Agriculture & Food
Stafford’s Agriculture & Food business line aims to make the global agriculture and food sector more investible and improve productivity in a sustainable way by combining capital with best-in-class industry operators. The team manages investments across two funds and one mandate.
Stafford Agriculture & Food in a nutshell*
2017
Launch year
USD 80m
Assets under management
39
Underlying assets
18,000+
Hectares of land owned
*Data as of December 31, 2020.
Stafford’s two Australian agricultural real estate vehicles invest exclusively in Australian farmland assets across Western and Eastern Australia. The investments are sourced through local partners (local asset managers and operators who manage our assets on a day-to-day basis) and leased to third party local tenant operators.
We take into account all sustainability aspects and impacts of our investments, both positive and negative. This means understanding what drives the environmental and ecological health of the regions and land/ocean in which we invest and what are the key local social and governance issues that need to be considered and, where necessary, addressed.
In broad terms, our agriculture & food investments contribute to the sustainability of our food production system, focusing on:
Improving the productivity of existing farmland assets, identified by the OECD-FAO in 2020 as key to producing the increase in food required to feed the growing world population (expected to account for 88% of agricultural commodity production growth in the next decade)
Benchmarking and leasing farmland assets to top-tier local tenant farmers, who abide by strict lease covenants regarding ESG issues and report annually on ESG key performance indicators (see tables below)
Investing in asset improvements including targeted sustainability goals (e.g. replanting degraded land with native species)
Supporting rural farming businesses to expand production by creating long-term alignment through leasing and offering rights of refusal to acquire assets on our exit
Sustainability criteria for our farmland investments
Stafford incorporates multiple sustainability criteria in our investment and asset selection. The three key negative screens are as follows:
No development assets: we do not invest in farmland newly created by deforestation or land use change. We target established farming regions with a surplus of local operating capacity and the potential to expand productivity, soil health and biodiversity through the implementation of best practise farming, capital investment and scale.
Minimal climate risk: we have established minimum rainfall thresholds that preclude investments in very dry areas or areas prone to severe drought (based on long-term historic rainfall data). We avoid investing in regions with significant exposure to flooding and fire risk. We require our local partners to consider the potential impact of climate change on our assets over the long-term. We are currently engaged in a process to quantify our exposure to climate risk as part of a broader Stafford initiative in this area.
Secure tenure: Stafford only invests where tenure is secure and enforceable. This means a focus on developed markets with the rule of law and stable political and economic institutions. We avoid investments in farming regions where tenure is insecure and where there is insufficient local buy-in.
ESG due diligence
We acquire assets following a detailed due diligence process that assesses a host of environmental metrics including soil/water quality and availability, crop and/or livestock productivity, infrastructure (suitable infrastructure, lack of asbestos, oil sumps, pests, weeds and so forth), relevant environmental permits & licenses and overall farm condition.
In addition, we review both the attitude and the track record of the secured tenant with respect to ESG issues, as well as any encumbrances or easements over the farmland area. We consider and look to protect first nations peoples’ rights, such as access to heritage sites, and strive to use local labour and contractors on-farm, where possible.
Monitoring managers’ ESG performance
The local asset managers and operators who manage Stafford’s assets on a day-to-day basis have a high regard for sustainability and responsible investing. Stafford monitors and assesses how they integrate ESG considerations into their investment process through our annual manager ESG survey, using the PRI online reporting tool for this purpose. Three out of four Ag & Food managers that responded to our survey are signatories to the UN PRI.
According to the 2021 survey responses, all managers have an ESG policy in place, incorporate ESG considerations in their investment decisions and report on ESG data to their investors. Two of the responding managers use SDGs to identify the sustainability outcomes of their investments and publicly support the TCFD recommendations.
Highlights from 2021 ESG manager survey
75%
PRI signatory
100%
ESG policy in place
100%
Reports ESG data to investors
100%
ESG incorporated in investment decisions
50%
Publicly supported TCFD
75%
Climate metrics for physical risk identified
50%
Use SDGs to identify sustainability outcomes
4
Respondents
Source: Fund managers, PRI, Stafford; data as of December 31, 2020.
