Is Farming the Future?

A story from CNBC has been making the rounds indicating that students should "Skip the MBA, get an agricultural degree."  As a professor of agricultural economics I'm predisposed to like this argument.  And, personally, I think most ag econ departments offer solid skills that students just don't get in an MBA. 

That being said, I think there are good reasons to take pause.  This argument is being made by Jim Rogers, an investor and hedge fund owner.  For years, he has been saying things like

There’s going to be a huge shift in American society, American culture, in the places where one is going to get rich. The stock brokers are going to be driving taxis. The smart ones will learn to drive tractors so they can work for the smart farmers. The farmers are going to be driving Lamborghinis. I’m telling you. You should start Forbes Farming. 

With a growing world population, and the struggle to continue increases in agricultural productivity, he may be right.  He (probably) has millions betting on this proposition.  But, he may also be wrong, and if history is any guide, he may be very wrong.  

If you think ag is going to be really profitable in the future, buy stock in Monsanto, Bayer, John Deere, Tyson, McDonalds, Brinker, and other food and agribusiness companies.  But my reading of the research suggests that by and large, gains in stocks of agribusiness companies have lagged other industries.  For example, here is a graph of relative returns from an Ag Index developed in this research by agricultural economists, and reported on in this paper (the time period runs from 1970 to 2008) relative to S&P 500.


Investing in ag might be good a diversification strategy, but as strategy to maximize returns, the graph above show it would have been a spectacularly bad bet since the 1970s.  

Here is a different perspective in a paper in the Journal of Agricultural and Applied Economics by Zapata, Detre, and Hanabuchi, which shows the price ratio of stocks to commodities from 1871 to 2010.  Again, there are periods where commodities would have provided some diversification benefits, but clearly stocks have generally outperformed commodities over this 100 year time period, as the upward trend indicates.  


Just as Malthus under-estimated the potential benefits of agricultural research and technology to keep up with population growth, I think Jim Rogers may be doing the same.