Podcast Transcript: Artem Milinchuk on Alternative Assets, Farmland and Inflation Hedges 

This is an edited transcript of our podcast episode with Artem Milinchuk, published 9 September 2022. Artem has over 10 years of finance experience in food, agriculture, and farmland. Prior to founding FarmTogether, Artem was employee #1 and CFO/VP of Operations at Full Harvest Technologies, a now post-Series A B2B platform for​ buying and selling​ produce. In the podcast, we discussed types of income earned on farmland, how COVID-19 impacted farmland prices, whether farmland provides an inflation hedge, and much more. While we have tried to make the transcript as accurate as possible, if you do notice any errors, let me know by email.

Introduction

Welcome to Macro Hive Conversations with Bilal Hafeez. Macro Hive helps educate investors and provide investment insights for all markets, from crypto, to equities, to bonds. For our latest views, visit macrohive.com.

Europe has taken centre stage in recent weeks with a new Prime Minister in the UK, and the European Central Bank hiking rates, yet again. We have a number of pieces that discuss what all of this means for markets, on the Macro Hive site. On top of that, we have notes that look at which sector’s earnings could tell us when a recession is due, and we also look at the merge in Ethereum.

You can get all of this as a subscriber to Macro Hive, and if you’re not already a member, you can get a weekly dose of Macro Hive by signing up for our free weekly newsletter.It’s super popular, it contains charts, explains some unlocked content, and it’s free. To get a newsletter, just go to macrohive.com/free. That’s macrohive.com/free, and sign up for the letter now.

If you’re a professional or institutional investor, we also have a more high-octane product that features all of my and the Macro Hive research team’s views, our model portfolio, trade ideas, machine learning models, and much, much more. Many of the world’s top investors subscribe to this service. To get more details, you can email me on [email protected], or you can message me on Bloomberg.

Now, onto this episode’s guest, Artem Milinchuk. Artem the founder of FarmTogether, and an expert in all things related to farmland. I wanted to get him on this podcast, so I could better understand how farmland could potentially be a good investment in an inflationary world. In terms of Artem’s background, before founding FarmTogether, Artem was employee number one at Full Harvest Technologies, at B2B Platform for buying and selling produce. Before that, he worked at The Ontario Teachers’ Pension Plan, Sprott Resource Holdings, Ernst & Young, and PricewaterhouseCoopers. He also holds an MBA from Wharton Business School. Now, onto our conversation. Greetings, Artem. It’s great to have you on the podcast.

Artem Milinchuk (01:59):

It’s good to be here, Bilal.

Bilal Hafeez (02:00):

Great. Now, before we go into the meat of our conversation, I do always like to ask my guests something about their origin story. You obviously have quite an interesting background and you’ve ended up in farming, I could say, or farmland, I should say. So, what did you do at university? Was it inevitable you would end up in investing and markets, in some form? What’s been your journey since the beginning?

Artem Milinchuk (02:21):

Yeah, absolutely. So, a little bit of my background. Ukrainian, Russian origin. Born in Soviet Union, raised in Russia. So, I’ve gone through this really tectonic shift in economic paradigms, in very short and formative years of my life. And I think the constant during those years, was that our family had a bit of a patch of land, and we always knew that we could grow potatoes, vegetables, and other things that would get us through tough times. And so, there’s that really inherent appreciation for land, that myself, and actually a lot of people of my generation, from that part of the world, have. Education wise though, I went into finance, I studied economics, got my bachelor’s and masters in Russia, and then, moved to Canada in 2007.

And the fascination with finance economics actually stems from the same history that I experienced, which is good economic system created a lot of wealth and prosperity, and bad ones create a lot of misery. And it’s regardless of what resources you have as a physical country, because you look at places like Israel that have nothing, right? And then, places like Norway and Venezuela, and you have a lot of resources, no resources, and then, very different economic outcomes. So I’m a huge believer that we have enough resource on this planet to feed everyone. And marrying those two things in my life, led me to creating FarmTogether, the Farmland Investing Platforms.

Bilal Hafeez (03:40):

It sounds like there’s a personal connection to land that you have, that many people who are raised in the West, may not have. We don’t really have that same, well, I personally don’t have such a close attachment to the land. I just go to the supermarket, buy the product, and carry on. Of course, in today’s world, it does feel more unstable, and I do worry that maybe I should have a patch of land somewhere. But I can get a sense of where some of these ideas came from, but what inspired you to go into looking and investing in farmland as an asset class, or FarmTogether, your company? What led you in that direction?

