Political risk in agriculture flares up again in Germany

Following protests over ag-related environmental policies in Australia, Spain, France and the Netherlands in recent years, German farmers came onto the streets this month in a reminder of how quickly political decisions can raise the ire of farmers.

Events in Germany this month have served as a reminder as to how politically sensitive agricultural issues can be.

To recap: a plan by the German government to cut subsidies paid to farmers for the diesel they use in farmland vehicles sparked major protests, with farmers turning out en masse to bring the streets of Berlin to a standstill with tractors. The government promised to water down its proposals but there are suggestions that it will not be enough to placate farmers, with many calling for the plans to be withdrawn entirely.

We have seen similar occurrences elsewhere, perhaps most notably in the Netherlands in 2019 when mass protests erupted over a government crackdown on nitrogen emissions. Farmers also protested in Madrid in early 2023 over the right to extract water from the environment, while a proposed pesticide ban drew ire from French farmers in Paris.

Australia, too, has seen protests, with farmers protesting in Canberra against the government’s changes to the Murray-Darling Basin Plan that many argue will have a detrimental effect on rural communities that rely on irrigation water to survive.

While none of this was sparked by anything that private equity investors in agriculture have done, it serves to highlight how exposed this asset class is to the whims of politics, in a way that we generally do not see in other segments of private markets.

Owning land and water is seen by many as something almost sacrosanct – any policies or actions that are perceived to affect that in a detrimental way are enough to draw people onto the streets and bring cities to a standstill.

The other tension this highlights is the need to decarbonize the agriculture sector while minimizing the harm that is done to those operating within it.

Large corporate entities with deep pockets, while obviously not willing to tolerate uneconomic investments, will be better able to wear some of the pain that will inevitably result as the sector makes this transition. Smaller operators could find it much harder.

Many asset managers are beginning to take a leading role in this area, a trend which only looks set to continue as sustainable land management and natural capital develops further as an asset class with broad appeal in its own right.

This is despite the political risk that might exist in proximity to some of those issues.

These challenges are not going away and are likely to only become more difficult to juggle as the need to reduce emissions becomes more urgent – but private capital should not shy away from the challenge, even if the politicians seem at times to be struggling to chart a palatable course for many.