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Westchester Global Thoughts newsletter: Spring 2019

Green field with red shaded path

During one of the wettest springs in memory for the Midwest and South of the U.S. – at the time of writing only 30% of U.S. corn crop was planted against a 5 year average to the same time of 80% – it is difficult to imagine the contrasting, perfect summer growing conditions that predominate in the Midwest corn and soybean growing region.

Mapping the wheat genome

In 2018, the tenants who lease the 41,000 acres Westchester manages in the Midwest continue to report impressive year-upon-year yield gains for corn and soybeans. Precision agriculture and more sophisticated fertilizer application contribute to these gains, but significant advances in genetics continue to be the main driver of yield gains.

The same gains in yields are not seen elsewhere in the world. Yield improvements have lagged particularly in the wheat crop. A major project completed in 2018 could change that. Two hundred scientists from 73 research organizations in 20 countries led by the John Innes Centre in the UK have identified the composition of 21 wheat chromosomes and the precise location of 107,891 genes.

The potential to use novel genome editing techniques such as CRISPR/Cas9 to make wheat more resistant to drought and disease, to raise yields, or make the crop more nutritious is clear. In Europe where wheat is a major crop, it is disappointing that this potential will be handicapped under current regulations. The Court of Justice of the European Union last year ruled that plants that have been modified by such technology would count as GMOs. Undoubtedly such technology alters the genome of organisms, but these modifications are indistinguishable from random mutations which have been used in plant breeding for centuries.

In the seven countries where we invest globally, trade agreements, tariffs, and their impact on agriculture continue to be a topic of discussion particularly in the U.S. Articles in the news recently focused on falling U.S. farm incomes and farm debt as a result of the tariff-driven pressure on commodity prices.

In troubled commodity markets, the efficiencies in machinery use and ability to procure inputs at lower prices that come with scale are vital to maintain farm incomes. Bringing capital to the agricultural industry and providing opportunities for farmers to achieve scale and spread overheads by expanding through leasing land, beyond the core acres they own, is vital for future prosperity. Westchester is committed to long-term ownership and leases which facilitate this.

Over a 5-year time frame it is claimed that 10% of the 911 million acres of U.S. agricultural land will change hands – on an annual basis 1% changing ownership through inheritance, gifting, or closed sales, and 1% or 4.25 million acres sold in the open market. In Australia we frequently see our acquisitions associated with succession, where sales and lease backs allow for retirement, buying out siblings, and continuation of the business.

Institutional capital will be important to enable the structural changes that need to take place. Noting the extension on the moratorium on a land market in Ukraine in January 2019, a pragmatic government approach that recognises the contribution of institutional ownership to the agricultural sector is welcome.

By Greta Lupa 
Country Manager, Romania 


Family business commitment to developing an organic farm in the west part of Romania.

Eurovo Group is an important international player in the egg market, starting as a small family business after the Second World War. That was when the founder, Ranieri Lionelli, started trading eggs as payments for other goods he distributed by bicycle. Now, the three-generation Lionello business has developed into an international company with markets in more than 60 countries.

One of the important decisions that the business made was to invest in emerging markets and in the integrated agribusiness sector — from a day-old chicken through egg production into distribution to supermarkets to meet the demands of the food industry and other sectors.

Through time, the Lionello family invested in agricultural operations to help manage risk and to provide a direct source of raw materials and to be able to control and source organic feed from known origins and with full certification and traceability.

The relationship with Westchester started with the lease of just over 3,400 acres in the west part of Romania, in Timis County near one of Eurovo’s three chicken farms. The land is the source for the organic feed needed for the chicken farm, where the organic eggs are produced before being shipped to Italy. This lease represents the only partnership the family has with a farmland investor.

Since the lease commenced the Eurovo farming team has invested in drainage channels to improve land conditions and modernized the reception base for the organic production to around 8,000 tonnes. The organic agriculture is a real challenge in itself, as it involves production by respecting nature, without conventional farming practices such as chemical and fertilizer inputs that would boost production. The farming team is dedicated to improved results by understanding nature’s cycle: its seasons, soil types and the variability in Romanian climate with sharp temperature changes and unpredictable weather conditions.

Since entering Romania, the agricultural business of Eurovo has grown to 12,500 acres of all organic production, which can now supply a good share of the organic feed for the chickens. The focus of production is on wheat and soybeans with sunflower and oilseed rape included for crop rotation. Westchester continues to work closely with Eurovo farming division to identify good land that can be transitioned into organic production. The next focus of improvements will be to invest in irrigation systems to control water availability.

