A conversation with AustOn’s Tim Lee

Institutional investment in farmland is increasing. Why do you think that is?

Tim Lee: It’s twofold: a need for diversification and inflation hedging. Some people forget that agriculture was the first asset class. It’s what enabled people to stop roaming and gather in cities. Today, big investors view agribusiness as a unique sector with its own attractive characteristics. What’s more, farmland is a really strong hedge against inflation. The value of farmland has increased consistently over time as the price of the food grown on the land has tended to rise with inflation.

What is the opportunity for large investors?

TL: If you’ve got a small farm there can be a substantial amount of volatility. If you’ve got scale, you’ve got opportunities to diversify your crop, your location, and more. That helps spread risk. In Australia, there are opportunities across a range of sectors. AustOn’s focus is currently on horticulture, which has been underinvested by institutional investors. In apples, we’re one of the first to take what has been a very fragmented market with lots of small orchards, with lots of aging farmers, and create one large, consolidated business.

What are the biggest challenges to investing in agriculture?

TL: The obvious one is weather risk. Most farms in Australia are owned by families and if you’ve inherited the family farm, you didn’t get to choose your location. Institutional investors have more choice in what and where they farm. And they tend to have stronger balance sheets, meaning they can better manage their exposure to extreme weather by investing in things like irrigation, netting, and rain covers.

Another challenge is people. When a crop is ready, it needs to be picked right away and you need to hire a lot of people. Finding and retaining harvesting labour is not easy. As a bigger farm owner, you can offer more work over longer periods and often be more attractive to people looking for work. In regional areas where all our farms are, it’s not always easy to get the right talent.

What about inflation and the cost of inputs?

TL: Yes—diesel, fertilizer, electricity and even transport are all trending upwards, so we need to be smarter about what we’re doing, and how we’re doing it.

Are you using technology to address some of these challenges?

TL: In our apple operations, we’re deploying picking platforms. They have an important safety advantage because they lower the chances of our workers getting hurt when climbing up and down ladders while carrying heavy bags of fruit. We’re designing and building our new orchards as a single wall of trees in readiness for when robotic picking technology becomes commercial. We use drones to evaluate crops and to safely keep birds away from our fruit trees at peak season. We use soil moisture probes that help us use just the right amount of irrigation water, and we use soil and leaf sampling to help us apply just the right amount and type of fertilizer. Data plays a key role in our decision-making.

Talk about the pressure on farmers to improve sustainability?

TL: Being sustainable makes good commercial sense. If you’re eroding or depreciating your major assets which include your land and trees, it’s going to cost you in the long term. For the most part, farmers have always had an eye on sustainability as they’ve tended to pass the farm down through generations.

At AustOn, we’ve started measuring our carbon footprint. There’s pressure to reduce emissions but it’s going to be tough in agriculture. We use diesel in our tractors and electricity to pump irrigation water and run our large fridges where we store apples for nearly 12 months a year. We apply a lot of fertilizer too. The common nitrogen-based fertilizers used on lawns also help make orchards more productive. And it just so happens that the production and use of these fertilizers contributes to greenhouse gases. However, we need to continue to use fertilizer so that we can grow enough food for the growing global population. These are industry-level problems that need industry-level solutions.

At our orchard level, we need to look at smarter ways of measuring how much fertilizer we need to apply, and when is best to apply it, and also things like different types of fertilizer which might be less impactful from a GHG perspective. We need to look at solar and different sources of electricity.

Talk about AustOn specifically.

TL: We farm about 2,500 hectares of almonds and 600 hectares of avocados, which each produce about 9,000 tonnes annually. We have 500 hectares of apples, stone fruit, and cherries, producing 20,000 tonnes. We employ 160 people on a permanent basis and about the same number of seasonal workers. Most of the almond crop is exported. The other products are largely consumed domestically although we did export around 20% of our avocado crop this year because new markets opened up to Australia after free trade agreements were signed. Our potato and onion business has 36,000 hectares of irrigated farmland it uses in rotation and grows 150,000 tonnes annually.

What is the benefit of managing different types of farms under the AustOn umbrella?

TL: Part of our role is to enable cross-collaboration, which is an advantage of being an owned by an institutional investor. If there’s new technology or chemical or fertilizer which will help us with our carbon footprint, we can spread the adoption of these across the group.

Our structure provides the on-ground people resourcing in Australia that would be difficult to do from Toronto. We provide oversight, governance, and reporting. However, we still need smart people, based locally, to manage the farms day-to-day.