How has agri investing changed since you started looking at the asset class in 2006 and where is it now?
It has changed dramatically. Back then there were maybe a few people asking questions and now over 700 will attend conferences dedicated to the topic. While there are more investors looking at it, there is still a big gap between interest and actual investment. There are tremendous barriers to entry; agriculture investing looks like real estate investing did 30 years ago.
What are the barriers to entry and what needs to change?
The biggest barrier to entry is the lack of information. We need to bring more transparency to investors. How can you gauge the return profile of farmland? The NCREIF farmland index is a good one but it’s not truly representative of the whole market. When trying to do data analysis to find out if this asset class does what an investors wants it to do, it is very difficult with the information currently available.
The industry’s lack of a track record is also an issue but investing with a new manager is not impossible.
Would you recommend any regions or sectors to first-time agri investors?
Our goal is to get exposure to the global theme of inelastic demand for food and the inelastic supply of it. But I don’t think I would recommend any specific strategy to everyone. My advice would be firstly to identify what exposure you are looking for. There are many different ways you can invest into the agriculture space and they can all be played in different ways. Are you happy with a long term asset or do you want to take a shorter term view? You need to be comfortable with the risk return profile ratio too.
Secondly pick a management team that is locally-based with local experience and expertise – agriculture is an extremely local business. We do not manage it from New York; we have a presence in every market we are invested in.
You are a buy-and-lease investor for the most part. In what incidences do you operate the land too?
In countries where the tenant base is not as developed as elsewhere it is important to operate the land yourself to ensure it is as productive as possible. Permanent crops such as fruit orchards are another area because over 50 percent of the value resides above the ground and you can engage in contracts with off-takers to manage pricing risk. But in general operating the land adds more risk and volatility to the investment because there are more variables, such as labor, consumer preferences, and potentially large operating losses in any given year complicating the thesis.
Private equity investing into the value chain is attractive. It is a higher risk than investing in land but given our [scale and access to] information about the market, we believe we can generate better risk adjusted returns in the sector. For example, we are one of the largest almond growers in the world so when we started investing in almond processing companies it was a completely different experience to others investing there purely as a financial buyer. Everything that grows on our properties needs to be processed, packaged, stored and transported.
TIAA-CREF is known for its dedication to following ESG principles but how do you ensure this?
First, TIAA-CREF partnered with a group of institutional investors to establish the Principles for Responsible Investment in Farmland. These principles provide guidelines to responsible investment and management of global farmland. We ensure consistency with the principles by employing a rigorous investment approach that includes a number of policies, procedures, and checklists that assess, mitigate, and manage risks. For example, we conduct an environmental site assessment for all farmland purchases to understand the baseline condition prior to acquisition. We leverage our internal engineering team at TIAA-CREF to assist in this evaluation as well.