Pension fund hikes stake in agriculture
The Canada Pension Plan Investment Board is laying out US$2.5 billion for a 40 per cent stake in Glencore Agricultural Products, a move intended to accelerate the fund’s four-year-old strategy of making long-term investments in the agriculture business.
“We had always envisioned expanding our strategy upstream, going from owning land … to processing seeds or the different products that come off the land, to delivering and storing,” Mark Jenkins, global head of private investments at CPPIB, said in an interview.
“What Glencore Agriculture allowed us to do was get into that in a significant way in one fell swoop.”
Glencore Agri, a unit of commodity producing and trading giant Glencore PLC, is an integrated grain and oilseed business whose operations include origination, processing, storage, logistics and marketing.
Canada’s largest pension fund, which was thwarted in a farm-buying program in Saskatchewan last year when the provincial government temporarily prohibited institutional investors from purchasing farmland, had also hoped to expand the North American program into Brazil and Australia.
That hadn’t happened yet, though, and Jenkins said the investment in Glencore Agriculture fulfils the desire to expand geographically.
“This has allowed us to hit multiple markets and have a higher value-add in terms of what we think, ultimately, agriculture should return for us as a fund,” he said. “We originate at the supply end, we process, we store, and we deliver and market across the globe.”
The deal came together after the agriculture unit’s parent company Glencore PLC, a global commodities producer and trader, took steps to reduce debt in the face of low commodity prices.
While there were other bidders, Jenkins said CPPIB had experience in agriculture, as well as the capital resources needed to fund further growth at Glencore Agri.
The deal also fits with CPPIB’s broader investment philosophy, he said.
As with other investments, the fund is banking on steady longterm returns based on a growing middle class in many parts of the world, and the movement of commodities from places of surplus to geographies where there is scarcity.
In the four years since the Canadian pension fund began buying farmland in North America, it has purchased about 120,000 acres in the United States, and a similar amount in Canada, Jenkins said.
While slow and labour-intensive, the farm purchase program in Canada would have continued if not for the change in Saskatchewan, he added.
“We were given an indication that we could acquire land so we went and acquired it, and now we can’t so we stopped that. But we still maintain rents on it, we can sell it back to people in Saskatchewan, so the long and the short of it is we’re still there,” Jenkins said.