Permanent Cropping – the organic economic advantage
In terms of investment performance, it is hard to go past permanent crops and kiwifruit in particular. There is currently a unique set of circumstances prevailing in the kiwifruit sector that has created a window of advantage for a certified organic approach.
This applies to bare-land development of gold organic kiwifruit orchards. The supply of suitable land is limited so the ability to access the opportunity is restricted. Nonetheless we are finding good opportunities and feel availability will quietly increase.
Historically, this is a sector that offshore capital has been either unaware of or unable to access.
Perhaps the finest example of offshore capital missing out is a property that could have been acquired for $26m but wasn’t and sold 6 months later to a domestic investor for $42m, whilst delivering a 15% annual yield. It was most recently valued at $60m….around 2 years later.
Regenerative Dairy – the investment and operating environment has never been more favourable
The landscape for dairy investment and operation in NZ has changed dramatically. The changes favour a regenerative approach and this trend will only accelerate in our view.
The changes are regulatory, primarily connected to water quality and climate change. In the case of the latter it is more implied than actual currently but it is undoubtedly coming.
As we have covered previously, the impact extends to OIO with those seeking to allocate to orthodox, exploitative and unsophisticated high input, environmentally damaging farming systems, effectively sent home to think again.
These changes are also impacting at the NZ operator level as well, as farmers seek either a way out (exit) or a way to change their management system so they can stay in business.
Regenerative systems that benefit operator, environment (on farm and catchment) and create the ability to generate higher value production are as a result well positioned to succeed and expand significantly.
Investment in the Regenerative Agri Sector
The ability to drive change and improve outcomes in the agricultural sector (environmental and financial) is genuinely exciting and impact investment is a powerful and obvious pathway to achieving it.
It needs, however, to move beyond conceptual discussion, to practical implementation and the commitment of capital. It does not need to be designated ‘impact capital’, but simply capital being allocated to a definably and measurably regenerative/ecological based operating strategy. The key point being, that the strategy itself is impact.
To date, globally, we are still only seeing a small percentage of what is required to bring about genuine impactful transformation. There is much discussion and trumpeting of the need to move towards more ‘sustainable’ farming practices. If we consider the amount of investment capital allocated in the space it is overwhelmingly into high input monoculture. Within that a dominant % is allocated to producing commodities for use in animal feed (corn, soya etc.). Essentially the majority of capital allocated into the agri-sector is by definition unsustainable.
Currently, agri-investment is failing to drive transformation in farmland management systems. Those publicising/reporting their ‘change’ more often than not are changing inputs in the management system when it is the entire system itself that needs to change.
Presentation says one thing and the money says another. More effort is made, it seems, on ESG reports and press releases than actual regenerative farming strategies; on actually making the operational transformation needed to change the damaging impact of agriculture on the environment. The irony being that alpha, outperformance, or whichever label you select, is sitting in the regenerative organic sector waiting to be captured.