The pandemic has reiterated some old lessons about ag, accelerated the urgency needed to address certain issues already top of mind in some regions, and made clear the severity of the threats posed by some pre-covid-19 headwinds.
Here are four lessons the coronavirus pandemic has taught us about ag:
- Agriculture is resilient
This certainly falls into the ‘old lessons’ bucket, but as we’ve heard consistently since the start of the pandemic, this crisis will serve to reaffirm ag as a resilient and uncorrelated asset class.
But viewed through the prism of PE, which favours large-scale and high-income permanent crops such as fruit and nut orchards, or row crops in strategic markets, the negative impact has been limited.
- Trade wars pose bigger threats than global pandemics
University of Illinois professor Bruce Sherrick identified the US-China trade war as one of the key reasons for NCREIF posting the first negative quarterly return for the asset class in 19 years, and labelled it “truly the long-term risk to agriculture.”
Australia, meanwhile, has found itself embroiled in a trade dispute of its own with China, its largest trading partner, following a diplomatic row.
The People’s Republic has blacklisted four Australian meat-processing facilities that accounted for 30 percent – A$2.6 billion ($1.7 billion; €1.5 billion) – of beef exports to China in 2019, and imposed tariffs of up to 80 percent on barley. China has also launched an investigation following accusations of dumping by Australian wine producers.
- Distressed opportunities exist at the smaller end of the market
Small-scale farmers unable to offer year-round work or charter flights to fly in labor – as was seen in the UK and Germany – have found themselves in the most distress.
A US-based GP told Agri Investor in April that it was able to acquire a privately-owned orange orchard in California at a discount, simply because the owner could not access short-term seasonal labor.
And more recently, the only dedicated distressed farmland opportunities vehicle we have logged to date has set out to target producers facing financial distress at this end of the market and completed its first acquisition in mid-August.
- Food security anxieties will be a catalyst for investment
The pandemic has heightened the scrutiny with which virtually every nation views its global and domestic food supply chains.
Placement agent 5 Capital’s managing partner Allan Majotra said his firm has already spoken to GPs about the opportunities that could result from government incentives to bring “the whole supply chain closer to home.”
This was echoed by Fiera Comox partner for agriculture Matthew Corbett in a recent podcast, who added that stockpiling of staple products at a national level could return.
In the Middle East, efforts to improve fresh produce self-sufficiency through vertical farming will have received an additional jolt, while in Asia, Singapore’s Temasek has continued to invest heavily in agtech as it seeks to lead Asia by example in creating strategic food tech-hubs.