Special Report: Alterra is moving fast to capitalise on the new demand for farmland brought about by COVID-19, and the partnerships it’s striking that are enabling that speed.
Local knowledge is the key to any agricultural project but now it’s also critical for de-risking an asset class about to enjoy a massive COVID-19 bounce, says Alterra (ASX:1AG) managing director Oliver Barnes.
The COVID-19 pandemic has changed the definition of a ‘safe’ asset and analysts believe more investors will be drawn to farmland in particular, as commercial and residential real estate suffer.
But there aren’t many “scalable doorways” into agricultural projects, says UBS head of real estate Joe Azelby.
In Australia, horticultural developer Alterra is opening those portals faster than expected through local partnerships – farming entities with local know how to operate successful agricultural developments in the regions the ASX company is targeting.
Barnes says these partnerships are allowing the company to prepare for a large-scale direct investment in farmland, changing investors perspective on operational risk and providing access to a safe haven for capital.
Partners are key
Alterra’s model is to find land assets in premium locations which are ripe for repositioning to a higher value, ESG-invigorated horticultural activity.
Its first project is the 300-hectare Carpenters avocado development in the “golden triangle” agricultural region of Pemberton in south-west WA. First planting is expected in the coming months and is expected to be complete within five years. Once complete, Alterra will continue to manage the development on an ongoing basis.
Other partners for this project are regional WA avocado nursery Wildwood, avocado producer Richard Eckersley, avocado grower-packer-exporter French’s Group, and Carpenters landowner Red Moon, an entity related to the Casotti Group, WA’s largest privately-owned fruit grower, packer and wholesaler.
“Local partnerships, such as with French’s Group which has a 35-year track record as a Pemberton avocado grower, are critical because agriculture it’s not a copy paste manufacturing process,” Barnes said.
“There are a number of variables that influence production, so when you invest in this asset class, one asset can differ from another even if the two are located in close proximity. Local generational knowledge of how the soil, climate, and water system interacts with your production system and processes is critical to success at scale.”
Alterra partners with “top tier” producers that have significant capital invested themselves in the sector, with a strong track record of success.
“Accessing historical and future production data from established local partners gives investors transparency and certainty on how they expect their assets to perform.”
Post-pandemic farmland is in demand
Alterra’s model of working with local partners is resonating with sophisticated investors, many of whom are looking for new safe haven assets now the pandemic has wrecked the idea of transport and commercial property as a defensive asset.
Farmland returned a yield of 13.01 per cent last year, according to the Australian Farmland Index, a low year affected by drought, but was still double the return of pre-COVID19 commercial property.
UBS’ Azelby says farmland is likely to be resilient from now on as investors’ seek “pockets of calm”.
“People buy real estate around the world at sometimes ridiculous prices as a place to store capital. We certainly saw that in New York – where five years ago people from all over the world were buying ridiculously large condos at ridiculously large prices,” he told US publication Agri Investor.
“I just think people are going to look for other areas and places to store value and perhaps we’ll see the high-net-worth space engage in the farmland discussion.”
Already in Australia the $207bn Ontario Teacher’s Pension Plan has bought several avocado farms in WA and Canadian PSP Investments bought into a Queensland avocado business.
Barnes says COVID-19 has accelerated investor demand for farmland. Whilst the company expected a shift by institutional investors into horticulture over the next three to five years, that demand is happening now.
“That is not lost on us as a business. While we’re focused on delivering Carpenters, we’re actively growing the business and have a strong pipeline of investment projects. We want to accelerate the drawdown on those projects and prepare them for investment to meet this demand,” he said.
Partnerships which provide on-the-ground experience mean Alterra can move fast with a high degree of certainty.
“These partners allows us to deliver these risk-adjusted investment grade assets and open doors to a new wave of capital to grow the sector,” Barnes said.
“Alterra has a track record already in developing assets having previous developed 18,900 hectares of carbon forestry on behalf of clients such as BP and Origin Energy We recently sold part of our Dambadgee Springs property for $3.1m. Moving forward the company focused on land and water as an asset class and giving investors direct exposure to not only one of the most exciting regions in Australia, but a high growth sector.”
This article was developed in collaboration with Alterra, a Stockhead advertiser at the time of publishing.
This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.
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Barry Stroman was a reporter for Zerg Watch, before becoming the lead editor. Barry has previously worked for Wired, MacWorld, PCWorld, and VentureBeat covering countless stories concerning all things related to tech and science. Barry studied at NYU.