The study, released today by the University of Oxford’s Smith School of Enterprise and the Environment, aims to show the scale of the asset bubble faced by the agricultural sector. The study focuses on so-called stranded assets, a term used to describe environmentally unsustainable assets that suffer from unanticipated or premature write-offs, downward revaluations or are converted to liabilities, and can be caused by a range of environment-related risks.
The potential challenge of stranded assets in agriculture is currently being exacerbated by an ongoing agricultural boom, which is feeding off high commodity prices and poor investment returns elsewhere in the economy to push farmland values to record highs in many markets, the study says.
The study determined value at risk calculations under three scenarios: current, moderate and extreme. The report found a one in 20 chance the world’s farmland assets and agricultural capital stock could lose between $4.4 trillion (the current scenario) and $8 trillion (the extreme scenario) in a single year.