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Kurt Cole faced a dilemma seven years ago. He needed to expand his east-central Alberta farm but didn’t have the cash to do it. Three of his five daughters and their families wanted to move back home, and he had an opportunity to double his acreage by acquiring a cousin’s nearby land.

The $7-million price tag was hefty, and a mortgage would have been crushing – an all-too-common worry among farmers. After a year of studying options, he settled on an unusual private-equity firm that invests solely in farm operations. Area One Farms, led by chief executive Joelle Faulkner, invests alongside farmers and helps them expand and build up more sustainable operations. So far, it’s worked out.

Joelle Faulkner, CEO of Area One Farms, poses for a portrait in her office in Toronto on January 20, 2021.Aaron Vincent Elkaim/The Globe and Mail

“With Joelle, we work as a partnership,” said Mr. Cole, whose farm comprises 8,000 acres of grain production plus pasture for cattle. “It works very well because we understand each other, we know which side each of us is good at and we can make it work to make us both better.”

It’s a unique way for Canadian farmers to finance expansion, even as the generational handover of farms is under threat across the country, with children moving away to seek what they believe to be better opportunities. Many are also turned off by the prospects of high debt and the whims of weather.

In addition, Area One Farms gives its institutional and high-net-worth investors a direct connection to the global food supply as farmers shift to more sustainable growing and production. Indeed, the pandemic has brought home the importance of food security and the role Canada’s farmers play in the supply chain as the world recovers.

So far, the Toronto-based company has committed $450-million to farm investments and is in the process of closing its fourth round of fundraising – none of which has reached its 10-year investment horizon yet. The fund manager has 24 farm partners in Ontario, Manitoba, Saskatchewan and Alberta.

Area One Farms is considered an impact investment – one that has, alongside financial targets, environmental and social results measured by the United Nations-supported Principles for Responsible Investment and the Task Force on Climate-related Financial Disclosures. These are global standards being widely adopted by industrial companies, financial institutions and pension funds.

It has focused not on lending but on partnering with farmers and working with them to bring previously arable land back into production, said Ms. Faulkner, who comes from a Southern Ontario farming family. It has also formed a network of experts and fellow producers to mentor farmers on sustainable agriculture, as well as marketing and other services. Its social impact sees farms staying in the hands of families such as Mr. Cole’s.

“Because of how our model works, which is to share not only the income with the family farm partners but the appreciation of the land, we keep more wealth that’s generated locally,” she said. “It goes to local partners and as a result it enriches the communities.”

Rather than just investing in the land, the fund also shares the costs of the equipment needed to run the operation. The aim is to have farmers build up enough equity to buy the fund out after its 10-year lifespan is up, providing the return for Area One Farms’ investors.

“On both income and appreciation [the farmers] take more than what they owe because they’re managing it. In our view, they’re not just managing the business and the crops, they’re actually managing the land,” Ms. Faulkner said.

“So where we have most of our money invested and they have most of their money invested, you want that to go up not just because the market goes up, you want to make it better all the time.”

On environmental improvement, the firm pushes regenerative farming techniques, including no-till approaches to managing soil, which minimize erosion and serve to capture carbon. A report last year by the Canada West Foundation quoted research from the University of Saskatchewan’s Lana Awada, who found that increases in conservation tillage and no-till seeding have led to a 400-per-cent increase in carbon sequestration since the mid-1990s. As a result, Western Canadian farms capture more CO2 than they emit.

The trick for farmers, however, is reducing costs while increasing yields using these methods, and that is where expertise is shared among farmers in the network.

“If you’re farming conventionally, you can call any one of a thousand people for advice and they can help you find an answer. If you’re farming in this way, some of that advice is still relevant, but some isn’t,” Ms. Faulkner said.

“We’re trying to support the growth of that practice, and in particular we’re trying to find a way to measure outcome. So how healthy is that soil, rather than inputs?”

The key to passing family farms on to kids and their families, especially multiple ones, is expanding the land to support them – a pricey prospect when there is market competition for agricultural land.

“When we didn’t tie up all our capital in land purchase, we were able to use our capital to expand our herd, which worked very well with Joelle. We had grassland and we could run cows on the grass and have a full operation to work together on it,” Mr. Cole said. “So we stayed together as a family in a family operation.”

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