Several secular macroeconomic trends developing around the world also make farmland an appealing investment. Most obviously, there’s the three Fs – food, feed, and fuel – representing basic human necessities. The demand for those can only grow as populations in the developing world swell and mature, which makes investments in productive farms and the commodities they yield even more vital.
But another less obvious one is the need to address water scarcity. Focusing on China and India, which together represent 3 billion people, Johnston said the two nations make up roughly 40% of the world’s population, but only 20% of the world’s freshwater. At the same time, they’re both on a path toward industrialization, which crowds out the use of water for agriculture.
“It’s more profitable to make one ton of water to make microchips than it is to use that water to grow food,” he said. “So as industrializing companies start to ramp up, they go through a dietary transition and increase their dependence on food, feed, and fuel, but they also use their domestic water for industry, which creates an incremental requirement for them to import. When Canada exports a ton of wheat to China, it’s really as if it exported 1,000 tons of water.”
According to Johnston, Canada has among the most competitively priced farmland in the developed world on a productivity-adjusted pricing basis. And from an ESG perspective, Western Canadian zero-till farmland is able to capture material amounts of carbon; depending on the soil type, that equates to between 0.3 ton per acre up to 0.5 per ton per acre in Prairie soils. Veripath’s portfolio, he said, around 90,000 acres of Canadian row-crop farmland across its active portfolios.
“Based on our analysis, we’ve found that a $10-million investment in our funds, whose underlying portfolios include about 70% zero-till soil captures about 1,200 tons of carbon annually, which is about 260 passenger vehicles’ worth,” he said. “So investors in our funds get access to discounted productivity pricing, an ability to reach carbon-neutrality goals they may have, and hedge against negative real rates, which is a nice combination.”