Long term food producers (farmers) have noticed the positive sentiment that’s been rolling over the ag sector in recent times. An evolving situation of increasing world income, a growing population – particularly the wealthy middle class; greater appetite for amplified consumption of protein, and an at best constrained capacity for increased productivity (at least in the traditional sense), all suggest a cautiously positive outlook is here.
Corporate ag investment, could provide opportunities for co-investment or alternatively is this the time to cash in on years of diligent and painstaking investment in the family farm? Other than financial returns what other factors are investors taking into account?
There are however others who have noticed this change in sentiment. The changing fortunes for ag has shone the opportunity spotlight on future food production for the investment community. As far as big business is concerned, it now must seriously consider including agriculture in an investment portfolio or run the risk of missing the “next big thing”.
In a recent post on the Global Ag Investing website (article here), David Gray, Senior Advisor to the London based global investment advisory services company Altima Partners, raised a new concept which helps explain how corporate money will look at future agriculture investment.
Impact, Sustainability & Health (#ISH) are core elements of successful corporations and are embedded in not only their investment philosophy but also in their doctrine and modus operandi. These will therefore become non-negotiable essential elements to be considered in any investment decision.
Fortunately, these are key principles of modern farming; farmers are good stewards of their land, are concerned about animal welfare; it is in the commercial interest to farm sustainably.
Broadly speaking, investors will have similar objectives to farming families; preserve the asset, make some money and do the right thing. Sounds simple and logical but there are nuanced differences in approach though, are this is where it gets interesting!
The investor will focus on two key elements
Do the right thing
The idea of “doing the right thing” lines up across a range of objectives. These principles align with increased revenue generation, as well as the social aspects of farming. It also becomes a risk management strategy; building a sustainable farm business not only contributes to the ability to deal with the normal farming variability (seasonal & markets), it also puts in place processes to protect and enhance the company reputation. Corporates are continually managing their reputational risk, aiming to be seen as good corporate citizens to both investors and the wider community. Any bad press can have serious negative implications for the business (and the share price) and is to be avoided at all costs.
Measure and report on “doing the right thing”.
This is the area that bemuses “traditional” farmers. The corporate investor will want to retain detailed records of what they do in regard to #ISH. For them, it’s not enough to do it, they need to be able to prove they do it!
This will mean that reports to investors, shareholders and anyone else interested, will outline in detail “when, how & why” trees are planted, erosion gullies are managed, and animals are treated. Positive stories are good for the business reputation.
It also follows that if you are going to report on it, you will want the report to contain good news. This means that the corporate ag investor will steer clear of any practices that will reflect badly on the business. Misuse or overuse of fertilizer, land clearing and mulesing are examples of practices they would struggle to explain and will therefore not want to have as part of the farm management practice.
On the positive side, they will set aside land for wildlife, introduce new technologies to improve efficiency and increase productivity, reclaim degraded land, implement water saving ingenuities and carbon reduction initiatives. They will “champion” activities that demonstrate then as good corporate citizens. Progressive ideas make wonderful reports to investors.
If we are to engage with these new ag converts traditional farmers will need to also embrace these ideas. The #ISH is an opportunity for the current farmer; we need to understand and learn from our new farming friends. Impact, Sustainability & Health are established corporate buzz-words – expect that they will quickly also become part of our ag language.