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Westchester Global Thoughts newsletter: Fall 2019
Are we going to end hunger by 2030?The answer matters to one in every nine people in the world, or put differently, 820 million people will go to bed hungry every night. Changing this situation is an urgent task of our time and farmland is an intrinsic part of the solution. The commitment to end hunger was made by all 193 United Nations Member States in 2015. At the end of 2018, Westchester managed more than 2.1 million gross acres in 7 countries, the largest manager of farmland assets globally. Responsible investment in agriculture and food systems is essential for enhancing food security and nutrition. It requires respecting, protecting, and promoting environmental and social aspects when addressing the investment objectives of our clients.
Takeaways from Westchester’s Director of Sustainability, Andre Chaves, after attending the Committee on World Food SecuritySitting in the plenary of the 46th Committee on World Food Security (CFS 46) this fall, I saw firsthand an international and intergovernmental platform at the FAO in Rome discussing that challenging the status quo is necessary to address such an immense issue. To measure and manage impact will require innovation. There will be a growing number of people deploying intellectual capital and energy, particularly women and youths. Interestingly, one speaker reported that for “every man made crisis there is a youth or female made solution.”
Westchester is committed to increasing agricultural productivity and production through resilient agricultural practices on land managed for its clients. Likewise we are committed to provide clients and stakeholders with information for measuring specific social and environmental impacts.
These types of events serve to create further momentum for enhancing our Environmental, Social and Governance (ESG) framework to track and benchmark sustainability performance across our global portfolio. This business-wide approach will allow us to gather data and use statistics to communicate performance. These activities are far from trivial and will require extra effort. Ask yourself how many people and tools are employed to meet financial reporting requirements? Now, ask yourself how many people and tools are employed to meet environmental and social reporting expectations? The imbalance will give you a good idea of the extra effort required.
Westchester acquired Willyama, a large-scale row crop property located 80 kilometres east of Esperance in Western Australia in 2017. The property has a total area of 9,432 hectares with 7,924 hectares of good arable crop land.
Partnering with farmers who practice sustainable and integrated farming systems in AustraliaThe tenant of the property, the Fowler family partnership, is a diversified business owning and leasing land in the 540 millimetre Esperance rainfall crop zone. Producing canola, barley, wheat, lamb, wool and beef, Andrew Fowler works in partnership with his two brothers Tim and Simon, who along with their wives and their parents are all involved in the business. Andrew is a Nuffield Scholar and was the 2011 Australian Grain Grower of the Year. He heads the cropping part of the business with Tim, while Simon manages the livestock enterprises.
Andrew has developed an integrated and sustainable system for managing high rainfall farmland in this area and has proven systems to manage the unique characteristics this area presents, including:
- drainage needs
- crop and grazing legumes rotations
- liming and
- soil profile management through sub-soil cultivations that reduce compaction and also assists in reducing water logging in wet seasons and allowing their crops and grazing legumes to access deeper soil moisture in drier seasons
Soil fertility is being built from liming, and high density legumes. Livestock grazing helps with weed control and combating weed resistance. This fully integrated farming system assists in reducing crop inputs. Diversified income streams from cropping and livestock also give the business strong resilience in a tough farming environment, reducing risk for their business through crop price volatility and weather challenges.
With their innovative approach to sustainability the Fowlers are an excellent example of the dynamic, entrepreneurial farming businesses who Westchester seeks to work with.
Almond properties have been a large component of Westchester’s California permanent crop portfolio. Strong, consistent returns position Californian almonds as an attractive investment. Recent initiatives have allowed Westchester to combine its global reach and demonstrated permanent crop expertise to introduce further geographic diversification to this almond exposure.
