By Robin Bowman

Like any great quip, Mark Twain's 'Buy land, they're not making it anymore' is not only amusing, it's true.

The trouble with buying land is that it is almost always speculative, it rarely provides any yield, and you can't use other people's money to buy it!

But with reassignment it can be an extremely lucrative investment indeed.

The consequence of this is that land investment has attracted the scamsters who play on a combination of greed and ignorance: in short, land banking, or the practice of dividing large tracts of cheap land into small plots and then selling them off in the expectation that they will become highly valuable when they are 'inevitably' reassigned as building land.

The trouble is that the expectation of planning permission is entirely speculative and each plot has been sold at a premium. So, when planning permission fails to materialise, as is almost always the case, the only way the land can be sold is at a big discount, if at all.

Its value is further eroded by the fact that a large, perhaps agriculturally useful tract, is now chopped into multiple plots that all have separate owners.

An investment disaster and often little short of fraud. Many land banking companies have been closed by the FSA as a result of sharp practices and false claims.

Another favourite strategy is to buy coastal plots and wait for the developers to arrive. But, while this is a legitimate punt, it's still highly speculative, with little in the way of a clearly defined exit route or timescale. It also often requires tying up relatively large amounts of cash - cash that is not being made to work while the leap in price is awaited.

But, as investors increasingly search for sound opportunities and alternatives to low yielding government bonds and cash deposits, one much more clearly defined structure for land investment appears to offer some genuinely excellent potential.

And it's fundamentally arisen as a product of the global shortage of credit.

Crucially, this is not a speculative investment, but one that has fixed returns - rather like a bond.

It's investing in agricultural land, but not in the hope of reassignment. Quite the opposite: this is investing to bring highly fertile agricultural land into production, and creating contractually guaranteed returns for the investor in the process.

But, first let's take a look at the soundness of investing in agriculture anyway. Essentially, we're talking about food. And food commodities notoriously have highly volatile cyclical prices.

Except that the long-term trend is clearly apparent - increased demand; this is not so much demand for food in general, but for food that is more costly to produce.

There is a general trend - seen most clearly in Asia and caused by increasing affluence - of growing demand for high quality food, especially proteins.

In China alone it is estimated that some 10 million people a year join the group defined as 'middle class'. The result is a hugely increased hunger for high quality foods of all kinds, but especially protein, most notably in the form of meat and milk.

The Economist recently quoted Carlo Caiani of Caiani & Company, an investment-advisory firm based in Melbourne, as saying that in the last decade, milk consumption has grown 700 per cent and olive oil 600 per cent. China consumes twice as much vegetable oil, 60 per cent more poultry, 30 per cent more beef and 25 per cent more wheat. Of course, all this has a knock on effect on other foodstuffs: grain to feed cattle and so on.

But even after all this growth, people in the developed countries, such as the US and UK, still consume 200 per cent more milk and meat than those in China.

'Overall, protein intake in Europe and America is unlikely to expand much, but a combination of rising incomes and population in developing countries could increase demand by more than 5% annually for years to come.' The Economist reported.

Developing countries with burgeoning food needs are taking extraordinary measures to secure supply - all the way along the food production chain.

China's state-owned food production giant, COFCO, bought into a slice of Smithfield, the world's biggest producer of pork; an Abu Dhabi-based investment company, Al Qudra, is reported to have bought big areas of farmland in Morocco and Algeria, and is doing deals in Pakistan, Syria, Vietnam, Thailand, Sudan and India. There are reports of investors in China buying 50,000 hectares of arable land in Argentina and considering others in the country as well as Brazil.

The most dramatic instance of this trend was Daewoo's deal with the Madagascan government to lease 1.3 million hectares, or almost 50 per cent of the country's farmable land, to produce corn for South Korea. Riots in Madagascar put an end to that deal.

But the trend to secure good food supplies at source is clear.

So, investing in farmland in the UK is one option, but land there is very costly.

Farmland in large, highly fertile parts of the world - granary locations - can appear far more attractive; such locations as northern Argentina, an area with massive production potential, but where land is only around 30% of the price of UK arable land.

We have looked at various land investment options and come up with one that looks solid and attractive - the main consideration here being to minimise the level of risk.

This investment is offered through Worldwide Investments and is in Argentinian farmland. While we don't see an investment in Argentinian farmland as a centerpiece of a portfolio, it does contribute a useful diversification.

The strong points of this investment are quite simply its fairly high fixed returns married with the built-in safety aspects PLUS a clear exit strategy.

This is not a combination often found when looking at land investment.

Here's how the deal works:

The creators of SCS Farmland own 60,000 hectares of land, approximately the size of New York, it currently has in the region of 10,000 hectares growing crops. It is raising capital to bring the remaining land into production - investing in irrigation systems, machinery and so on.

The mechanism is that the investor buys a tranche of farmland, from the farming company, for approximately two thirds of its value. The land is already under cultivation. This land is then re-purchased from the investor by the farming company, via annual payments, over a period of five or ten years.

Annual payments lead up to a larger final settlement payment. Over five years the gain is 66%. Over ten years it's 160%.

As extra security, a third amount of extra adjoining land is placed in trust with an independent UK company acting on the investor's behalf.

The minimum investment is £12,000 or $16,000, with the returns fixed in either currency the investor chooses.

Investors can sell their Land, including the rights to the annual and final Payments, at any time to third parties. Investors may make their investment through a UK SIPP (Self Invested Personal Pension).

The obvious question is: how come the farming company needs to raise money from retail investors and doesn't use banks? After all, it appears to be financing its project very expensively. The fact is that Argentinian interest rates are ultra high, well into double figures; and following the Argentinian banking crisis in 2001, depositors simply don't have enough confidence to place deposits with banks. This has shrunk the flow of credit available. Of course, the global shortage of credit has simply driven down further the availability of funds.

Next question: but how does the investor know the land is not simply wildly over-valued in the first place? The answer is that it is valued in a logical and transparent way, based on its projected yield and this is calculated from a Crop Price Index, based on prices over the past three years.

And what about the risk involved? Such healthy returns on capital, especially so in the current climate, rarely come without risk.

Luke Whitehouse, International Account Manager for Worldwide Investments, said: 'I suppose to most people the risk really seems to revolve around the fact that this land is in Argentina. However, seeing as property rights have been upheld in times of economic and social unrest and the fact that agriculture is largely insulated from the Argentine economy, as it is traded in USD$ and not the Argentine Peso, we feel the risks are low. Some might say the risks are lower than buying agricultural land in the UK which is in somewhat of a bubble.

'Argentina is one of the three largest soybean exporting countries, is in the top five wheat exporters, second largest exporters of Maize, third largest exporter of beef - Why wouldn't you want to own agricultural land there?

'Ultimately investors need to decide whether agricultural land is a good asset to own as this is their ultimate security - we and countless economists think that it is.'

The investment is also acceptable for a SIPP.

'We believe we have come up with a very sound investment model that maximises return and shrinks risk to a minimum, using an independent company that holds the title and is governed by English law.' said Whitehouse.

'Plus there is a clear exit strategy.

'A year ago, you could achieve seven per cent for cash on deposit. Those days are gone, of course, and that makes this offer far, far more attractive.'

We agree.