This article is sponsored by Proterra Investment Partners
The growing global population and resultant rising food demand mean that investment in new and existing productive farmland is needed now more than ever. Proterra Investment Partners believes that sustained underinvestment has hindered farmland’s ability to meet increasing food needs. But today an opportunity exists to arrest this chronic shortage. Seizing this opportunity will not only support the increasing needs of a growing global populace, but will also create attractive return opportunities for investors.
Agri Investor spoke with Becs Willson, managing director at the firm, about the importance of a proper investment strategy and professional management to maximize the productivity of farmland assets – and why she believes such an approach promises both sustainability and profitability.
What is the current state of the agri investor market? What are some of the key themes you are seeing?
One of the trends that we are seeing in Australia is a move towards managing agricultural farmland directly – it’s an interesting one for us as a manager of these assets. What we have found over time is that hands-on management and interaction with local teams really improves returns for investors, whether it’s buying locally (over the fence) or being able to interact with the community to source knowledgeable operational talent.
We also have internal data that provides evidence that proactive local participation in farmland purchase creates opportunities to achieve superior returns to the long-term average growth benchmarks as published by organizations like the Rural Bank in Australia or NCREIF in the US.
Broadly, we are seeing large-scale allocators moving away from global exposures and focusing on established, developed economies – stable geographies like the US and Australia. Investors are shying away from geographies where they see high volatility in returns due to currency or weather.
How is farming viewed through the lens of increased sustainability?
We see sustainability as another key theme within farmland investing – one that a lot of managers are targeting. Fortunately, farming is by its very nature a sustainable activity. Through the utilization of disciplined rotations, precision farming and the use of weed-seeker technologies, Proterra has found impact on the land from food/fiber production can be positive and even improve soil composition over time as evidenced by increased yield trajectories.
We believe there are still many opportunities across farming operations to reduce carbon footprints through lowering reliance on fossil fuels and decreasing the use of fossil fuel-based fertilizers. There are some exciting developments in these areas and large-scale operators are well placed to trial new potential solutions to enable farming to become greener. Many examples of these applications can be found in Proterra’s 2021 sustainability report. The good thing about farming, from the point of view of impact investors, is – if you are doing it right – it is inherently sustainable.
Are there any challenges holding back investment in farmland?
The main challenge for farmland investors is simply finding managers to work with that have proven track records. We observe that it’s very hard for investors that are new to the sector to differentiate between fund structures that best align themselves with farm operations. For investors that haven’t had much experience working with rural communities, it can be difficult to pinpoint the investments making promises of returns that are unrealistic and those that can be based on their operating fundamentals.
Based on internal and external data Proterra receives, we continue to see strong fundamentals of the commodity markets globally, and farmland returns continue to be attractive relative to other sectors. The world needs to meet the demands of its growing population, and this will only be met by increasing food production substantially. We believe this should continue to underpin strong returns at the farm gate. There remains plenty of available land and plenty of appetite from investors to find good operators to manage it.
How do you ensure the effective performance of your agri investments?
I think the operational structure is the thing that really differentiates us. We believe in having a team with on-the-ground resources and long-term community connections. Scale can often be an issue with corporate farms. You can’t manage every corner, so you need an operating structure with an aligned equity partner in the business.
At Proterra, our point of difference starts with the team, who have decades of experience in commodities, mostly through careers with Cargill Inc. This brings a unique perspective as it allows a deep understanding of commodity cycles, which drives margins, revenues and profitability in farming operations. Our background in Cargill also brings strong discipline around ethics and the way business is done. This is extremely important when dealing with small regional communities where trust is the cornerstone of business.
Are there any areas that you are focusing on regarding future agri investments?
Our focus is on core farming regions; not frontier farming operations. We’ve been able to leverage our strengths here to maximize returns. We also think there are some potential opportunities to increase the sustainability of food production while continuing to meet consumer demands. There are good opportunities presenting themselves in New Zealand too.
We believe our strategy to take advantage of these opportunities is unique. It’s built from the ground up through strong relationships within the communities where we operate. In Australia, we use an equity partnership model, which means the individual who is underwriting the economics of a particular land acquisition is also responsible for the production and returns associated with that investment. They are a stakeholder in the business and therefore see that operation as their own, which brings a level of commitment and attention to detail to the operation that is hard to replicate with a salaried employee. This alignment with Proterra and our equity partners brings operations alongside the investor when decisions are being made around risk and reward.
Often, the key to a successful farmland investment, we believe, is having an experienced local partner who has deep knowledge of the targeted area. We see in our own operations that this ensures that farms are acquired at a fair value and can generate attractive returns.