Artem Milinchuk (04:13):

I got my exposure to farmland 2013, when I was working for a private equity fund in Canada, called Sprott. So it’s still early, very early days for farmland, but these guys were pretty innovative. And so, we actually owned some land in Canada and Uruguay, and it was just fascinating to me that very few people were looking at it at the time. But back in 2013, I made the mental note, and then, continued on with my life. And really, the idea of FarmTogether came to me in 2015-16, when I was working for a big pension fund in Canada, called Ontario Teachers’, where they would really, very proactively invest in a lot of different markets and asset classes. And so, the breadth of what they were looking at was fascinating. At the same time, what was even more fascinating, that they were not looking at farmland.

Types of Investable Farmland 

Bilal Hafeez (04:59):

And when you say they weren’t looking at farmland, obviously they were looking at land, I imagine, or real estate. So I suppose, when it comes to land or real estate, there’s the building side, commercial real estate, residential real estate, which is a bit more conventional, you could say. Then, there’s land that investors buy. When people buy land, what’s the most common type of land, like pension fund, would normally buy?

Artem Milinchuk (05:23):

So they would be investing, exactly, in real estate. They had a huge real estate portfolio. They would invest in infrastructure of real land, but tangential to it. They did have a timber practise. So timber was already fairly popular, so I think there was a understanding that, what we now call natural asset class. A real asset class is an attractive market, but they were not looking at it at the time, and it’s a huge market. So that led me to this. Now, a question. If this market and asset class is really fundamental to our lives, shouldn’t it also then be heavily invested in, and have a lot of interest from investors? Because really as an investor, you want to make sure that you have assets that are fundamental to our lives.

Bilal Hafeez (06:10):

Yeah, understood. And when we define farmland, so something like timber and forest, that’s not classified as farmland. It would be more farmlands that you used to grow crops, or raise livestock on, so the land that’s devoted to those sorts of things.

Artem Milinchuk (06:25):

That’s right. Yeah. That’s correct.

Bilal Hafeez (06:27):

And are there certain types of farmlands, or definitions of farms, and yeah, how does one conceptually think about this? Because I’m imagining some farm, near some village in the English countryside, as a farm. But I imagine there’s industrial scale farms or something, and different countries specialise in different types of farming.

Artem Milinchuk (06:46):

Definitely. So broadly, and I’m just going to talk about United States, because that’s the market I know the most, the best. It’s about a $3 trillion market, and broadly, you break it down into two types of farmland. So cropland, land that grows crops. And within cropland, you will have annual crops, so crops that you have to plant every year, corn, soybeans. And you have what’s called permanent crops. So this would be your tree nuts, your fruits. So an apple tree, where you plant them once, and then, they stand for many, many years, bearing the crop. And then, you have pastureland. So this is exactly where you graze your livestock. And then, you have some tiny portions of horticulture, you’ll have some dairy farms, you’ll have fish farms. So those are fun as well. Oyster farms. So there’s some fringe types of farms. But really, when we talk about farmland, we’re talking about cropland and pastureland. And really, FarmTogether only deals in cropland. That’s the market we focus on.

The Size of the Farmland Market 

Bilal Hafeez (07:44):

And you said the market’s worth, you think, around $3 trillion. Off that, how much would you say is cropland?

Artem Milinchuk (07:50):

Roughly 2.1 trillion.

Average Returns Over Last 50 Years

Bilal Hafeez (07:54):

Okay, so the vast majority is cropland. And then, from an investing perspective, how should we think about investing in farmland? What’s the source of return? Is it just the increase in the value of the land? Are there some return, some kind of income that you get on the land as well? And how does one think about this?

Artem Milinchuk (08:11):

… Yeah, so you can think about farmland as the real estate in this regard, where you have two sources of income. You have price appreciation from just the land increasing in price. And to give you some idea of that magnitude, so in United States over the last 50 years or so, land, farmland on average, has increased by about 5.9%. And that’s been driven by inflation, decrease of supply in land, increase in demand.

Bilal Hafeez (08:34):

That’s 5.9% per year, over the last 50 years? Yeah.

Types of Income Earned on Farmland 

Artem Milinchuk (08:38):

That’s right. Yeah. And then, you have your current income. So this is the income that you receive from the crop grown on the land, and harvested, and sold that year. And that’s where it gets really interesting, where it then, the analogy with real estate, breaks down. In real estate, you know will have rental income. Sometimes you might have a little bit of a revenue share, but it’s very, very simple. In farming, you have that as well. You can have something that is just pure rent, where a farmer will pay you rent every year. It’s a very common thing, so 40% of land in US is rented. But you can also have, for example, we call a flex lease.

So when you also receive a payment from the farmer that is fixed, plus a prearranged payment, based on commodity prices purely. So nothing to do with what happened on the farm, what the harvest was. It’s purely what did the commodity prices do that year. You can have a revenue share model. You can have a profit sharing model. And you can have, or what’s called in industry, a direct operated income, where the farm is essentially a mini enterprise. And the farmer will operate it as a contractor, receive a fixed payment to do that, and then, you provide all the inputs, all the expenses. So you run a full P&L.