Fund managers’ responses to the annual ESG survey have been assessed and translated into scores which we summarize in the figure below. We have used the PRI’s 2021 assessment methodology for this purpose[1]. This methodology assesses managers on a set of indicators that are generic across multiple industries and relate to their responsible investment policies and protocols. The resulting ISP score ranges between 0% to 100%.
We select our farmland managers based on their ability, expertise and capabilities to execute and deliver on the ESG criteria that Stafford has articulated in its ESG strategy and policy. It is worth noting that the scores of the PRI questionnaire may not adequately reflect the specific farmland ESG thresholds and objectives that Stafford has included in its farmland ESG strategy. We are actively engaging with our local managers to constantly improve ESG outcomes and facilitate their work in this respect.
Farmland fund managers' (GPs’) scores for responsible investment stewardship and policy for 2021
Source: fund managers, PRI, Stafford Capital Partners; scores as of 13/10/2021, based on December 31, 2021, data.
[1] Details on the PRI’s 2021 assessment methodology can be found here: https://dwtyzx6upklss.cloudfront.net/Uploads/v/g/y/2021_assessmentmethodology_jan_2021_403875.pdf
ESG Reporting for farmland
Our reporting on ESG key performance indicators (KPIs) began with the Western Australian portion of the Stafford Australian Agriculture Fund I (SAAF I) portfolio in the last quarter of 2020. It is expected to extend to cover the full portfolio basis in the second half of 2021.
Reported data covers a range of key farm production metrics, nutrient replacement and soil amelioration initiatives and other KPIs primarily related to operational health & safety, farm labour and land use. Information is reported by each local tenant operator for their relevant farm asset during the previous 12 months. The data received enables us to track, report and improve ESG outcomes across the farmland portfolio on a go-forward basis.
In 2020 we were particularly pleased to see a substantial number of hectares of native habitat being preserved across several SAAF I farms. This is in addition to a new project to restore degraded hectares on an asset called “Tenindewa”, which may become eligible for carbon credits, as well as a water conservation project being planned for “The Brook” (see case study below).
ESG KPIs for Stafford’s farmland investments in Western Australia for 2020
* UN Sustainable Development Goals (UN SDGs)
** Numbering based on relevant UN SDG (Sustainable Development Goal) target
*** NB: Some KPIs, e.g. crop productivity, depend significantly on exogenous factors (such as rainfall) as well as endogenous factors (operations). A long-term perspective is therefore appropriate when charting progress in these KPIs.
**** Trial basis, subject to suitable methodology being available
Source: Stafford Capital Partners, based on reports provided by farmland managers; data as of December 31, 2020.
Aggregated production metrics for SAAF I Western Australia portfolio, 2020
* WUE = water use efficiency, measured in kg of product per hectare per mm of moisture available to the plant during the growing season.
** The 6-year benchmark is an average figure for water use efficiency across farmland assets in each of the relevant “rainfall zones” of Western Australia. It has been adjusted by weighting across the portfolio according to the size of the farms in each rainfall zone.
Source: Stafford Capital Partners, based on reports provided by farmland managers; data as of December 31, 2020.
The Brook Water Conservation Project
Case Study
Stafford supports tenants via our local partners through agreed annual farm (production) plans and capital investment programmes that improve the productivity and sustainability profile of the assets, in coordination with the tenant. The Brook Water Conservation Project is an example of such improvements.
The Brook is a mixed-use farm, currently run mostly for sheep production, located in the high rainfall zone of the southern wheatbelt in Western Australia. Stock water on the farm is sub-optimal, with significant rainfall run off not being retained, meaning water must be drawn from a nearby creek to supplement livestock water requirements.
Our local partner has worked with the tenant of The Brook to design a solar powered water storage and pumping system, with new and extended reservoirs and dams, to better store and supply water collected from rainfall run off. The works will be completed during the next 6 months.