Huddersfield Almond Development: providing diversification and leveraging Westchester’s horticultural expertiseWestchester’s Global Horticulture and Australian investment teams recently collaborated to establish an Australian almond development – Huddersfield. The property consists of approximately 870 planted hectares located in Darlington Point, New South Wales, approximately 480 kilometres west of Sydney and 370 kilometres north of Melbourne. This area is in an agricultural region known as the Riverina, recognized as one of the top almond growing areas of Australia due to its climate, stable water supply, productive soils, and availability of open land for development.
Within the investable universe of horticultural crops, the thesis for almond investment continues to be compelling given growing consumption of plant-based proteins and healthy eating trends. Surging demand for almonds is further supported by their diversity of uses, which range from whole nuts to further processed nuts that are blanched, sliced, diced, converted into flour, and made into almond butter. Almonds benefit from their limited perishability and high degree of storability, together resulting in a long marketing window that contributes to reduced price volatility. The highly mechanized nature of almond cultivation offers further operational benefits. A number of barriers to entry, most notably the limited availability of land with suitable climate, soils, and water supply characteristics, limit long-term supply growth and should support prices globally.
As a southern hemisphere almond producer, Australia has certain marketing advantages due to the timing of its harvest season. Proximity to and advantageous trade agreements with key Asian markets provide further benefits. Differences with California in climatic and water supply characteristics additionally support the concept of portfolio diversification. Expanding geographically also offers broader gains through the exchange of ideas and practices between the two countries. Examples include Australia’s wider adoption of pulse irrigation practices, moisture-monitoring technology, and variety specific irrigation design and automation.
Beyond the merits of investing in the country of Australia, the Huddersfield property offers many competitive advantages that increase its investment potential. The property is located just 32 kilometres south of Griffith, a major regional city in NSW, which improves cost efficiencies, labor availability, and accessibility to farm services. The property also has a dual source water supply from both on-site wells and the Murrumbidgee River, providing enhanced irrigation water security that is critical to the long-term success of the project. Finally, the higher clay content and cation exchange capacity of the property’s soils are anticipated to offer greater yield potential.
The Huddersfield project is illustrative of Westchester’s unique ability to leverage its global perspective, strong local teams and in-depth crop expertise to evaluate, pursue and execute an investment strategy that will increase portfolio diversity and improve investment returns.
Plata Wine Partners, LLC (Plata) 91% owned by Westchester and 9% owned by management.
Introducing Plata Wine Partners, LLCPlata is a full-service wine company which provides winemaking and marketing services to create and sell value-add products to third-parties from Westchester managed vineyard portfolios. Plata is a team comprised of six employees including a winemaker, salesperson, controller, operations, and accounting. It offers Westchester managed vineyard portfolios alternative grape marketing opportunities from contract and spot-market sales to selling grapes as bulk wine to third-parties and strategic brands for retail customers. Approximately 7% of Westchester’s annual grape harvest is sold through Plata.
For bulk wine sales, the Westchester vineyard team negotiates pre-harvest bulk wine contracts with winery customers, then due to licensing requirements, Plata’s award winning winemaker Alison Crowe turns the grapes into bulk wine for our clients.
Plata also develops custom labels and wines for retailers, both off-premise and on-premise restaurant and hotel concepts. Retail customers include Costco, Total Wine & More, BevMo and Trader Joes. The exclusive wine program for retailers allow them to showcase wines their competitors do not feature and offers their customers unique wines to increase foot traffic.
Plata works closely with the retail customer to:
- create branding concepts with great stories and superior packaging
- craft wines that match the target profile the retail buyer is looking to achieve
- deliver a sales distribution network for just in time inventory with a flexible supply
Plata began in 2005 with its first harvest. Since then the company has experienced strong growth and in 2019 produced 300,000 cases of wine. The continuing support from Westchester provides a platform for ongoing growth in the coming years.
Westchester’s 2018 Farmland Report highlighted the donation of a village site called São Bernardo to the NGO Abaçaí in Brazil to preserve local heritage. This article outlines Abaçaí’s unique work, their history and impact on local communities and São Paulo region.
