Macquarie: Growing up fast in agriculture

Macquarie Asset Management’s agriculture platform has risen to the top tier of Australian horticulture producers through a series of savvy acquisitions.

In December, it acquired a majority stake in Fresh Produce Group (FPG) for a reported A$175m (€105.4m). FPG operates about 1,200 hectares of premium farmland, producing table grapes, citrus and berries. It ranks among Australia’s largest fruit producers and, with a capital injection from Macquarie, is now poised for rapid growth.

The investment follows Macquarie’s recent acquisition of Vitalharvest, one of Australia’s largest agricultural trusts. Macquarie and its rival contender, Roc Partners, faced off over 10 rounds of bidding in 2021 to secure the listed company. The final price for Vitalharvest, which owns berry and citrus orchards, was A$375m – up from A$300m.

Macquarie had a blocking stake in Vitalharvest and a long-standing relationship with Costa Group, one of Australia’s leading fresh fruit and growing businesses, which leases citrus orchards and berry farms from Vitalharvest.

Horticulture is a growth sector for Macquarie, says Collin Rigg, Macquarie’s head of agriculture for Australia and New Zealand, suggesting it will continue to increase its exposure to the sector.

The group’s agricultural platform, which has owned and operated agricultural assets on behalf of investors since 2003, is invested in broadacre cropping and pastoral companies Cubbie Station, Cowal Ag, Viridis Ag, Fresh Produce Group, and Paraway Pastoral.

Operational control

“Fundamentally, our strategies remain the same,” says Rigg. “We retain operational control over most of our assets, and we build those assets into operating businesses on behalf of investors to provide produce that supports growing populations. Our portfolio is diversified with investments in animal proteins, grains and oil seeds, fibre production and horticulture.”

Macquarie considers divesting assets as they come to maturity. The firm has transacted over A$2.5bn of assets in the past five years, including around A$900m of realisations in Brazil in 2022, as well as the sale of Australia’s Lawson Grains to Alberta Investment Management Company, reportedly for around A$600m. 

“Lawson Grains was a great example of our strategy coming to life through the full investment cycle,” says Rigg. “We started by aggregating diversified grain production farms and grew that into a fully-fledged operating business prior to exit.” Lawson Grains became one of Australia’s leading corporate grain farmers, owning 90,500 hectares of arable land and producing more than 200,000 tonnes of wheat, barley, canola and pulses a year.

“For the moment, we are focused on Australia. We are opportunity-led and look to access new opportunities with our equity partners,” says Rigg, who does not rule out investing offshore in future.

“We are seeing increasing appetite in agriculture for the fundamentals – to meet increasing demand for high-quality food and fibre as populations grow. The sector can also deliver broader services to the environment, which is where some conversations have gone in recently with the increased interest in natural capital.”

Macquarie collaborates with research groups, such as the Commonwealth Scientific and Industrial Research Organisation (CSIRO), which develops technologies to help solve greenhouse gas emissions from farming – ranging from ‘enteric’ methane emitted by cattle to fertiliser usage and diesel consumption. Such scientific work has led to the introduction of precision farming to improve cost efficiency and lower the emissions intensity of Macquarie’s farming systems. 

“Our work with CSIRO is to inform ourselves of the source and the size of emissions in each of our operations and with that knowledge to take steps to reduce our emissions. We use the information to establish baselines for all our assets and we then develop a strategy to reduce emissions,” says Rigg.

Three-pronged approach 

Macquarie takes a three-pronged approach to contain and cut sources of carbon emissions. It sources green electricity through power-purchase agreements with energy suppliers, it revegetates unproductive land for carbon sequestration and it applies precision agriculture technologies to abate residual emissions from key production inputs, including fertilisers, chemicals and diesel.

Precision agriculture in the context of broadacre cropping involves the holistic coordination of many overlapping technologies to maximise soil health, water-use efficiency and nutrient management to benefit current and future year production.

“That is at the core of what we do,” says Riggs. “In our cropping businesses, we are adopting smart spraying technology, which allows us to reduce the amount of chemicals used to control weeds and pests and that also reduces our emissions. We are now also able to better match the amount of crop inputs that we use to the production potential of soil by using technology to integrate various data points.”

He explains: “If we are using poorer soil then we use less inputs, because we know it is going to produce less. Conversely, with higher-quality soil, we can increase the level of input because we know it is being used efficiently to convert into output.

“Fundamentally, managing soil health is critically important as we get better grazing or cropping from land that performs well. This can at times, for example, require the use of pH-adjusting ameliorants such as lime. We now know the emissions impact of these products and can make informed decisions to manage both cost and carbon emissions.

“That principle is at the core of natural resource management, it is about managing that soil for the best sustainable production in the long term, so we do like to leave as much as we can in place each year.”

Collectively, across Macquarie’s rain-fed grain growing activities, its emissions calculator informs it that its cumulative emissions intensity has been 12% better than the benchmark since 2020.

Investors are deepening their understanding of the asset class, says Rigg, adding that agriculture has been introduced to institutional capital primarily on the basis of the sector’s ability to generate stable, resilient financial returns. Increasingly, that is linked to sustainability.

He says managers are expected to operate the asset as part of the broader landscape environment. For agriculture to continue to generate financial return – and to attract investment allocations from institutions – managers need to fundamentally manage that land with a view to continually improving sustainability.

Derivative products

Rigg describes the carbon market as “nascent” and biodiversity as “even more nascent” but says both hold promise under the right settings. To date, such newer derivative products from the land are not material to the platform’s business. Depending on the locations, and where there are material opportunities to drive measurable biodiversity outcomes, Rigg says the group will look to combine commercial benefits with conservation efforts.

For instance, one of its operating companies, Paraway Pastoral, works with the Biodiversity Conservation Trust, a New South Wales government entity which offers payments and incentives to implement projects to protect and preserve threatened species. In such an instance, he says, it makes sense to establish a partnership.

“At this stage, it is premature to quantify our investment strategies, but the potential is definitely there,” says Rigg. “And there is developing interest from government, conservation and philanthropic groups looking to partner with large landowners to see what they can do on the land for environmental solutions.”