The Canada Pension Plan Investment Board is making its first foray into the booming Canadian agriculture business with the $128-million purchase of a portfolio of Saskatchewan farmland from Assiniboia Farmland LP.
The 115,000 acres of land in the southern part of the province produce wheat, barley and canola, commodities that have seen sharp price increases in the past few years amid rising global demand.
The price of Canadian farmland has risen 12 per cent a year since 2008, thanks to low interest rates, rising crop yields and growing overseas markets. The value of farms in Saskatchewan has climbed about 10 per cent in each of the past four years and increased steadily since 2002 amid rising demand for land from out-of-province buyers, according to Farm Credit Canada, a lender.
"We see this as an attractive opportunity for CPPIB to invest in an established platform of high-quality farmland in a strategically significant agricultural region of Canada," said André Bourbonnais, senior vice-president of private investments at CPPIB.
The portfolio of land generates returns through leases, price appreciation and some production-sharing agreements with growers. Agricultural commodities are expected to enjoy new demand as incomes rise in emerging markets and diets shift to more protein and high-value crops such as canola. At the same time, farmland has become prized for low price volatility.
"We believe that in the long term there's increasing demand for agricultural product, population growth and somehow supplies are constrained or uncertain, so we think the fundamentals are good," Mr. Bourbonnais said in an interview.
CPPIB last year began looking at agriculture as way to generate stable returns and strong growth over the long term. Mr. Bourbonnais said the fund is planning to make agricultural investments in four other countries – Australia, New Zealand, the U.S. and Brazil – and within five years could have a portfolio worth $2-billion to $3-billion.
CPPIB recently made its first direct investment in farmland with a deal for North American Agriculture Investments LLC, a fund that owned farms across the United States.
CPPIB, which manages the assets of the Canada Pension Plan, the country's national pension system, said Assiniboia's managers would continue to run the business after the deal closes in January.
Assiniboia has been buying Saskatchewan farmland and renting it to growers since 2005, said Doug Emsley, CEO and co-founder of the Regina-based fund.
"We felt the land here was undervalued for lots of different reasons, so we started to accumulate it … Everybody thought we were nuts at the time. We raised some money along the way and today we're the largest farmland fund in the country," Mr. Emsley said.
CPPIB's total assets are worth $193-billion, generating an annual average return of of 6.8 per cent over 10 years. More than a third of the assets are in foreign equities markets. Real estate and Canadian equities account for 11 per cent and 8.4 per cent, respectively.
To discourage land speculation, Saskatchewan and some other provinces restrict ownership of farmland to Canadian citizens or permanent residents and wholly owned Canadian groups, such as CPPIB. Saskatchewan, which is home to 40 per cent of the country's arable land, restricts foreign ownership to 10 acres.