Why Canadian pension funds are taking a huge gamble on Australian agriculture

Canadian institutional investors turn their attention to Australia for sustainability, diversification

Why Canadian pension funds are taking a huge gamble on Australian agriculture

In recent years, Canadian pension funds have shown a growing interest in the agricultural and farmland sectors in Australia, driven by their commitment to sustainability and decarbonization goals. Caisse de dépôt et placement du Québec (CDPQ), Alberta Investment Management Corporation (AIMCo), Ontario Teachers' Pension Plan (Ontario Teachers'), and the Public Sector Pension Investment Board (PSP Investments) have made substantial investments in these sectors. 

In 2020, CDPQ initiated a $125 million co-investment with multi-stage investment firm S2G Ventures to promote sustainability and climate-friendliness in Australia's food and agriculture industry over a three-year period.  

“We are excited about the opportunity in Australian agriculture,” Nicolas Leyssieux, managing director at CDPQ, told AsianInvestor. “Both around contributing to our sustainability goals and generating a positive return.” 

Furthermore, CDPQ collaborated with the Clean Energy Finance Corporation (CEFC) to create a new sustainable agricultural platform in Australia earlier this year. The firm, which is also Canada's second-largest pension fund, has invested $100 million in Wilga Farming, aiming to bolster sustainability efforts and decarbonize Australian farms, while increasing farm production. 

AIMCo also expanded its agricultural focus to include investments in Australian agriculture, becoming a co-owner of Lawson Grains in September 2021. 

Additionally, the Australian agricultural division of the Ontario Teachers' acquired a majority stake in Mitolo Family Farms last year. 

PSP Investments also consolidated the management of their majority-owned Australian broadacre cropping businesses, BFB and Daybreak Cropping, creating one of the leading cereal cropping operations in Australia. Moreover, the firm acquired a walnut farm in Australia through its investment in the publicly listed Australian agricultural company, Webster. 

The interest from pension funds is driven by the potential for stable returns and long-term growth in the Australian agricultural industry, said Tom Murphy, head of natural capital at QIC. Australian farmland offers long-term capital appreciation and a steady operating income yield. 

“The long-term value proposition of Australian farmland is really twofold,” Murphy told AsianInvestor. “The long-term capital appreciation of large-scale farming land in Australia is in the vicinity of 5% and long-term operating income yield generally sits between 3% and 5%.”  

Historically, it has also exhibited a high correlation with inflation rates, making it an attractive addition to institutional portfolios. 

“Australian farmland has ideal correlation characteristics to traditional portfolio assets – exhibiting negative correlations with fixed income assets and low positive correlation with international and domestic equities,” Murphy added.  

Australian farmland also provides opportunities for nature-based investments, including biodiversity, reef, and carbon credits (ACCUs). “To quantify this opportunity, there were 1.1 million ACCUs issued in July 2023, while annual demand is expected to reach 60 million by 2030. The force of systemic change, both regulation and market driven, to finance climate change mitigation places a premium on nature-based outcomes,” he said. 

Sustainability is a key driver behind these investments, aligning with the global push toward sustainable agriculture and decarbonization.  

Sustainable agriculture is critical to balance the food production needs of a growing global population and to ensure that the natural environment is managed properly,” said Heechung Sung, head of natural capital at CEFC. She emphasized the need for investment capital to deploy technologies and practices that can increase food production while minimizing environmental impact. 

“Put simply, the world has to produce more with less, which does represent an opportunity,” Sung said. CEFC's investment with CDPQ focuses on sustainable farming with emissions-reducing technologies, demonstrating that sustainability and attractive returns can go hand in hand.  

“We are signaling to the market that sustainable farming can generate attractive returns whilst at the same time, address climate change through emissions reducing technologies and practices,” Sung added. “The sector also has enormous potential to help better sequester carbon which not only enhances the landscape but contributes to its performance.”