This week I want to raise a few issues with Agri Investor readers in the hope of sparking debate, featuring more views on the site and steering future content.
Operational skills and sustainability
Last week’s Point of View – Farm management, not real estate, is key to agri investing – attracted a lot of interest and engagement from readers. Aquila Capital’s Detlef Schoen highlighted the pitfalls of past agri fund managers that were overly focused on traditional real estate and financial strategies without much farm management experience.
The quality of a project’s on-the-ground management can clearly impact investment returns, which a number of my sources argue is directly linked to understanding and employing sustainable farming methods.
“Any farmer with any sense will create a sustainable production system – even through conventional farming methods including artificial inputs and so on,” said one Australia-based fund manager.
It surfaces a similar issue that’s been a talking point in private equity (and the focus of an upcoming PEI event), which is whether ‘good’ investments by definition encompass best practice around environmental, social and governance (ESG) issues.
In an agricultural context, managers like the one I spoke to maintain that sustainability should not be up for debate, or a label for a certain type of agri project or strategy, but merely a side product of good farm management.
“There are several examples of conventional farming techniques improving the local wildlife of a surrounding area by implementing buffer zones and other techniques; but these are nothing special. They positively impact returns so make natural sense to farmers. They do not require a specific sustainable strategies but merely good farm management,” he noted.
Sustainability is defined as the endurance of systems and processes so, the source argues, farmers have for decades pursued sustainable farming techniques over several generations. There is no need to put a label on it.
What’s your view? Is the sustainability label that some agri fund managers use merely a marketing tool that can be applied to any properly-managed agriculture project?
Zambia’s progressive land title regulations
The ability, or lack thereof, to own farmland outright in Africa is often a sticking point for agri investors. Land titles are often promised by senior national government officials, only to be rejected by local officials and chiefs, and vice versa, sources tell me. Acquiring leasing rights over land can follow a similar process in many African countries. And opacity in the system puts investors at risk of land grab accusations.
But in Zambia the system is much more transparent and easy to navigate, according to Thomas Hill, business development manager for Armarium, an investment company working in the country.
Foreign investors can hold title over land in Zambia for a lease period of up to 99 years, he told me. The land held under title deed can also be transferred following a sale and/or can be sub-divided. All that is required is for the land to be held in the name of a company registered in Zambia – in which investors own shares – and for investors to apply for an investor licence through the Zambian Development Agency. And there are further incentives available as part of the investment license: tax breaks for farming and irrigation equipment, agricultural companies and processing companies.
Hill pointed to investment in Zambia’s agriculture sector by development finance institution Norfund and the Johannesburg-listed firm Zeder Investments.
So will Zambia stand out as a go-to investment destination for agri on the continent?
Agri investment sectors to watch
Agri investors and consultants are always looking out for the next big thing and this week, with the help of some sources, I have identified a number of burgeoning sub-sectors to watch. One is the emergence of protected cultivation agri projects (think greenhouses and hydroponics), while the others are wetland mitigation (where conservation meets carbon savings), and agriculture debt offerings. We’ll soon feature a series of articles on Agri Investor focusing on these and other niche agri investment sectors. What other new trends or topics do you think we should highlight?
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