Why agri? Why now?
The Food and Agriculture Organisation of the United Nations predicts that agriculture production will need to grow by 60 percent by 2050 to meet global demand for food, but we must do this with the limited land resources we have.
That’s a worrying statistic. And one that also gives rise to an attractive supply-demand curve: the opportunities for growth and improving the status quo via new techniques and technologies have prompted a growing number of private investment fund managers and their investors to seek exposure to agriculture and related investments. Many LPs also treat the burgeoning agri asset class as a hedge against inflation to help diversify their portfolio from more traditional investment strategies. Some also see backing projects that improve global food supply as fulfilling important ESG or impact investment initiatives.
With all this increased interest, it’s not surprising that the means and methods of investing into agriculture and all its related businesses – both in terms of strategy and capital structures – are becoming increasingly diverse.
Farmland investments, once treated as simple real estate transactions, are starting to look a lot more like private equity deals as buyers are taking a more operational approach to add value and improve productivity. In some cases those buyers are private equity firms, an increasing number of which are getting involved all along the value chain offering pure agribusiness funds but also trying their hand at farm operations too.
Venture capitalists, meanwhile, are embracing developments in agricultural technology as farmers start to think more carefully about how to work their finite land resources in an effective yet sustainable way.
Agri investing already has some large advocates in the shape of institutional investors such as TIAA-CREF, the US’ largest private pension fund, and US public pension MassPRIM. Pension schemes in the Nordics and sovereign funds in the Asia-Pacific have also made forays. But it is also true that the lacking track record of many fund managers in the sector worries other institutions considering it.
However, as more of the big institutions recognise the growth potential and benefit of agri exposure in their portfolios, they are starting to dip their toes into the asset class. This in turn is encouraging their smaller peers to start considering it also.
It will be a long road until private investment agriculture becomes ‘mainstream’. But as the market develops and best practices among both investors and fund managers are established, Agri Investor will be there providing analysis and insight as we track the institutions, funds and transactions shaping the global agri-investment markets.