Highlighting Abaçaí’s cultural work in São Paulo state, BrazilAbaçaí began 40 years ago with the goal to catalogue the cultural history in São Paulo’s state, where Westchester manages the largest amount of hectares in Brazil. After completing the research and compiling the cultural events, Abaçaí organized a fair that educated the broader public on their findings. The inaugural fair took place 15 years ago and has grown in relevance and size since then. The last fair hosted more than 200 delegations/exhibitors to display their local heritage in the format of dishes, flavors, smells, as well as folkloric religious processions, dances, music and rituals. There is no equivalent fair in Brazil.
When it comes to folkloric religious processions, the NGO catalogued more than 450 groups performing Folia de Reis, a Portuguese religious festivity that was brought to Brazil in the 18th century. In the fair there are more than 300 cultural expressions, of which Folia de Reis is one. According to Abaçaí’s founder and cultural director, Toninho Macedo, “there is this thing about people’s enchantment when watching the groups, their stories and trajectories. That enchantment allows for our history to flourish.” To give you an idea of scale, 1.2 million people visited the fair’s last edition, which took place in a municipal park at São Paulo.
Now Abaçaí has a permanent place to welcome its friends and family, the São Bernardo village. In 2019, the NGO hosted 2 events with roughly ten thousand visitors attending. The birthplace of renowned modern artist Tarsila do Amaral is located in the village. The house was made out of cob wall, something unusual given the scale and age. There are also remnants of a coffee plantation and its drying yards. All of it is now considered a historical heritage site by the state government for its cultural importance and uniqueness. Westchester is pleased Abaçaí is able to protect the heritage and cultural significance of the São Bernardo village.
Please follow this link to see footage from Abaçaí’s fair. The audio is Portuguese but the images speak for themselves. This is one example of a positive social outcome of Westchester’s responsible investing approach in the region.
Watch Abaçaí’s fair on YouTube.com.
While the careful use of water has always been a priority to Westchester, the passage of the Sustainable Groundwater Management Act (SGMA) by the California legislature in the fall of 2014 further emphasized the importance of water resource management.
Addressing Sustainable Groundwater Management Act (SGMA) Challenges: California Water Recharge Basin ProjectThe adverse impacts likely to result from SGMA implementation, such as limitations on groundwater extractions, have prompted Westchester staff to work diligently in pursuit of viable solutions. One key strategy is the creation of groundwater recharge basins – sites capable of receiving deliveries of excess surface water, which then percolates through the soil and recharges the underlying aquifer. There are limited sites that are suitable for development of such basins, as they must have ready access to surface water deliveries and contain sandy soils that allow for rapid water percolation.
In the third quarter of 2019, Westchester completed the construction of a 16 hectare recharge basin adjoining a 405 hectare property targeted for pistachio development. Westchester estimates that the project will recharge an average of 678,000 cubic meters (678 million litres) of water per year, an amount sufficient to ensure sustainability in the underlying aquifer in addition to meeting the irrigation needs of growing the crop. Through this investment in sustainable groundwater management, investors are able to achieve a twenty year internal rate of return of over 14% while also reducing long-term water supply risk.
Projects such as this are representative of the type of proactive management Westchester employs to improve property returns and benefit the environment.
The views and opinions expressed are for informational and educational purposes only as of the date of production/writing and may change without notice at any time based on numerous factors, such as market or other conditions, legal and regulatory developments, additional risks and uncertainties and may not come to pass. This material may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections, forecasts, estimates of market returns, and proposed or expected portfolio composition. Any changes to assumptions that may have been made in preparing this material could have a material impact on the information presented herein by way of example. Past performance is no guarantee of future results. Investing involves risk; principal loss is possible.
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As an asset class, agricultural investments are less developed, more illiquid, and less transparent compared to traditional asset classes. Agricultural investments will be subject to risks generally associated with the ownership of real estate-related assets, including changes in economic conditions, environmental risks, the cost of and ability to obtain insurance, and risks related to leasing of properties.