The Saskatchewan saga and responsible investment

Engagement with local communities and establishing user-friendly investment guidance remains relevant in the developed and emerging markets.

It has been a big week for institutional investment into farmland. We have reported on nearly $1 billion of pension fund commitments into a New Zealand dairy fund, a US farmland co-investment platform, and a US vertical integration fund. And that doesn’t even include CBRE’s efforts in Australia last week.

US public pensions seem to be leading the charge this week as target allocations to real assets, natural resources and/or agri from 18 months ago start to result in commitments.

But institutional investment in the asset class is certainly not plain sailing as Canadian Pension Plan Investment Board would no doubt agree, given the Saskatchewan government’s recent ban on pension fund investment into its farmland market.

The pension plan, which has not previously commented on what’s been an ongoing review process, issued a statement expressing “concern” about the decision and defending its investment in the province last year.

“CPPIB has long been a proud investor in Saskatchewan businesses, and we trust that the government will ensure that the province remains open to Canadian investors,” said Michel Leduc, global head of public affairs and communications at CPPIB. “We are confident that our farmland investments will generate returns for the CPP Fund while doing no harm to Saskatchewan, its farmland market or the farmers. If anything, they will benefit.”

Regulatory and reputational risk has always been one of the biggest concerns cited by institutional investors approaching the farmland investment market and the attitude of and impact on local inhabitants can be the key factor encouraging negative headlines relating to land investment.

Those concerns are flagged most often in emerging markets, but CPPIB’s recent experience – where local complaints about the increasing price of land encouraged the regulatory review – proves it’s an emotive issue in developed markets too. Even for some of the more experienced direct investors like CPPIB.

Responsible investment guidance

Communicating with local communities is one of the main tenets of the various responsible investment guidelines out there today. It’s also the focus of a set of guidelines for institutional investment in agriculture being prepared by the Organisation of Economic Co-operation and Development (OECD) and the Food and Agriculture Organisation (FAO).

The FAO-OECD Guidance for Responsible Agricultural Supply Chains is currently open for consultation and the issue of Free, Prior and Informed Consent (FPIC) – the principle that a community has the right to give or withhold its consent to proposed projects that may affect the lands they customarily own, occupy or otherwise use – is currently the sticking point as organisations grapple with its definition.

FPIC was also the “thorniest issue” exposed by a recent survey of agriculture investment firms conducted by German consultancy EBG Capital, whose chief executive has also called for any guidelines to have specific check-lists for investors.

The need for local consultation before making a land investment is widely recognised as necessary; but the issue is whether this counts as consent or not, according to Coralie David, an OECD agriculture investment policy analyst.

David expects the issue to be resolved by June when she hopes the new guidance, which covers a wide-ranging number of issues, will start to become a model policy for institutional investors in agriculture.

“The main target audience will be institutional investors because some are relatively new to the sector while large agri-food companies and development finance institutions are more familiar with the risks arising in the sector and with ways to mitigate them,” she told me. “Institutional investors are further away from operations but still face high reputational risks.”

Yes, there are numerous standards for responsible investment in agriculture already, not to mention the Committee on World Food Security’s latest principles. But the production of clearer, user-friendly and institutional investor-targeted guidance sounds like something the market is crying out for. Especially if agri investing is to spread beyond the scope of this week’s developed market activity into the vast potential of Africa, Asia and Latin America.