A Well Balanced Agricultural Operation

Farmland crops can be divided into two main groups, permanent crops and row crops. They each have specific characteristics and a well-diversified agricultural operation should incorporate both of them. The first and most common are row crops. As their name suggests, these crops are planted in long rows throughout an extensive field. Row crops include products such as wheat, sugarcane, corn, cotton, and soybeans. The particularity of row crops is that they are planted and cultivated on a seasonal or yearly basis. Therefore, row crops yield products and profit relatively quickly and predictably. Furthermore, row crops are normally planted and collected with a machine or a tractor. Thus, they do not require the employment of a large amount workers to maintain the farm operation. Likewise, another advantage of row crops is that their agricultural yields can normally be employed for multiple purposes. For example, a row crop such as maize or corn can be utilized as animal feed, human food, or ethanol biofuel.

A Well Balanced Agricultural Operation

On the other hand, permanent crops are more labor intensive and require longer amounts of time to yield fruit than row crops. Permanent crops include fruits and nuts, such as wine grapes, pistachios, apples, avocados, and citrus, amongst others. Even though some permanent crops are indeed seasonal, it can take years for some of these trees to mature and bear fruit. Furthermore, the initial investment in the trees or vines is considerable and permanent crops are not normally taken down at the end of each harvest. Therefore, permanent crops represent much more of a long-term commitment on the part of the farmers, who cannot simply switch crops every year. Similarly, permanent crops are betting on the fact that consumers’ tastes will not vary greatly from one year to the next. Even though some mechanical harvesting is possible with some permanent crops, these tend to be more labor intensive farm operations.

The produce of permanent crops looks set to benefit from strong demand trends during the coming years, particularly the nut group (almonds, coconut, pecans, and walnuts) thanks to health-conscious consumers and exports to a growing middle class in emerging markets. According to the NCREIF Farmland Index, permanent crops’ annualized yield has hovered around 15% over the last decade, without considering land value appreciation. This stands in contrast with the 5% annual growth of row crops, without considering land value appreciation. When choosing whether to plant permanent or row crops, farmers and agricultural investors would be wise to strike a balance. Row crops are safer in the short-term because they yield seasonal results and can be revised or displaced from one year to the next. Meanwhile, permanent crops produce higher long-term yields and do not deplete soils as quickly. However, permanent crops require a larger up-front investment, a larger labor force during harvest season, and more patience. Likewise, factors such as investment on depreciating assets, including the plants, the irrigation system, and the machinery, should all be taken into consideration. Long-term investors and farmland owners would be wise to diversify their mix of permanent and row crops.

(Read more about Agribusiness and Trade in Panama’s Economy)