By Pedro Pontes
Commercial Manager


Leadership in Brazil: Raízen’s people development efforts impact workers, communities, and the industry.

Brazil is home to a vibrant, thriving, and advanced sugarcane industry. As the world’s largest sugarcane ethanol producer, the country has been a progressive pioneer in the development and use of the ethanol business. So progressive is its production and use of sugarcane that the country produces roughly one third of the world’s sugar and a significant percentage of its ethanol.

Westchester Group South America (WGSA) currently manages 207,000 acres of crop area leased to Raízen in an area responsible for producing sugarcane that supplies 17 mills of the company, making it one of the most relevant tenants in WGSA’s portfolio.

Raízen is a joint venture of the Brazilian Cosan and Anglo-Dutch Shell groups. It is an energy company with more than 30,000 employees and one of the highest revenues in Brazil (BRL 86.2 billion or about $22.4 billion USD). Raízen operates more than 6,400 Shell fuel stations and 950 Shell Select convenience stores. With 26 sugarcane mills, Raízen Energia produces roughly 2.0 billion litres of ethanol, 4.2 million tons of sugar, and 940 MW of electricity.

The company is committed to ensuring a safe, collaborative, and innovative work environment, keeping its efforts to educate the employees and partners about workplace safety. For the last two years, Raízen held two editions of Safety Day, educating the staff about the risks inherent to each operation performed internally. Further, they developed specific actions and materials to engage the participants. In 2018, it reinforced the theme in a more personal way, through the mottos “My life is what matters” (self-protection), “My colleagues’ lives matter” (intervention), and “My family life is what matters” (domestic security). On top of that, Raízen continually includes targets for the management team related to the development of a culture of safety in the workplace. The objective of technically improving the team has shown significant positive results. During the last crop season (2017/18), 11 accidents were identified with no fatalities, against 233 occurrences in 2011/12. Raízen continues, however, in its relentless pursuit to a zero-accident standard.

Besides their commitment to security and safety, Raízen is also engaged in various social projects. Its greatest, the Raízen Foundation, was built to engage the community, offering professional qualification, education opportunities, and civil responsibility opportunities. Created more than 10 years ago, it has already served approximately 5,600 students and more than 800,000 people through community actions.

The Foundation is present in seven key areas and is distributed in some municipalities where Raízen operates in the States of São Paulo and Goiás. Through the Social Responsibility area, Raízen also recently completed the first stage of the Qualification Program for People with Disabilities. 500 job offers were made available for the qualification of people in these conditions across communities in 10 different municipalities.

While these programs exemplify Raízen’s forward-thinking, proactive involvement with their people within and throughout the industry, several challenges remain. Labour issues include a drop in labour-force availability and increasing enforcement of the Labour Law. Additional challenges come from foreign investors entering the market with higher or different standards/expectations. New demands continue to evolve from the market, especially as companies learn to understand the necessity for sustainable and solid growth. Further challenges permeating the agribusiness culture include transitions to social and safety policies as they become mandatory.

Leadership is not new to Raízen. It continues to provide an exemplary leadership role for its people and its products across this important sector.

By Brian Hauss
Vice President, Investment Manager, Horticulture 


Westchester partnership with Ceres imaging increases water use efficiency

While the careful use of water resources has always been a priority to Westchester, the passage of the Sustainable Groundwater Management Act by the California legislature in the fall of 2014 further emphasized the importance of efficient water management practices for large-scale agriculture.

At Westchester, we continuously seek to identify new technologies that aid in capturing and conserving this vital resource. In conjunction with our team of on-site farm managers, we carefully evaluate the effectiveness of our irrigation and fertilization programs. One tool that we have found useful in helping to accurately evaluate the effectiveness of our programs is high-resolution aerial imaging.

Since the fall of 2014, Westchester has utilized this technology to optimize water and nitrogen use. Currently, the technology is deployed on 23 orchards located in the San Joaquin Valley and on several coastal vineyards. Mounted on planes flying at relatively low altitude, Ceres uses high-resolution cameras to capture data that, when analyzed using their propriety algorithms, can analyze tree stress, nutrient status, and water distribution uniformity within an orchard or vineyard.

The flights occur once per month during the growing season and the data guides the on-site managers to areas within the orchards that require attention.

Our farm mangers work closely with the staff at Ceres to evaluate the images to identify areas of stress or low vigour as well as to determine the likely cause of the problem. This technology has aided us in identifying issues such as irrigation system design flaws, plugged valves, changes in soil characteristics, and soil permeability problems. With multiple flights during the growing season, the images can also gauge the progress made in resolving the issues identified.

