AIMCo: Canada’s ‘renewable resources’ first mover

Alberta Investment Management Corporation (AIMCo), which manages C$168bn (€116bn) of investments for 32 pension, endowment and government funds in the Province of Alberta, is not one to shy away from new sectors. In 2005, it decided to invest in Australian forestry, decades ahead of its peers. 

By 2016, AIMCo was allocating capital to agriculture in Australia, and today its assets include Lawson Grains, one of the largest grain-growing companies in the country. Two years ago it made its first investment in controlled-environment agriculture – looking beyond land-based farming to greenhouse agriculture production.

The Edmonton-based organisation is among the first large global asset owners to combine and manage an agriculture and timberland portfolio of 11 assets, valued at C$3bn, as renewable resources. 

Jonathan Braams, portfolio manager in the infrastructure and renewable resources team, says there is a lot of optionality with land use across timberland and agriculture. “We want to pursue the highest and best use of all of our properties – by planting whatever makes sense from a soil, climate and topography, and sustainability standpoint,” he says. Over the years, AIMCo has converted 9,000 hectares of forest into farmland in Australia.

In 2010, five years after establishing a timberland investment mandate, AIMCo made its first major timberland investment, buying the Great Southern Plantation from liquidators. The asset came with a landholding of some 270,000 hectares of primarily eucalyptus plantations. AIMCo has since sold off disaggregated land and other property where it has not had the scale to justify continuing operations. The core holding is now 160,000 hectares and is divided into a core-forestry holding and a core-agriculture holding. 

What remains of the Great Southern Plantation is centred in Western Australia and what is known as the ‘green triangle’ on the border of Victoria and South Australia. This is being managed sustainably by Sydney-based New Forests. 

Braams says part of the plantation in Western Australia and the Green Triangle has been converted for better use. The previous owner had planted eucalyptus on land which was previously used for growing row crops and livestock. “We have converted some forestry land to plant row crops where it is far away from ports, and where, logistically, it is quite expensive to justify another rotation of trees,” he says.  Such conversions will continue. 

In Victoria and South Australia, he says, certain forestry lands “quite suitable for grazing” may also be converted back to pasture for livestock.

AIMCo’s other single-largest investment in agriculture is also in Australia. In 2021, it acquired Lawson Grains from Macquarie Group.

Braams says one of the biggest challenges facing investors in agriculture is finding assets of scale. “If you look to North America, or even to Europe, it is very hard to write larger cheques, essentially because most farmland is individually or family-owned and quite fragmented,” he says. 

“We find Australia to be one geography where the land has been put together and is much institutionalised relative to other countries where we look to invest. Lawson Grains was a unique portfolio because it was basically a fund that Macquarie put together over a decade. Macquarie did a lot of the heavy lifting in aggregating smaller properties into this massive portfolio of about 100,000 hectares in 10 aggregations – four in [New South Wales] and six in Western Australia.”

Braams says: “Australian land is good value relative to other farming regions, even when you compare on a productivity-adjusted basis. We also like the diversification that the portfolio offers within a single country.” For example, the 10 different Lawson Grains aggregations are spread across five different climate zones, with “negative rainfall correlation” between these zones. And they cater to different end-users. Most of the production in Western Australia is exported, whereas New South Wales production is primarily processed domestically.

“The other thing about Lawson Grains is that we saw a big opportunity to leverage the flexibility we have in our mandate. Macquarie was running a cropping-only mandate. We may look to incorporate either native or commercial tree species, like radiated pines, on certain parts of the land which is not productive for row cropping. We may also look to expand that business to beyond just cropping to incorporate livestock, irrigated cropping and other investments along the value chain such as storage and logistics.” 

Since the Lawson Grains acquisition, global commodity prices, especially for grains, have soared on the back of tight global supply. AIMCo’s timing has been perfect. “I can say that commodity prices have been significantly higher than they have been historically,” Braams says. “However, we also face significant headwinds when it comes to input prices.”

He says fertilisers, chemicals and fuel cost more today. The availability of labour in rural Australia and long wait times for farm machinery, storage and handling infrastructure also present challenges. “It is a challenging time operationally, but, since we closed the transaction in early 2022, we have been rewarded with significant land price appreciation,” he says.

With harvesting wrapping up, and the new season of planting due to begin, Braams says: “We definitely have much higher risks when you think about starting the year with higher input prices for seeds and fertilisers – and we don’t know where commodity prices are going to be at harvest time. 

“Although we see the impact of higher commodity prices more than offsetting input prices, whether that continues going forward is questionable. We try to hedge risks like that by selling forward certain volumes where we can for certain crop types. But it isn’t necessarily perfect.”

The saving grace is patience. Says Braams: “We are not too concerned from a long-term perspective because we are investing on behalf of pension plans, endowment funds and in the province of Alberta. We are well-positioned to ride out short-term commodity cycles.”

Today, about 70% of AIMCo’s renewable resources portfolio is in timberland, 30% in agriculture. “We are trying to even the balance to have closer to a 50-50 mix of farmland and timberland going forward,” Braams says.

AIMCo has also invested in Canada, the US, New Zealand and South America. The last region is a market where, Braams says, “we have been looking to try to increase our exposure over the last several years”.

The investment strategy in Canada, where timberland is mainly owned by the Crown, is different to that in Australia. AIMCo does not own timberland in Canada where it is a passive investor in agriculture land. “We buy the land and lease it to counterparties on a triple-net basis,” Braams says.

Since 2016, AIMCo has added timberland on the US Pacific Northwest and southern US to its portfolio. And Braams flags further investment activities in the US timberland and agriculture sectors. 

Although land-centric investments are still the focus of the portfolio, the team is also evaluating investments in controlled-environment agriculture, water, and other complementary or integrated land-centric opportunities further along the value chain. “We also have this opportunistic bucket which includes what we call controlled-environment agriculture. What this means is advanced greenhouses, vertical farming and alternative proteins.” In 2021, AIMCo placed US$100m (€92m) with Equilibrium Capital, a US asset manager focused on sustainable and impact-driven agricultural investments. The equity is invested in the US$1bn Equilibrium Controlled Environment Foods Fund II.

“We see Equilibrium as having a bit of first-mover advantage. At the time, not a lot of other firms were looking at the advanced greenhouse space in North America. Equilibrium is generally buying or building greenhouses and leasing them to top-grade operators who already have experience and relationships with key supermarkets.”

From an ESG perspective, there is material efficiency in controlled-environment agriculture, he says. It produces higher yields with less water and chemicals, and there climate-change resiliency.

Being able to grow food close to market also saves food miles. Greenhouses can be located close to retail distribution centres to grow and supply retailers with fresh produce like cucumbers, tomatoes, leafy greens and berries. 

AIMCo is monitoring and has evaluated investments in other alternative agriculture opportunities, such as recirculating aquaculture system technology. Braams says it has not made investments in aquaculture to date, but may look to do so as the technology continues to evolve and is proven successful at growing fish to full maturity at scale.