During the 2008 downturn, agricultural investments were one of a few asset classes that demonstrated resilience and even growth by continuing to deliver food and fibre in all conditions.
Historically, many real asset equity and institutional investors see agriculture and timber in the same bucket and have competed for capital. Due to weak economic growth since the 2008 downturn, timber investments have struggled. The decreased demand for building products has hit the sector hard and it has not recovered since.
As a result, more of the real asset allocation has been directed towards agriculture. As investment has increased, so have changes to investment structures and the associated opportunities to better fit investor criteria. These structures have evolved as investor expectations have changed and new entrants to the asset class bring fresh eyes to risk and reward.
Family offices and LP’s are focusing on direct investment which enables investors to directly operate assets by having managers on the ground and having more exposure to operational returns and the associated risks.
As the investment community becomes more active in the ag sector, they are looking to extract additional value from food and fibre enterprises. A key focus is on those investments that are disrupting existing supply and value chains, particularly those meeting new consumer expectations. More and more we are seeing investment partnerships with private equity, REIT’s and private investors allowing for more margin capture and long-term value creation.
A common trend emerging is that investors want more exposure to value chain opportunities that address consumer driven themes, such as the organic sector, high protein and ethically raised food and fibre.