Bilal Hafeez (09:46):

Okay, so it’s every possible type of arrangement you can have there. And in your experience, what type of arrangement on the income side, do you tend to gravitate towards?

Artem Milinchuk (09:57):

We tend to gravitate toward direct operated, as well as revenue, fixed lease, plus revenue share component.

Bilal Hafeez (10:05):

And the direct operated sounds like a lot more work, is it?

Artem Milinchuk (10:08):

It is.

Bilal Hafeez (10:09):

So why do you go down that route?

Artem Milinchuk (10:12):

So a few reasons. One, is this is the area where our team has the most expertise. And that is also the model that typically has the highest risk-reward profile, meaning it has the highest risk, but also the highest reward. And what we found, is that with a lot of our clients, and most of our investors are accredited investors, family offices, they’re looking for that long term, max exposure to crop crisis, to farmland. Because not to jump too much ahead, but farmland has done really well in periods of inflation. And so, you want a structure that gives you that max exposure. Because when you’re doing the fixed rent, well, until you reset it, you’re losing out on inflation. Whereas, in direct operated model, well, commodity prices go up. That’s when you supposedly will have the highest return. So that’s why.

Bilal Hafeez (10:59):

And you mentioned the 5, 6% annual returns. How does that compare to traditional asset classes? Because lots of our listeners probably have some kind of equity exposure. They may have some exposure, obviously, to their own houses, like residential property. So how would you compare it to those sorts of asset classes?

Artem Milinchuk (11:15):

Yeah, absolutely. So we just talk about the price appreciation. There’s also the current income component which is roughly the same. So 5% or so, on average.

Bilal Hafeez (11:23):

So you almost double your returns then, if you include the income and the price appreciation?

Artem Milinchuk (11:28):

That’s right. That’s on average. So farmland, historically, the farmland index in the US from ’92 to 2021, has delivered about 10 and a half, 11% total return, which outperformed S&P 500, outperformed bonds, close to real estate. So it’s done quite well, farmland. Now, I don’t think we will have those returns going forward, just because so many asset costs have been bid up so heavily. But the general target net IRS, that we bring to a platform, called between six to 10%, which is price appreciation plus current income. So to answer your question on how does it compare to equities and others, farmland, we view it as the safer part of your portfolio. It definitely isn’t high-growth tech stocks. It’s not going to outperform an aggressive equity portfolio, or some sort of derivative structures. But if you think of it sitting somewhere in between bonds, real estate, inflation bonds, or gold, then it’ll do quite well.

Bilal Hafeez (12:30):

How does it compare to real estate, then? So, if you have a portfolio of residential, like REITs or something like that, how does it compare to that?

Artem Milinchuk (12:38):

When we look at real estate overall, so REITs, I think we had, and I’m just going to take a look at my notes as well, but I think we had about 12% return for REITs, in the last three years or so. But with much higher volatility. Whereas, farmland, on the volatility, it’s about 6, 7%. So your Sharpe ratio is much better on farmland.

Bilal Hafeez (12:57):

And they don’t always move together, presumably? So when residential gets hit hard or has a draw down, farmland doesn’t necessarily also fall? Do they follow somewhat different cycles?

Artem Milinchuk (13:06):

They do, yeah. So speaking historically, when we look at the correlation metrics of farmland to major asset classes, it’s been zero to negative. Real estate farmland is somewhat correlated, so I think the total’s about 0.4. But again, it’s the real estate overall. When you start looking at residential, I’ll be really curious to see some of the latest numbers. So we’re still getting those. But the anecdotal evidence during the pandemic, you had real estate in New York, San Francisco, the places just plummet because of COVID. Whereas, farmland just stayed very steady, so you had complete decoupling of that.

Bilal Hafeez (13:38):

So, this recent shock, if we use that as a case in point, that actually showed a decoupling between the two.

Artem Milinchuk (13:44):

That’s right.

How COVID-19 Impacted Farmland Prices 

Bilal Hafeez (13:44):

Yeah. And I was going to ask, how did COVID impact the operational farms? Because lots of other sectors of the economy had all sorts of operational issues, over that time.

Artem Milinchuk (13:54):

Yeah, absolutely. So we had those issues as well, on direct operated farms. We had issues as well, where you had labour shortages. And now, we actually, as a lot of other industries, are dealing with inflation inputs, fertiliser, steel, lumber, all of those have been coming down. So you do have quite a bit of inflation pressure, which should result in higher eventual crop prices and land prices, as they have already. But you do have that lag between having to pay all those expenses, then getting that money back. So there is a bit of cashflow management issue, that you need to be cognizant of. When we go back to raw crop, so this is typically where you have your corn and soybean fields, that are, more often, they are just the rental model. Those ones have not been affected at all, and actually have done extremely well for farmland.

