That said, for people wanting to invest in New Zealand Inc, farming is a must-have as it remains our core competitive advantage, says Watson. "We are very good at it.
"Our advantage comes in many ways: from farming practices through to genetics and breeding as well as off-farm servicing such as vets, transport, research, processing and marketing. Many people underestimate the quality of the infrastructure around farming that we have in New Zealand, which is perhaps why it is difficult to replicate our farming methods in other countries."
What's more, the rural sector outlook is generally good. The world's population is growing and we're efficient at food production. "The most brilliant change we have seen over the past 20 years is that the transport barrier that we always had when our key markets were the UK and Europe has diminished greatly given the rise of Asia as our key market," says Watson.
The most pure way to get exposure to the rural sector is to buy a farm, says Mark Lister, head of private wealth research at Craigs Investment Partners. Not all investors have seven figures at their disposal, however.
As a result syndicated farm ownership is becoming popular with urban investors. Companies such as MyFarm and FarmRight form syndicates that allow investors to take a stake in a farm at arm's length. MyFarm admits that much of its marketing is focused on Auckland - although a significant number of existing farmers also buy into the syndicates to diversify their risk.
Business owners Linda and Craig Wellington wanted to diversify their investments and chose dairy farming after toying with the idea of residential investment property.
Linda grew up on a dairy farm. Her father already invested through MyFarm and she liked the Waihopai Pastoral investment on offer at the time in 2009. The Wellingtons and 16 other investors bought the 242ha dairy farm that milks 700 cows. MyFarm manages the business and the investors collect their share of the profits less management costs.
The Wellingtons, who own Waterford Security, liked the fact that they were investing in "a piece of land".
"It is tangible," says Linda. The cash returns haven't been as good as they expected in the first three years. However, Linda says they are better off than leaving the money in the bank and will make long-term capital gains on the property. The cash returns, she says, have been between 4 per cent and 6 per cent. "You can see there is potential for more."
Investors need to factor in the worst case scenario as well if they make such an investment. Farm prices can go down and farms can run at a loss. Also they need to be aware that there is very little liquidity in their investment should they need to exit in a hurry.
The minimum investment for many syndicates is $250,000, although MyFarm is on the verge of launching a trading platform that should allow mum and dad investors to buy $20,000 parcels in existing syndicates.
Although dairying investment opportunities have surged in recent years, says Tony Leggett, head of NZX Agri, there are few openings for dry stock sector (sheep, beef and deer) investors.
"There's a perception that there is more risk in the sheep/beef sector and so dairy is more attractive," he says.
"The primary reason for this is that dairy has offered substantially better returns and the businesses are cash-flow rich. That offers less volatility in returns compared with sheep/beef enterprises, which tend to receive a small number of large dollops of income each year as they sell lambs, cattle or wool."
One of the easiest ways to get a slice of the agri market in New Zealand is to buy shares in companies that service farms, or debt securities from those companies.
The most high-profile investment is in dairy co-operative Fonterra. Only farmers can trade Fonterra shares among themselves. Outside investors can, however, invest in units in the Fonterra Shareholders' Fund (FSF), which listed last December and trades on the NZX main board. Investors don't get voting rights, but can share in the returns. There are also Fonterra bonds available through the NZDX debt securities market.
The rise of Fonterra units since they launched in December last year is a clear sign of strong non-farmer interest in the dairy sector, says Leggett. It also allows farmers in different sectors to diversify into dairy at a very low entry price. Units were trading at $7.20 this week.
Lister says although the Fonterra fund has given mum and dad investors a new avenue to invest in the rural sector, it is not the same as owning a share of a farm. "Fonterra doesn't own farms. It buys the milk from farmers, turns it into something else and sells it overseas," he says.
There are other listed companies the fortunes of which rely on the rural sector. The best known is PGG Wrightson, although its track record has not been stellar, says Lister.
Watson says Port of Tauranga, which many people wouldn't consider having primary sector exposure, is one of his favourite farming investments. "Although it is one step removed from farmland, it is our largest export port and handles logs, dairy produce, kiwifruit and a range of other primary exports.
"It is also a defensive business and while export volumes rise and fall, revenues are far more assured than farm incomes," he says. "With the port you get a high-quality, defensive infrastructure asset that also has leverage to our primary sector."
NZX Agri-published Farmers Weekly has assembled two untraded indices, Farmers Weekly Primary Sector Equity Index and Farmers Weekly Agricultural Equity Index, of rural companies (tinyurl.com/farmersweeklyindices). Most of the companies are listed on the secondary markets, says Leggett, not the main NZX market.
A few offer opportunities outside dairy farming. PGG Wrightson, for example, services the entire rural sector, not just dairy. There are also some listed companies that have exposure to other agricultural markets, such as Cavalier, Comvita, Delegat's Group, Seeka Kiwifruit Industries and New Zealand Wool Services International. For direct investors MyFarm is about to launch sheep and cattle syndicates.
Another option for investors looking for dairy investments is dairy futures, which are traded on the NZX Futures and Options market. Leggett says the market is building steadily and farmers use it to offset the volatility in milk price at the farm gate. Futures, however, aren't good for novice investors.
Investors who can't get enough exposure to the rural sector in New Zealand can look overseas, says Lister, where there are rural-focused funds. He is not aware of any such funds here.
There are, however, New Zealand-based funds such as Liontamer's COMBI Series 6 trust which invest a portion of their capital into agricultural and livestock along with other commodities investment. COMBI is an Australian unit trust open to New Zealand residents.