April 29, 2015

By Sarah Day Levesque

Diversification strategies are key to reducing risk and maximizing potential returns in an agriculture investment portfolio, according to a group of investment veterans at Global AgInvesting 2015. The group, which included, John Duryea of Blue Road Capital, David Gladstone of Gladstone Land Corporation, Charlie McNairy of International Farming Corporation and Jose Minaya of TIAA-CREF, spoke on the topic of agriculture portfolio diversification strategies at the annual event in New York on Tuesday, and identified geographical variance and vertical integration as two fundamental strategies for diversification.

Diversification within a portfolio should address specific risks, says Blue Road Capital’s Founding Partner, John Duryea. For example, agricultural investment is associated with significant weather and commodity risk. Diversifying the geographies within a portfolio is one way to mitigate the risk associated with a localized weather or climate event, as well as other geographic-specific risks, such as crop loss from disease.

Vertical integration, when a company owns different points on the same production path, provides a means for investors to capture added value from farmland production. International Farming Corporation (IFC) CEO, Charlie McNairy, points to his company as an example. IFC owns significant farmland and is continually looking for ways to process their crops, store it, distribute it and market it in order to extract extra value.

“Supply chains drive the value of farmland,” says Jose Minaya, Managing Director & Head of Private Markets Asset Management at TIAA-CREF. He explains that by investing across the value chain, one can capitalize on symbiotic relationships. He points to the example of farmland in Brazil’s Mato Grosso state, where prices are one third to one quarter the value of comparable land in the U.S. Midwest, despite the fact that the land can often produce two harvests annually versus one in the U.S. The driver of that land price is the embedded transportation cost to get product to port in the region. When you think about agriculture across these synergies you can see potential value from improvements in transport and infrastructure.

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