May 17, 2022

By Lynda Kiernan-Stone, Global AgInvesting Media

Veripath Farmland Partners launched in 2020 with an official memorandum offering of a unique split fund under an evergreen structure, creating a channel of access to Canadian farmland for a wide universe of investors that streamlines and simplifies compliance with varying provincial farmland ownership regulations.

Since their launch, Veripath has experienced rapid growth as capital is increasingly being allocated to the asset class, given its multiple compelling characteristics. A few of the factors that Veripath believes are supportive of the Canadian farmland investment premise include:

Value – Canada is home to some of the most competitively priced farmland among developed nations, especially when viewed on a productivity adjusted pricing basis.

Diversification – Farmland has a low correlation to traditional stock and bond markets, providing an ideal mechanism by which to improve portfolio risk diversification.

ESG – Zero-till portfolios centered on Western Canada capture material amounts of carbon.

Demand – Farmland is a non-volatile class through which investors can capitalize upon the demands generated by population growth, and the global growing need for food, feed, fuel, and water.

Inflation hedging – Historically, farmland has presented strong hedging capabilities in the face of inflation/stagflation, and has outperformed (in real terms) during periods of low real rates/high inflation.

Stephen Johnston, director at Veripath, noted in his GAI News article Maximizing The Capture of Returns, Carbon, and Duration in Canadian Row Crop Land Investments published in March 2021, that the Canadian market offers a productivity adjusted pricing advantage, a Sharpe ratio advantage, and inflation/stagflation advantage, a carbon sequestration advantage, and a duration and compliance advantage.

Operating within this landscape, Veripath explained that it divides the Canadian market into two separate geographies of about 84 million acres each as a means of streamlining and simplifying farmland ownership amid differing provincial regulations. To achieve this, the firm has two sister funds with the same terms and fee structures: Veripath Farmland (UR) LP invests in all of Canada, excluding Saskatchewan and Manitoba, and Veripath Farmland LP invests in only Saskatchewan and Manitoba.

It is Veripath Farmland LP that has made the firm’s latest acquisition of 2,135 acres of farmland in Manitoba including grain storage infrastructure, reflecting Veripath’s second acquisition in the province. 

For these funds, in order to avoid short-term operational volatility from impacting land returns, Veripath’s strategy takes a non-operated approach. Johnston explained that all portfolio assets are leased to farm operators under long-term agreements that include full, up-front cash payment in the spring (mitigating default risk), and escalations, without involving crop sharing or profit sharing, or the like.

However, non-operated does not mean non-monitored; Veripath employs a proprietary land management system that leverages an in-house software platform combined with satellite monitoring and AI crop analysis to ensure the manifestation of Veripath’s belief that: “Properly managed farmland is a unique non-depleting, commodity producing capital asset…”

As evidence of Veripath’s success in its prudent management strategy of leasing out their assets, over the past few decades the Sharpe ratio of owning and operating farmland has been lower than those for purely owning farmland.

“Many view it as better insurance than gold, noted Veripath in a recent paper, Farmland, Gold, and Stagflation – The Perfect Storm?, “because farmland produces positive cash flow while shielding from the deleterious effects of inflation.”

Veripath expanded upon this by examining what happened in the 1970s. “The price of gold and farmland started to rally early in the 1970s as stagflation started to appear – a combination of expansionary fiscal and monetary policy followed by the U.S. government combined with the OPEC oil price shock. You also will see that farmland was less volatile than gold, a feature we believe is because it provides an income component that gold lacks. Hence, the description of farmland as “gold with yield”. 

~ Lynda Kiernan-Stone is editor with GAI Media, and is managing editor and daily contributor for Global AgInvesting’s AgInvesting Weekly News and  Agtech Intel News, as well as HighQuest Group’s Unconventional Ag. She can be reached at lkiernan-stone@globalaginvesting.com.

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