practices (SDG 13).

2. What are the primary risks?

   Key risks include climate and weather variability (SDG 13), water scarcity (SDG 6), regulatory changes, commodity price volatility, and operational execution.

3. How do regenerative practices enhance returns?

   They can lower input costs, improve yield stability, increase resilience to drought, and generate revenue from carbon and biodiversity credits, directly supporting SDG 12, SDG 13, and SDG 15.

4. How should an agricultural asset be valued?

   Valuation should be based on productive capacity, typically measured by normalized Net Operating Income (NOI), capitalization rates, and Discounted Cash Flow (DCF) analysis, validated with comparable sales.

5. What is the typical holding period for a farmland investment?

   Direct ownership investments are long-term, typically held for 7 to 20 years, allowing time for capital appreciation and the benefits of sustainable management practices to be realized.

Conclusion

Investment in agricultural land in 2025 offers a unique opportunity to achieve financial objectives while making measurable contributions to the UN Sustainable Development Goals. The most successful strategies will be those that are built on disciplined underwriting, active management, and a genuine commitment to stewardship. By integrating sustainability into every stage of the investment process—from due diligence to operational management and exit planning—investors can build resilient portfolios that generate durable returns and foster a more secure and sustainable global food system.

Analysis of Sustainable Development Goals in the Article

1. Which SDGs are addressed or connected to the issues highlighted in the article?

The article on investing in agricultural land touches upon several Sustainable Development Goals (SDGs) by focusing on the intersection of economic returns, environmental stewardship, and resource management. The following SDGs are directly or indirectly addressed:

• SDG 2: Zero Hunger – The core subject is agriculture, which is fundamental to food production and security.
• SDG 6: Clean Water and Sanitation – The article places significant emphasis on water rights, usage, and management as a critical component of agricultural investment.
• SDG 7: Affordable and Clean Energy – The mention of biofuels as a driver for land demand connects agricultural practices to the renewable energy sector.
• SDG 8: Decent Work and Economic Growth – The article is framed around investment, economic returns, income generation, and the productivity of the agricultural sector.
• SDG 9: Industry, Innovation, and Infrastructure – It highlights the need for robust infrastructure and the role of technology and innovation in modern agriculture.
• SDG 11: Sustainable Cities and Communities – The text discusses the pressure of urbanization on arable land, linking land use planning to sustainable community development.
• SDG 12: Responsible Consumption and Production – The promotion of regenerative agriculture and efficient resource use points to sustainable production patterns.
• SDG 13: Climate Action – Climate risk, adaptation, and mitigation through carbon sequestration are central themes.
• SDG 15: Life on Land – The article is fundamentally about the sustainable management of land, soil, and terrestrial ecosystems like forests.

2. What specific targets under those SDGs can be identified based on the article’s content?

Based on the article’s detailed discussion, several specific SDG targets can be identified:

1. Target 2.3: By 2030, double the agricultural productivity and incomes of small-scale food producers.
   • Explanation: The article discusses “yield improvement,” “operator excellence,” and maximizing “net operating income (NOI)” and “capital appreciation,” which align with increasing productivity and income from agriculture.
2. Target 2.4: By 2030, ensure sustainable food production systems and implement resilient agricultural practices.
   • Explanation: This is a core theme, explicitly mentioned through terms like “regenerative practices,” “soil health,” “stewardship,” building “resilience,” and creating a “security of the food system.”
3. Target 6.4: By 2030, substantially increase water-use efficiency across all sectors.
   • Explanation: The article stresses the importance of “efficient irrigation infrastructure,” modeling water costs, and suggests aligning incentives with “water efficiency” can pay off.
4. Target 7.2: By 2030, increase substantially the share of renewable energy in the global energy mix.
   • Explanation: The text identifies “Biofuel mandates” as a key driver that “increase acreage demand for oilseeds and feedstock crops,” directly linking agriculture to renewable energy production.
5. Target 9.1: Develop quality, reliable, sustainable and resilient infrastructure.
   • Explanation: The due diligence checklist includes assessing “roads, fencing, storage, irrigation hardware, power access,” and the text mentions capital expenditures for “pivot and pump upgrades, tiling.”
6. Target 12.2: By 2030, achieve the sustainable management and efficient use of natural resources.
   • Explanation: The article advocates for practices that “reduce input costs,” improve “soil-water dynamics,” and enhance overall resource management through “stewardship.”
7. Target 13.1: Strengthen resilience and adaptive capacity to climate-related hazards and natural disasters.
   • Explanation: The article has a dedicated section on “Risk Management, Climate, and Resilience,” advising investors to counter “climate risk” with “diversified geographies and crops, irrigation redundancy, and adaptive rotations.”
8. Target 15.3: By 2030, combat desertification, restore degraded land and soil.
   • Explanation: This is directly addressed through the focus on improving “soil quality,” implementing “regenerative practices” like “cover crops, reduced tillage,” and monitoring for “erosion risk.”

3. Are there any indicators mentioned or implied in the article that can be used to measure progress towards the identified targets?

Yes, the article mentions or implies several quantitative and qualitative indicators that can be used to measure progress:

1. For Target 2.4 (Sustainable food production):
   • Indicator: Proportion of agricultural area under productive and sustainable agriculture.
   • Article’s Measurement: The article implies this can be tracked by the adoption of “regenerative practices,” monitoring “soil health indicators,” and using satellite data (e.g., NDVI) to “validate historic yield consistency.”
2. For Target 6.4 (Water-use efficiency):
   • Indicator: Change in water-use efficiency over time.
   • Article’s Measurement: Progress can be measured by assessing “irrigation system condition,” “conveyance losses,” and using satellite proxies like “NDWI” (Normalized Difference Water Index) for “water management.”
3. For Target 13.1 & 13.2 (Climate Action):
   • Indicator: Total greenhouse gas emissions per year and number of countries with climate adaptation strategies.
   • Article’s Measurement: The article provides a direct unit of measurement: “One carbon credit equals 1 metric ton CO2e.” It also discusses “carbon footprint management,” “sequestration,” and provides estimated “Carbon Credit Potential ($/acre/yr),” which serves as a financial and environmental metric.
4. For Target 15.3 (Restore degraded land):
   • Indicator: Proportion of land that is degraded over total land area.
   • Article’s Measurement: The article suggests measuring this through “Soil quality” checks including “texture, organic matter, pH, salinity,” and monitoring “erosion risk.” Improvement in these metrics indicates restoration.
5. For Target 8.2 (Economic productivity):
   • Indicator: Annual growth rate of real GDP per employed person.
   • Article’s Measurement: While not a national GDP metric, the article provides sector-specific financial indicators that serve as proxies for productivity, such as “Estimated Total Return (CAGR, %),” “Income Yield (%)”, and “Net Cash Flow (USD, est.).”

4. Summary Table of SDGs, Targets, and Indicators

Source: farmonaut.com