Future farms: Sowing the seeds for sustainability

Posted by MIRA Funds

July 17, 2020


Technological innovation and the world’s changing climate have combined to make sustainability a shaping force in agriculture. To understand how agricultural producers are building more resilient and efficient farms, we spoke with the Head of MIRA’s agriculture platform, Elizabeth O’Leary.

Sustainability has become a major focus of the global investment community in recent years. Is the topic high on the agenda for agricultural producers?

Over the past few years, it has become increasingly clear that sustainability and profitability in agriculture are intrinsically linked.

Our clients are predominantly pension funds and insurance companies, and those investors are seeking stable cash flows that match their long-dated liabilities. The way we consistently deliver that in agriculture is by building resilient farming operations and by driving efficiencies in the way we work. That is where sustainability really comes into play, helping us to lower our costs and maximise productivity across our operating companies in Australia and Brazil. It also offers an important lens through which we can identify and manage risk.

In many ways, the agriculture sector has had a bit of head start on the sustainability front. Over the past few decades, consumers have taken a strong and growing interest in where their food comes from. They want an assurance that what they are eating was not produced in a way that was harmful to the environment or to animal welfare. But the focus for us has really moved beyond just minimising our impact. Producers in our sector now understand that they have a unique opportunity to drive positive change too. We can tackle some of the big problems facing our world, helping to build a more sustainable society and environment.


In what areas can agricultural producers make the most impact?

Many farmers have seen the increasing volatility in climate conditions and are looking at their own operations to see how they can minimise their contribution to climate change and adapt to the new normal. This focus has intensified as governments around the world have set out their plans to achieve net zero, with every sector of the economy – including agriculture – to have an important role to play.   

But how can we feed the world’s rapidly growing population and cut our emissions at the same time? Technology and innovation will clearly be a big part of the answer. Yes, we can find efficiencies in our energy usage, as we have done in Brazil with our farm machinery modernisation programme. But we also need to fundamentally rethink our processes if we are going to successfully decarbonise some of the more challenging areas of our operations. That is what we have been doing at Paraway, one of our operating companies managing large-scale sheep and cattle enterprises across Australia. Genetic improvements in our herd, improved pasture utilisation and water point optimisation are already offering a model for us to significantly reduce the emissions intensity of each kilogram of beef Paraway produces.

Another area in which agricultural producers can make a real impact is biodiversity. We consider ourselves stewards of the land, and with that role comes a responsibility to protect and strengthen the ecosystems in and around our properties. Our sector is getting better at measuring and managing the impact of our operations on soil and water systems, but we need to go beyond that. Our teams at Paraway and Viridis Ag – another of our Australian operating companies involved in broadacre row cropping – have been working to restore native vegetation corridors, supporting the local plant and animal populations whilst preventing erosion. They are also identifying and protecting high value biodiversity areas to protect threatened species, installing fencing and establishing watering areas.

We know that initiatives like these can make a real impact in creating healthy agro ecosystems. From a commercial perspective, investing to preserve and enhance the value of our natural capital just makes good business sense

“We consider ourselves stewards of the land, and with that role comes a responsibility to protect and strengthen the ecosystems in and around our properties.”
 

Elizabeth O'Leary, Head of Agriculture, Senior Managing Director


What role is technology playing in the drive towards more sustainable farming?

Those who are unfamiliar with our sector often think of agriculture as being low-tech. Of course, nothing could be further from the truth, with technology having already transformed the way we work.

For example, I know from our own experience how much value technology like data analytics can add when integrated effectively into day-to-day farm practices. Inputs like fertiliser and chemicals are a considerable expense for all farmers, and if over applied can also negatively impact river systems and greenhouse gas emissions. But precision farming technology has come so far over the past decade that we are now managing our land down to a metre by metre basis across many of our properties in Australia and Brazil. This soil mapping is now central to our approach to maintaining good soil health, with the technology helping us maximise yields whilst reducing financial and environmental costs.

Looking ahead, there are also some exciting technologies on the horizon that have the potential to drive further change in the sector. Although many smaller farmers typically do not have the resources to invest in research and development, we hope that some of the work we are doing to pilot the application of emerging on-farm technologies, like autonomous vehicles, will offer new ways for the agriculture sector to operate more sustainably in the years ahead.


Recent rainfall along Australia's east coast has brought relief to rural communities and environmental systems following years of drought. How can the agricultural sector build greater resilience in this area?

What a relief! The widespread rainfall we saw over New South Wales and much of southern Queensland in recent months has offered some respite following one of the driest periods since official records began. Although it has been great to see farm reservoirs and river systems topped up across the region, we cannot afford to be complacent.

The availability of water has always been the most limiting factor in Australian agricultural production systems. By 2050, the government expects that Australia’s growing population and primary industries will cause national water usage to double1. With climate change already making our weather more unpredictable, it is vital that we use our most precious resource as efficiently as possible. As a sector, we need to take a long-term approach if we are to be better prepared for the next drought, when it inevitably comes.

Effective water management has been a major focus across our operations. At our Viridis Ag properties, for example, our farm management teams compare the amount of grain they produce to each unit of rainfall they receive. Those insights are helping to inform the use of techniques like retaining stubble left over from previous harvests or limiting where machinery drives across farmland, to drive meaningful improvements in the water holding capacity of the soil. Stemming water losses from run-off and drainage are obviously important, but producers also need to look at techniques such as these in the face of more frequent and intense droughts.

