The Canada Pension Plan Investment Board is about as Canadian as an institution can be — except on the Saskatchewan prairie, where it has in effect been labelled an outsider.
Saskatchewan has outlawed all pension funds from buying farmland in the province. It was a move to clip the ambitions of the board, one of the world’s largest pension fund managers, which had already scooped up 46,500ha, and to calm a powerful constituency of farmers in the country’s agricultural heartland.
“We do not need ‘Wall Street’ investors speculating (sic) on our farmland,” a resident wrote to the province’s agriculture minister ahead of the policy change.
The wheat, canola seed and barley fields of Saskatchewan are among the many fertile regions that big money has been scouting for land — and has been encountering conflict.
Financial investors own tracts that grow maize and soya beans in Illinois and Uruguay, almonds and cattle in Australia, and sugar beets and wheat in Poland. Some are venturing into countries with potentially volatile politics, such as Ethiopia and Ukraine.
The size of investors’ war chest is growing. Last year, 17 farmland or agriculture funds raised $3.9bn, up from the $500m raised by five funds in 2009, according to data provider Preqin.
Chris Erickson of consultancy Parsonage Lane Advisors estimates that asset managers, pension plans and sovereign wealth funds have invested $42bn-$45bn in farmland globally, and others see a notable uptick.
“Over the last 10 years, it has started to gain traction as a staple in an institutional real asset portfolio,” says Brent Burnett, the MD of Real Asset Portfolio Management.
The asset class is attracting more attention as investors bet that people will eat richer food on a more crowded planet. As populations and incomes grow in developing regions, rising demand for meat, dairy and nuts is transforming farmland.
It has also reaped good returns: in the US, a national farmland index has routinely racked up annual gains of more than 10%.
The largest private farmland investor, TIAA, has amassed more than 650,000ha in the US, Brazil, Australia and eastern Europe in the past decade.
The US-based asset manager, which was founded to serve university lecturers, has just closed a second $3bn farmland fund. A recent presentation touted a $2bn pipeline of more than 100 farms.
Jose Minaya, the president of TIAA’s global real assets division, says the group seeks to buy land in big agricultural-exporting countries and lease it to farmers, with plans to hold the properties for 20-30 years. He estimates less than 1% of “institutional quality” farmland is in the hands of financial investors. “You are in the very early stages of this,” he adds.
Farmland is not a uniform asset class. Countless factors affect value.
Assembling fragmented parcels into one is a costly, time-consuming process. Many promising countries lack good roads, a solid rule of law, or both.
But some investors are trying. Based in New York, the $3bn NCH Capital has accumulated about 650,000ha across more than 80 farms in Ukraine and Russia, making it one of the world’s largest farm operators.
Duxton Asset Management of Singapore has more than $300m in direct farming investments in 12 countries as diverse as Argentina, Australia, India and Tanzania, says MD Desmond Sheehy. It has operations on 520,000ha cultivated by 500 managers and more than 13,000 workers.
“We tend to invest into actually growing the product,” Sheehy says. “Most investors shy away from that, because of the potential reputational risks.”
Farmland investing entered the public consciousness after the 2007-08 food price crisis, when grain shortages led to panic buying, and investors piled into agricultural enterprises. A report by the Organization for Economic Co-operation and Development and the United Nations Food and Agriculture Organization said it had led some investors “simply to speculate on land prices”.
Prices of agricultural commodities have fallen to their lowest levels in a decade amid bumper harvests and weaker government support for biofuel. Some would-be sellers have consequently clung to their land.
Some nongovernmental organizations decry large-scale acquisitions as “landgrabs”.
Devlin Kuyek, a researcher with Grain, a Spain-based non-profit organization that supports smallholders, says the term defines land ownership as a political issue.
“We don’t see it just in terms of legal definitions. It has a lot to do with legitimacy and who has legitimate rights to that land, and also the model of development.”
Several US states prohibit corporate ownership of farms. Investors in many parts of the world may lease, but not own land.
Brent Bechtle, the head of farm funds at Proterra Investment Partners, views farmland as “kind of an emotional sector. People get nationalist about it. They get patriotic. That’s true everywhere.”