Investment Thesis

Investing in Australian farmland, water and ecosystem regeneration to unlock value from the ground up.

Farmland

Food production underpins the populations of the world.

Persistent growth in the world agricultural footprint has been vital in sustaining people and livelihoods but this has concurrently enfeebled, degraded or removed natural ecosystems across the globe.

Agriculture is a key contributor to global warming, generating significant carbon emissions, and through removal of forests reducing carbon sequestration services. It is the major user and polluter of water, and native vegetation clearing is challenging remaining ecosystems and biodiversity on Earth.

In 2004, we identified a global strategic need and investment opportunity by stabilising the world’s agricultural footprint and producing more food off existing farmland. Our regenerative agriculture model repositions Australian irrigated farmland to sustainably produce more food in an emissions-constrained world.

We deploy capital from progressive-aligned value investors into the regeneration of inefficient irrigated cropping operations with depleted soils, high CO2 emissions and negligible ecosystem function. This unlocks value through reformed farm layout, application of best available technology, operational emissions reductions, soil productivity transformation and large scale revegetation of forests for scaled CO2 sequestration.

The 2020 Kilter Rural regeneration model builds on 15 years of leadership resetting the standard for Australian irrigated agriculture. Our model moderates impacts from extreme weather events, while advanced soil productivity and ecosystem health underpin new diversified high-value crop rotations. Our farmland value-add investment strategy involves:

  • Farm regeneration: Aggregate for scale, repair soil, import irrigation technology and new diversified cropping regimes to bridge the gap between current and potential yields
  • Water security: Ensure locations with high reliability water entitlement and secure water delivery
  • Mitigating price risks: By working through established off-take agreements
  • Mitigating climate risks: With farm landscapes designed to yield through escalating weather events
  • Offering exit options: The aggregation approach provides exit strategies.

In a Kilter Rural landscape, environmental improvement drives agricultural productivity, financial performance and long-term capital appreciation. Our investment thesis is enhanced through the application of the Accounting for Nature Framework methodology for assessing and reporting on the condition of environmental assets.

Farmland case study:

Institutional mandate

Since 2006 we have been regenerating underutilised farmland to deliver one of the most technically advanced and environmentally sustainable irrigation operations in Australia.

Target soils across 9000ha of land in northern Victoria have been remediated and irrigation infrastructure installed, including laying more than 12,000km of high water-use efficiency sub-surface drip tape.

About 50% of the landscape is allocated to deliver environmental protection outcomes — delivered through large-scale revegetation activities and river and wetland protection. On this part of the landscape returns are delivered through a mix of low-input grazing, vegetation  protection payments and vegetation offset payments. Longer-term value is created from increases in pollinators and pest control, groundwater interception, salinity management and buffering against climatic events. Environmental accounts are prepared annually using the Accounting for Nature Framework.

‘We’re very positive about the returns we can generate through regenerative agriculture. We’ve proven over 15 years the benefit to astute investors of managing agribusiness assets that balance farming, water and ecosystem protection.’

– Michael Neville, General Manager Agriculture and Ecosystems

Water

Less than 1% of Earth’s water is accessible and drinkable.

As Australia’s most experienced water manager, we have been directly involved in Australian water markets since the 1990s. Our team has a deep understanding of the Murray-Darling Basin water market and stakeholders. We are at the forefront of innovation,  deploying products that help irrigators manage water risk while delivering responsible investor returns.

As an alternative real asset class, water provides opportunity for diversification and risk mitigation with low correlation to traditional assets, such as listed property and equities. It is one of the few assets capable of providing a genuine alternative investment opportunity.

Water assets generate returns from the deployment of the physical water associated with the asset into the water market for irrigation use and from asset capital appreciation. Australian water markets offer one of very few opportunities globally for investors to obtain direct exposure to this most vital of assets.

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‘Water is a limiting factor in virtually all agricultural systems. An investment in water assets is well-positioned to benefit from structural trends in global markets for food and fibre in response to climate change.’

– Euan Friday, Chief Investment Officer

Water case study: Balanced Water Fund

The Murray-Darling Basin Balanced Water Fund (BWF) is Australia’s only explicit impact water fund investing in water markets to deliver financial returns investors, irrigation water for farmers and environmental impacts through water donations to culturally important wetlands and ecosystems.

The fund is a collaborative effort between Kilter Rural and The Nature Conservancy Australia. Since inception in 2015, the fund has delivered eight watering events across 21 wetlands, including at Lake Henry in the Wingillie Station Wetland Complex. Pooling BWF water with the Commonwealth Environmental Water Holder, the fund has delivered more than 3.3GL of water for environmental outcomes.

More than 40GL of water has been made available for irrigation farmers since 2015. With assets under management of $67 million and annualised returns above 18%, the fund has outperformed all return targets since inception.

Interested in changing agriculture for the better?