But it is not just about maximising productivity. As we have seen across regional Australia in recent years, extreme weather conditions like droughts and bushfires can also cause considerable social dislocation. I am very proud of the support our teams have provided to charities like batyr and Beyond Blue in the area of mental health, but we know many more farmers will face hardship in the years ahead if the agricultural sector does not adapt to our changing climate and the drier weather it will bring.


COVID-19 has seen listed and unlisted asset values impacted across the board. What has been the impact of the pandemic on agriculture as an asset class?

It has been devasting to watch the human toll of this pandemic rise around the world. Agriculture as an asset class has demonstrated huge resilience during this period. Demand for food and core fibre products, including hygiene products, has remained resilient – more than offsetting the softening in demand from the food services sector.

It is also important to consider the long-term fundamentals for agriculture. Global demand for protein is growing as the world’s population gets bigger and incomes in many regions rise. At the same time, the amount of arable land available for agriculture is declining. We see these structural trends acting as strong tailwinds for both commodity and land prices in the years to come.

For more information about our agriculture capabilities, contact us.

1 Department of Agriculture, Australian Government Drought Response, Resilience and Preparedness Plan, Canberra, November. CC BY 4.0.

 

This market commentary has been prepared for general informational purposes by the authors who are part of Macquarie Infrastructure and Real Assets (MIRA), a business division of Macquarie Group (Macquarie), and is not a product of the Macquarie Research Department. This market commentary reflects the views of the authors and statements in it may differ from the views of others in MIRA or of other Macquarie divisions or groups, including Macquarie Research. This market commentary has not been prepared to comply with requirements designed to promote the independence of investment research and is accordingly not subject to any prohibition on dealing ahead of the dissemination of investment research. Nothing in this market commentary shall be construed as a solicitation to buy or sell any security or other product, or to engage in or refrain from engaging in any transaction. Macquarie conducts a global full-service, integrated investment banking, asset management, and brokerage business. Macquarie may do, and seek to do, business with any of the companies covered in this market commentary. Macquarie has investment banking and other business relationships with a significant number of companies, which may include companies that are discussed in this commentary, and may have positions in financial instruments or other financial interests in the subject matter of this market commentary. As a result, investors should be aware that Macquarie may have a conflict of interest that could affect the objectivity of this market commentary. In preparing this market commentary, we did not take into account the investment objectives, financial situation or needs of any particular client. You should not make an investment decision on the basis of this market commentary. Before making an investment decision you need to consider, with or without the assistance of an adviser, whether the investment is appropriate in light of your particular investment needs, objectives and financial circumstances. Macquarie salespeople, traders and other professionals may provide oral or written market commentary, analysis, trading strategies or research products to Macquarie’s clients that reflect opinions which are different from or contrary to the opinions expressed in this market commentary. Macquarie’s asset management business (including MIRA), principal trading desks and investing businesses may make investment decisions that are inconsistent with the views expressed in this commentary. There are risks involved in investing. The price of securities and other financial products can and does fluctuate, and an individual security or financial product may even become valueless. International investors are reminded of the additional risks inherent in international investments, such as currency fluctuations and international or local financial, market, economic, tax or regulatory conditions, which may adversely affect the value of the investment. This market commentary is based on information obtained from sources believed to be reliable, but we do not make any representation or warranty that it is accurate, complete or up to date. We accept no obligation to correct or update the information or opinions in this market commentary. Opinions, information, and data in this market commentary are as of the date indicated on the cover and subject to change without notice. No member of the Macquarie Group accepts any liability whatsoever for any direct, indirect, consequential or other loss arising from any use of this market commentary and/or further communication in relation to this market commentary. Some of the data in this market commentary may be sourced from information and materials published by government or industry bodies or agencies, however this market commentary is neither endorsed or certified by any such bodies or agencies. This market commentary does not constitute legal, tax accounting or investment advice. Recipients should independently evaluate any specific investment in consultation with their legal, tax, accounting, and investment advisors. Past performance is not indicative of future results.

 

This market commentary may include forward-looking statements, forecasts, estimates, projections, opinions and investment theses, which may be identified by the use of terminology such as “anticipate”, “believe”, “estimate”, “expect”, “intend”, “may”, “can”, “plan”, “will”, “would”, “should”, “seek”, “project”, “continue”, “target” and similar expressions. No representation is made or will be made that any forward-looking statements will be achieved or will prove to be correct or that any assumptions on which such statements may be based are reasonable. A number of factors could cause actual future results and operations to vary materially and adversely from the forward-looking statements. Qualitative statements regarding political, regulatory, market and economic environments and opportunities are based on the authors opinion, belief and judgment.

 

Other than Macquarie Bank Limited ABN 46 008 583 542 (MBL), none of the entities noted in this document is an authorized deposit-taking institution for the purposes of the Banking Act 1959 (Commonwealth of Australia) or banking legislation in other jurisdictions. The obligations of these entities do not represent deposits or other liabilities of MBL. MBL does not guarantee or otherwise provide assurance in respect of the obligations of these entities.