While the coronavirus crisis is impacting many real assets, people still require food and therefore still require farmland.
The asset class is a stable one and a long-term diversifier, says Bernice Miedzinski, president of StarBridge Capital Ltd., noting the current low-interest rate environment is challenging. “Even thinking about a plain vanilla strategy, investing in Canadian farmland, or a sell-and-lease-back strategy, that could be quite attractive in a liability-driven investing portfolio.”
Farmland also has opportunities to assume greater risk, or private equity-like risk, such as taking exposure to operations in addition to just land. Opportunities also exist globally, she adds, referring to countries like the U.S. and Australia. “There’s quite a broad range in terms of how you can access the whole agri-value chain. But I think it’s really thinking about what’s in your portfolio and how diversified you are currently and then where you have gaps.”
Investors may want to be cautious of emerging markets, however, because concerns exist from a geopolitical standpoint. “I think there’s a lot of concern right now about emerging markets . . . . I would say that we’re seeing an interest in sticking where there’s a comfort level or the rule of law and knowing that your investments are pretty safe, etc. and that we really are collaborating with partners that will be there long term to support us.”
From a policy-maker standpoint, there are also key considerations around supply chain. The timing of the pandemic was good in terms of food security because Canada is more reliant on other supply chains for food in the middle of the winter. As such, policy-makers may focus on doing more locally or regionally, says Miedzinski.
The pandemic is also accelerating macro trends, like the rise of e-commerce, which can affect the food system and create opportunities. For example, she expects to see more private equity managers enter the vertically integrated farmland and agri-food space.
Further, technology is accelerating and creating opportunities for investment in green houses, land-based fish farming, plant-based alternatives and more. And opportunities on the innovation side are likely to emerge as high technology and biotechnology converge.
Overall, the coronavirus pandemic has highlighted that institutional investors need to think about diversification in a broader way, says Miedzinski, noting they need to consider the unknown and risks. “Obviously, coronavirus is a huge shock to the system, but it makes us rethink things about the exposures we have that we didn’t recognize. Now, obviously, the next crisis is not going to be like the last crisis, but you never want to let a crisis pass without learning from it.”