Will rising institutional ownership of Australian farmland help sustainability?
Australia’s leading farmland investors are emphasising a supportive political and regulatory environment and ESG benefits for the sector as institutional ownership is poised to rise.
“Australia is renowned for its welcoming business environment and transparent regulatory environment, which foster a positive climate for investment,” said a spokesperson for Canada’s PSP Investments, the $178 billion (C$243.7 billion) pension fund for Canadian public servants.
The Canadian pension fund is the largest single investor in Australia's agricultural sector.
PSP Investments increased its allocation to the sector from A$6 billion to A$7.5 billion in 2023, according to research by The Weekly Times, an Australian rural news service, shared with AsianIvestor.
The spokesperson also pointed to Australia’s favourable Asia Pacific location and developed agricultural technology and practices.
“Australia offers farms with exceptional scale, has robust and vibrant farming communities, is close to Southeast Asian markets, and has multiple climates that enable the production of a wide variety of commodities across seasons.
"The country is known for its sophistication in agriculture - particularly in relation to stewardship of the land and sustainable farming - and offers opportunities to move beyond the farmgate further up the value chain,” the spokesperson added.
ESG BENEFIT
Growing investor ownership of farmland is vital to the prosperity of an industry at risk from waning interest from younger Australians.
“The younger generation is not so interested in farming, but Australian agriculture is crying out for investment because we are such an export-focussed nation and there is so much extra capacity for it to grow,” said James Wagstaff, editor of The Weekly Times.
Nuveen Natural Capital
“Whilst the majority of farms globally and in Australia continue to be owned by farming families, it is likely that we will continue to see increases in corporate and investor ownership given the generational transition of an aging farmer population,” said Martin Davies, global head of US-based Nuveen Natural Capital.
The company manages the co-investments by Teachers Insurance and Annuity Association of America (TIAA) and US pension fund College Retirement Equities Fund (CREF), and is wholly owned by TIAA.
The TIAA-CREF investments, which are the third largest, after PSP and Macquarie Agriculture, increased from $2.2 billion in 2022 to $2.5 billion last year, according to The Weekly Times research.
Nuveen told AsianInvestor its third-party business, has seen more than $2 billion flow into its funds over the past five years, which currently have assets of about $12.4 billion.
Davies said that the ability of investors to serve as buyers of assets that younger Australians no long want to farm, as well as their capacity to improve rural infrastructure, provided an important sustainability benefit to the sector.
“We see investment into natural capital assets as a good way of improving wealth and equity in rural areas via job creation, improvement in rural infrastructure and local services,” added Davies.
US CONCERNS
Five of Australia’s 10 largest farmland investors, with combined allocations worth A$12.5 billion, are Canadian.
Australia’s encouragement for foreign investors contrasts with ambivalence among lawmakers in the US, who worry that growing ownership by investors could make agricultural land unaffordable for the next generation of farmers.
In the US, where roughly 60% of US farmland is owned and operated by farmers, average cropland prices grew from $2,700 in 2010 to $5,460 in 2023, a record high, according to the US Department of Agriculture.
It estimates that foreign ownership and investment in US agricultural land has grown almost 50% since 2017, and now stands at 41 million acres, with a total value of $73 billion.
According to the US National Agricultural Law Centre, approximately 24 states specifically forbid or limit non-residents, foreign business entities, or foreign governments from acquiring private agricultural land.
US lawmakers have also raised concerns about the national security risks of allowing potentially hostile countries to own large swathes of land.
A January report from the US Government Accountability Office noted that "Members of Congress have expressed concern that some foreign investment in U.S. agricultural land, such as land purchased near US military bases or land purchases that could lead to foreign control of US food supply chains, may have national security implications."
Congress considered provisions as part of the 2024 National Defense Authorization Act that would have established additional requirements related to potential national security threats related to foreign-owned agricultural land, although these were ultimately rejected.