Agri investing: The Nuveen view
Sustainable practices that extend the lifecycle of agricultural investments create enduring value for long-term investors. Read expert analysis by Sanaz Raczynski, head of sustainability, real assets at Nuveen.
By 2030, the world’s farmland will support a population of more than 8 billion people – an increase that will require a 25 percent boost in agricultural productivity. At the same time, the developing world’s middle class is likely to continue to shift its diet, consuming more protein, and subsequently increasing pressure on global grain supplies. Moreover, industrialization and urban development is encroaching upon the world’s finite farmland resources. And as water becomes an increasingly scarce resource, agricultural regions with sustainable water supply will become implied exporters of water by virtue of their crop production.
For investors with a long-term investment horizon, global agricultural land presents a compelling investment opportunity – but one that also carries risk. Firms managing agriculture assets must employ rigorous sustainability practices, leveraging every tool at their disposal to mitigate that risk. Long-term investment success in this sector demands sound and diligent stewardship.
At the heart of the world’s climate change challenge are two conflicting realities for investors in agriculture. First, the UN projects that today’s population of 7.6 billion will grow to 9.7 billion by 2050, which will drive an ever-greater need for food, fibers and other agricultural products. Second, the reality of climate change demands that society address these needs through more efficient and sustainable agricultural approaches.
Climate change represents a significant threat to the long-term viability and productivity of agricultural assets around the world. The most visible aspects of this threat – severe storms and floods, droughts and wildfires, extensive erosion – have the potential to impact farmland and diminish value for investors.
Not every threat is as visible as a natural disaster, however. Deforestation, for example, indirectly impacts agriculture by affecting weather patterns. Forests play an important role in stabilizing the amount of carbon released into the atmosphere, but scientists estimate that 15 percent of global carbon dioxide emissions are due to deforestation. Deforestation is a particular concern in regions of the world where agricultural development is occurring very quickly, such as in South America.
Agriculture is a big part of both the problem and the solution. Nuveen is working to protect against deforestation in Brazil and other regions by committing to sustainable farming practices and avoiding recently deforested areas when we acquire new farmland.
For example, we adhere to the Brazilian Forest Code, which, among other things, protects forests on private properties and encourages restoration of legal reserves for native reservations. We protect more than 200,000 acres of native vegetation in Brazil, which guarantees that these areas will remain untouched in the future.
Data powers farming revolution
Data and technology can play a major role in informing farmland investment and management approaches, potentially increasing alpha and managing risk for investors. From a global investment perspective, fund managers can conduct data analysis to understand how both macro trends and local attributes will impact and support financial performance.
Our models consider the rising world population, changing dietary patterns in developing markets, as well as the reduction in arable land in the coming decades and how such factors will drive the supply-demand balance for food and fiber. We combine data from satellite imagery to understand historical land use patterns, while matching it to government global positioning system data used to substantiate land claims.
We also invest in climate data that tells us about our risk exposure across different regions and crops compared against varying climate scenarios. As the largest farmland investor in the world and a long-time responsible investor, we are very much focused on mitigating the impact of climate change on agriculture systems and our agriculture investments, while also mitigating the impact of agriculture on climate change. It needs to go both ways in order to have an impact.
Data and technology has laid the groundwork for our diversification strategy across regions and crops, which allows us to mitigate risk. The combination of rich data sets and local experience means we can tailor our sustainability activities to each individual farm. We can then address threats to productivity in the short term while helping to ensure long-term performance and value.
Why sustainability matters
Farmland investments are vital to meeting global demand for food. At the same time, fund managers have a responsibility to encourage sustainable practices and to be good stewards of the environment over the long term. In partnership with our tenants, local operators and farm managers, Nuveen fosters sustainability best practices and promotes investment in farming innovation to improve efficiency.
Sound stewardship is imperative for us – it is fundamental to our long-term investment success and aligned with our corporate values. As we execute our investment strategy, we are committed to pursuing the UN-backed Principles for Responsible Investment Farmland guidelines, which we helped to develop in 2011 with other farmland investors.
The realities of climate change have only strengthened Nuveen’s resolve to keep sustainability at the forefront of our policies, strategies and practices every day.
With data, technology and other tools, investors mindful of risk can navigate these challenges and opportunities.
Data in action
California: Aerial image data drives water efficiency
In California’s Central Valley, nearly all of our tree nut operators have begun using aerial spectral imagery to optimize water and nitrogen use. High-resolution, multi-spectral images provide farmers with accurate, real-time information about the water and nutrient status of their plants. They also flag leaks and blockages in irrigation systems for the farmer to repair. Images captured throughout the growing season let farmers gauge their progress in addressing issues. When combined with soil moisture monitoring programs already in place, this data-intense imaging technology helps to derive optimal value from every drop of water in this drought-challenged part of the U.S.
Brazil: Integrated data analysis reduces risk
Before we purchase farmland in emerging markets such as Brazil, we carefully assess data from a range of sources to crystallize our understanding of each asset’s history and to reduce risk. At times, it’s hard to find documents that confirm land ownership in the past, so title searches and farmland licenses may not be sufficient. So, we use satellite images, some dating as far back as the 1950s, to understand the historical use of land, cultivation patterns, any transformation or development, the presence of indigenous populations and environmental issues.
We also review government GPS data – such as the Brazilian National Institute of Agrarian Reform electronic system – to substantiate ownership claims, indigenous territories and conservation areas. Such rigor is essential to reduce deforestation risk, respect the rights of indigenous peoples and preserve positive relationships with communities.
Finally, not only do we conduct our own extensive analysis, but we also hire third-party experts to verify and confirm information from companies, farmers, tenants and lenders.
From AgriInvestor, December 2019.