Cream of the crop? Why investing in this asset class, in this environment, is worth a look
Three years ago, Anthony Faiella became a partner at AGinvest Farmland Properties Canada and at first, he admittedly “didn’t know which end of the tractor was up” — farmland as an asset class isn’t taught in an MBA, he notes — but the 30-year industry veteran, who spent over half his career at Merrill Lynch, recognized an opportunity when he saw one.
“Ontario farmland is an asset with a long history of phenomenal growth, and we believe it is some of the best farmland in the world,” Faiella says. “The combination of rich fertile soil, consistency of water and an increasingly longer growing season means Ontario farmers can grow many different insurable crops. The region is a one-day truck drive from 100 million- 200 million consumers and access to nearby ports along the St. Lawrence Seaway means millions more in addressable markets.”
Over the last 70 years, Ontario farmland has shown a compound annual growth rate of 8.2% and the returns have been consistent with few setbacks. In fact, historically farmland values have risen throughout periods of inflation even as interest rates spiked. In the current economic climate, having real assets with proven track records that are uncorrelated to financial assets makes sense and currently less than 2% of farmland is owned by financial institutions.
“Historically, farmland has been one of the best assets to own during periods of inflation. Owning an asset like this protects the value of a portfolio in real dollars,” Faiella says. “Because farmland is primarily owned by farmers, our investors can sleep well at night knowing the value of their investment is based on fundamentals and not on financial market liquidity. It means they won’t wake up in the morning to find the value is down dramatically. Ontario farmland has never had drawdowns like those seen in stocks and bonds in 2022.”
The AGinvest Farmland Properties team, which includes farmers as well as an agronomist, works closely with the community, helping young farmers grow their farming operations while providing older farm families with succession options, and always seeks to improve the soil and productivity of the land. The depth of knowledge the team brings to the table allows them to add value over a simple passive ownership strategy.
“Given that farmland is not well-owned by investors, there is not a lot of farming expertise within the investment community. We understand farming — we are farmers first — and that really is our competitive advantage,” Faiella says. “Over our first five years, our investors have dramatically outperformed both the average increase in Ontario farmland as well as the rate of inflation by a wide margin. We have a process and we have proven it works across four different funds.”
The region is a critical source of the food supply for millions of North Americans and consumers around the world, and consolidating it allows investors the opportunity to benefit from the additional value that will accrue from that, including additional revenue opportunities, procurement opportunities, and the strategic value of owning farmland in this region. Innovation has led to consistent gains in the productivity and efficiency of farms, which has led to those consistent increases in value over the last seven decades, and “given the commitment of capital towards agricultural technology funds, we believe that trend should continue.”
“There’s lots of wind at our backs,” Faiella says. “And we want to continue adding value for our investors.”