We often acquire orchards and vineyards that have been planted by the previous owners. These properties commonly have older, inefficient irrigation systems. Using the imaging technology, we can quickly identify issues and make the necessary upgrades. When we combine the information provided by the aerial imagery with the soil moisture monitoring technology we put in place on every ranch, our on-site managers have the tools needed to ensure that the irrigation system is operating efficiently and that real-time crop water demand is being met.


CERES article
By Douglas Pellegrina
Portfolio Manager


Carbon footprint

Westchester is no stranger to tackling big issues. Challenges are welcome and Westchester personnel around the globe regularly take on difficult, complex issues and find innovative solutions to address and resolve scenarios.

Westchester has taken on the challenge as part of a broader discussion on how to promote the balance of The Greenhouse Effect phenomenon.

Let’s start with some basic background. The Greenhouse Effect is a natural phenomenon that keeps the planet’s average temperature stable throughout the day and night. Most of the gases responsible for the greenhouse effect are not harmful to the earth’s climate and do not fall into air pollutants. Among the various gases that can absorb infrared radiation, the most abundant are water vapor and carbon dioxide (CO2). Gases that trap heat in the atmosphere are called greenhouse gases (GHG).

The increasing human development of the last decades has contributed to an imbalance of the composition of the atmosphere, with an impact on the natural cycle GHG. With the historical increase in the concentration of some GHGs, the retention of energy in the atmosphere tends to increase, raising the average temperature of the planet. Studies published by the Intergovernmental Panel on Climate Change estimate that the average temperature of the planet may increase between 3° C and 4° C by the end of the next century if GHG emissions remain at current levels.

Immersed in this context, Westchester has engaged to calculate the 2017 carbon emission from its global offices based on GHG Protocol methodology.

From the limits setting, the emission sources are allocated in “Scopes”. The GHG Protocol defines a set of three emission scopes in which all GHG emissions are to be allocated. These emission scopes aim to define “direct” and “indirect” emissions and avoid double counting of emissions between inventories.

A few statistics from the analysis: 
  • The farmland portfolio managed by Westchester in Brazil contains over 32m tonnes of carbon held in its vegetative conservation reserve area.
  • 3.75 acres of forest restoration is sufficient to offset Westchester’s office emissions. 

Featured Employee
Carole Fornoff


While Westchester has undergone massive changes over the past 30 years, one constant during that period was the steady presence of Carole Fornoff, Vice President of Horticultural Crops. Carole just celebrated her 30th anniversary with Westchester, having joined the company in 1988. Raised on a farm in Illinois and holding a BS degree in Agribusiness from Western Illinois University, she began her career at Westchester’s home office in Champaign, assisting founder Murray Wise manage farms and conduct farmland auctions.

In 1994, when Westchester wanted to expand its operations into California permanent crops, Carole was asked if she would be willing to “go west young woman” and be the company’s sole, full-time employee in California. With great courage and true pioneering spirit, Carole grasped the opportunity and was soon assisting in the acquisition and development of thousands of acres of land into almonds and wine grapes. She quickly learned that “she was not in Kansas anymore” (or Illinois for that matter)!

Carole continued in this capacity, still the only Westchester employee residing in California for 15 years. During that time, she earned the widespread respect of colleagues and asset management competitors alike for her knowledge of California agriculture in general and almond production in particular.

In 2009, Westchester decided to expand its presence in California and began to build a larger team there. Carole was instrumental in helping Westchester’s Horticultural investment unit grow to its current size, managing over 30,000 acres valued at almost $1 billion.

Today Carole is the highest-ranking female on the company’s farm management team. She has earned an Accredited Farm Manager designation from the American Society of Farm Managers and Rural Appraisers, is a licensed California Real Estate Broker, and is on the board of directors of the North Kern Water Storage District, which provides irrigation water to many Westchester managed properties.

It is through the loyalty, dedication and hard work of Carole and people like her that Westchester has grown to become the largest agricultural asset manager in the world.


Carbon footprint
Introducing Skye Macpherson

Skye Macpherson joined Westchester in March 2019 as Head of Portfolio Management. She joins Westchester from Blackrock where she was responsible for coverage of the agriculture sector within the Natural Resources Equity team. Prior to Blackrock, Skye spent 15 years at Colonial First State Asset Management, working for the firm in Sydney and London to establish and manage the global agribusiness equity product. Skye will work out of the Nuveen offices in London and Chicago, leading the portfolio management team.

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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.

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