Patience can pay off

Long-term investments in ag projects can yield good returns for investors

CALGARY — It’s a big job finding investors who will put millions of dollars of patient capital into a farm expansion scheme they’ve never seen in person.

“Patient capital is money that can sit somewhere for a long time to create value,” says Joelle Faulkner, founder and chief executive officer of Area One Farms, a four-year-old Canadian company that serves as a match-maker, bringing investment money together with farms needing money for expansion.

“Patient capital is what we need in farming because let’s face it, farms don’t pay for themselves quickly. If you look at conventional investing models in agriculture, the operator carries a lot of risk.

“But if you’re an investor and you have respect for how good a farmer might be, then you’re willing to be his financial partner and share the risk. These investors have a lot of respect for farmers. We share the risk.”

Faulkner says she puts the right investor with the right farmer, performing due diligence, inventory checks and taking care of the paperwork for both parties. The investors put their money into a pool, which Faulkner manages so there is no need for them to deal directly with the farm.

She establishes a new equity partnership, with the farmer putting in core money and Area One Farms investors putting up the balance. This new company holds the title to and manages all operations of the new joint venture.

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“We never put the farmer’s home farm into the partnership. It remains their own. We only deal with the expansion portion. The farmer gains extra income from managing the new land and they also get the appreciation on the new land.

“We haven’t had any failures. It’s pretty hard for an equity partnership like this to go bad because it’s all equity. None of it is operating money. And we won’t deal with a farm unless it’s financially stable. Plus, there are no interest charges to accumulate because the investors are part owners. They aren’t loaning the money.”

Although farmland is the most solid investment, in some situations Area One is willing to work with expansions in beef operations and some types of facilities.

However, she draws the line when it comes to quotas and pigs.

Faulkner says her guiding principle in everything she does is that their partners should always do better working with Area One Farms than they could on their own. What does she get out of the deal, other than satisfaction?

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“Well, I can’t afford to do this simply out of the goodness of my heart. We get enough upfront money from the investors annually so we can run the office. We charge the investors for management.

“If we do a good job of managing, then we make money. If we do a bad job of managing, then we don’t make money. I think we’re good enough managers that in 10 or 20 years we’ll see the rewards.”

Faulkner comes well-equipped to do the job. She’s a fourth generation dairy farmer from Ontario. Among her other qualifications, she holds degrees in engineering, business and law. She has professional experience in private equity and investment banking, and is still a partner in the family farm, although it’s now run by her brother and dad.

“I think we’re the only company globally doing this kind of thing. There are lots of investors who buy land and then rent it to farmers. And some investment companies buy land and farm it. I’ve seen that in Europe, South America, Russia and Australia.

“But as far as I know, Area One Farms is the only company in the world that puts together agricultural equity partnerships like this. The idea of true equity partnership is very unusual for a capital intensive industry like farming.”

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Faulkner manages eight agricultural equity partnerships covering a total of 60,000 acres, only in Canada.