By Ross Verry
It’s not overly surprising that agriculture and horticulture were among the best performing investment sectors through the 2020 pandemic. Food, as an essential to life, retains strong demand despite economic downturns.
The pandemic has been unique in the sense that the necessity of food has seen demand for many products strengthen, particularly those perceived to deliver health benefits and high levels of nutrition.
These sectors aren’t immune to the trials of the time of course and the pandemic has tested their resilience in unique ways too; interruption of supply chains, consumer behaviour changes, access to harvest labour and safe production protocols among a few.
From an investment perspective, COVID has sparked a renewed interest in alternatives assets with specific focus on the agriculture space. As an investor, to gain exposure to agriculture is to gain exposure to a demographic trend that is inevitable.
We need to feed a human population that is in continued growth. Publicly traded markets may display volatility, global commerce may slow, but humanity keeps on growing, and each new human being is by necessity a consumer of agricultural or horticultural produce.
In addition, the sub-sector of ag-tech and ag-business becomes ever more significant when considering the feeding of a growth population on a planet with finite land and natural resources.
Our investment radar has alerted us to numerous media on agricultural land buying recently. Bill Gates, dubbed ‘Farmer Bill’, has (with his associated entities) amassed the largest portfolio of private farmland in the US, comprising an estimated 242,000 acres (that’s the size of Hong Kong!).
For private equity funds, the agriculture space has become increasingly attractive. More than 440 private equity funds around the world allocate a portion of their portfolio to food and agriculture and at least 151 funds that specialise in this sector.
We may not all be billionaires with the ability to scoop up land the size of small countries, but proportional ownership has made this sector accessible to many more investors. Proportional or fractional ownership offers entry to investors that may not have been able to access an attractive asset class previously and also enables diversification within the asset class, if that is desired.
Investment returns in this sector can come from yield (cash flow from harvested crop or from leasing land to operators), land value appreciation or forced equity (land enhancements such as changing the land to a higher value crop, or adding infrastructure). Investment opportunities may be a hybrid of these, as we’ve seen in recent listings from MyFarm.
MyFarm specialise in primary sector land-based investments, with recent focus on permanent crops, such as kiwifruit, avocado, wine and manuka. Sungold kiwifruit has been one of the strongest performers for MyFarm investors. Through lease and profit-share arrangements with selected growers and post-harvest operators, MyFarm’s 12 mature Sungold orchards have delivered an average cash return of 10% p.a. during the past three years.
Other past offers cover cherries, manuka and hops, as well as cold store warehousing, infrastructure and even housing for seasonal labour. Opportunities sit at various points on the risk scale, from lower risk well-established orchards or farms, to higher risk investments where there are elements of development.
Agri/Hort investments have traditionally been sought as longer-term hedges against inflation and are often a countercyclical play to public markets or more traditional investments. The growth in proportional investment offerings available now offers a diversity of options in the sector, depending on individual preferences and risk appetite.
You will see a number on Syndex’s Primary and Investment Opportunities markets, with its Secondary Market delivering enhanced liquidity for many of those investments (and a further opportunity to invest).
See examples below:
Rural specialist, MyFarm are offering investors the opportunity to be part of a SunGold kiwifruit fund. Gold Income Limited Partnership aims to purchase up to four geographically diverse SunGold orchards in 2021 and is targeting distributions of 7 - 8% p.a. (minimum of 6.5% p.a.).
Get more information here.
Deep Creek Fruits are raising capital for its next development phase. This includes the purchase of additional land and a dedicated packhouse, built and operated with the latest technology. This is an orchard with young trees with the first harvest due in December.
Get more information here.
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Syndex has over 12,000 investors. In the 2019/2020 year, Syndex hosted 14 independent capital raises introducing over $30m into the private markets. Assets under administration now exceed $4.1 bln across over 250 issuing vehicles; investors have been strategically using Syndex's secondary market to either access investments or cash when they need to.