The Gloom, Boom, Doom Report

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August 2021   ISSN 1017-1371

© Marc Faber, 2021

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Abstract Article

[MF:] Finally, my Argentinian friend Martin Otero, founder and chairman of Bedrock Farmland Wealth Management, has been kind enough to share his views on opportunities in farmland investing.

How Investments meet meaningful farming.

Over the past year, It's been more than evident that the whole world can suddenly stop from one day to another. COVID-19 exposed many shortcomings in our economic and social systems and there is now a heightened sense of awareness and urgency to combat climate change and social inequality. 

Over the past year, we have seen assets in ESG ETFs more than double reaching U$D 80 billion (JP Morgan Global ETF handbook 2020). JP Morgan reported, 71% of investors surveyed responded positively to ESG investment momentum. Increasing governmental initiatives to promote sustainable practices, as well as the advent of sustainability-linked loans, are growing incentives fueling this trend.

In line with this awakening, the pandemic has also ignited a massive rethink around food, not only in the type of food people consume but also on how it is produced and at the expense of what. Food and food supply chains from farming to transportation and infrastructure have never been as “essential for mankind” than during the pandemic.  Our species has taken nature for granted, and there’s growing evidence that the current industrial farming model has ignored multiple factors. 

Large corporations that have been historically key players in the food and farming business have grown increasingly concerned in the development of new products, climate-smart farming practices, and tools that help them meet ESG, SDG, and climate pledge commitments to secure their own sustainability. A good indicator of that is the sudden massive creation of corporate sustainability departments and the launching of regenerative agriculture and carbon sequestration programs by the world’s leading food and trading multinational companies. 

In the farming sector, like in many other businesses, the term “sustainable”  is being revisited by farmers, consumers, investors, and stakeholders as well. Farmland development often includes practices such as land clearing, burning native forests, drilling depletable water wells for irrigation, or building infrastructure to drain wetlands. Such activities are certainly raising growing resistance from communities, reluctance and concern from responsible investors, and are getting increasingly penalized by regulators, markets, and consumers. 

On the other hand, there’s a significantly growing movement which promotes investing in regenerative framing as a clear alternative that can generate attractive returns, provide societal and environmental benefits, and build long-term resilience. Based on the premise that healthy soils are, if not the most powerful resource to mitigate climate change through carbon sequestration, the new paradigms of farmland development seem to be linked with objectives such as healing soil health and restoring ecosystems.  It’s not only about the ability to produce food but also about generating essential environmental services and long-lasting impact along the way. Regenerative farming models are sustainable, biodiverse, and extremely resilient. Far from the current specialized monoculture cash crop models, they seek to integrate diverse activities such as row crops, specialties, forestry, and livestock combined with rewilding and nature conservancy strategies. 

Developing healthy soils and resilient agroecosystems is only achieved through the application of successive consistent practices over time. For that reason, it is reasonable to expect that fully developed regenerative farmland will constitute a distinctive asset sub-class with its own supply limitations. There are strong reasons to think that the demand for healthy food and regenerative products will grow at very high rates. The current dietary trends, such as the expansion of protein demand as a whole and particularly the meteoric expansion of the plant-based alternative protein industry seem to reinforce this assumption. According to Mckinsey, investments in alternative proteins skyrocketed in 2020 with over U$D 3.1 billion invested. Those industries will be requiring way more variety of traceable crops from sustainable sources.

While the world still navigates uncertainty and intends to drive conclusions on how the post-covid economy will evolve, farmland continues to show up as an asset class with strong strategic value for investors.  Its natural long evolving drivers are the pillars of its resilience and act as an armor making it a reliable hedge against inflation. Farmland is also mostly uncorrelated with other investments. Institutional investors have incremented their investments in farmland over the past years. There are good reasons to think that in the near future impact investors will raise their exposure substantially realizing that the asset class offers a great opportunity to create long-lasting environmental and social impact while generating profit.

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