The latest we looked at, they are double digits, and we had zero issues, because it’s all on the farmer side. And because you are also, in those areas, you typically have less, it’s less dense, and you have a somewhat more robust market for government support, as well as the infrastructure. So permanent crops, the tree nuts, the fruits, they were almost uniquely hit by the pandemic, where you had export issues with the ports in California, you had the demand collapse because a lot of the consumption is from travel, entertainment, leisure bars, restaurants, and that’s where you eat your almonds. But what’s interesting though, the index overall, actually stayed flat. So that’s, I think, what’s really important to remember when we talk about farmland as an asset class. It’s not like you’re investing in government bonds, where it’s very homogenous. You still have a lot of sub-asset classes, markets, setups. So it is a very diverse, vibrant market, just like real estate. You could have some farms do really well, well, at the same time, some farms will do poorly. But on average, we feel that the benefits definitely are substantial.

Does Farmland Provide an Inflation Hedge?

Bilal Hafeez (15:41):

Yeah. And obviously, one big issue today, for investors in particular, is inflation. How do you hedge your portfolio against inflation? And it does intuitively seem like farmland should be a good inflation hedge, and you alluded to that earlier. More specifically, why is farmland a good hedge against inflation? What is it about farmland specifically, that provides that hedge?

Artem Milinchuk (16:02):

Well, just looking historically at farmland performance during periods of inflation in the 20th century, farmland outperformed S&P by 30 plus percent, during periods of high inflation. And historically, when you look at different decades, then farmland delivered returns, most of them above inflation. So that’s just history. In terms of looking at the first principles of that, why is that? I think it’s a few things. So one, is when we talk about inflations. Really, you print a lot of money, and then the amount of physical goods stays the same. Well, land is extremely hard to create. In fact, we’re losing land that, click of millions of acres, every few years.

Bilal Hafeez (16:40):

When you say that land disappears, what’s causing that disappearance?

Artem Milinchuk (16:43):

It’s a mix of urban development, climate change, the shift of living more and more to urban. But so that’s one, right? It’s just very basic math, is that if you have something fixed, and something else is increasing, then the fixed will increase in price. The second point, is that farm products literally compose, well, hundreds of farm products compose the CPI. So you have what’s called farm feed, fuel, fibre. And then, you have all the derivatives that go from that, right? Now, while I know that we like to exclude fuel and food, because it’s volatile, which is always baffles me. Because as a consumer, well, I paid more for this, and now you tell me, “But it’s not inflation.” Okay. Well, I still paid more. And then, those products then, indirectly influence a much bigger basket of CPI. So you have farmland being, just almost mechanically linked to the CPI.

And then, you have increasingly, as the more institutional market comes to farming, and as companies like ours can open up this market more and more, then you have this more tactical trades happening, where investors anticipating inflation, will drive more capital to farmland. Because you have to remember, it’s still 98% of land in US, is family owned. So the market here, doesn’t really move the same as the global capital markets. There’s thin bridges here and there, but it’s disconnected. So it’s not truly an asset class just yet. It still needs much more, in terms of the financial linkages.

Leverage Levels in Farmland 

Bilal Hafeez (18:07):

And speaking of financial linkages, what about interest rates? Because that’s been one big support for asset classes since the global financial crisis. Low interest rate, money printing, that’s all ended. Interests are going up around the world. Presumably, that would provide a negative hit to farmland, I assume. Is that correct?

Artem Milinchuk (18:25):

So you’re absolutely correct, and let me put my former macro economist hat on. I hope I remember some things. But one, is that you do have farm, so farmland, you can view it as a long duration bond, right? 30, 50, 100 plus years. And so, the longer is the term of your bond, the high the duration, meaning the higher the sensitivity to interest rates. So farmland will have absolutely negative effect from the rates going up. A few things to remember though is that, one, farmer is actually very under levered. And when I say under-levered, it’s a bold statement, but let me explain what I mean.

The debt to active ratio is only 13%, which I think is a suboptimal way to capitalise what is a very leverageable asset class. When you look at real estate, it’ll be 50, 70, 80, 90%. S&P is, I think, 50 plus percent leverage. So from the perspective of interest rates going up, meaning that now you have more expensive debt to service your land, and then, you need to sell it. Well, that’s actually, the factor is way less than almost any other asset class.

Bilal Hafeez (19:27):

And just that on a side note, which financial institution provide lending with, or to farms, farmland, as collateral? Do all the traditional banks do that, or is it a specialist part of the financial sector?

Artem Milinchuk (19:38):

So in the United States, you have something called Farmer Mac, which is like Freddy and Fannie. So you do have that. And then, you have some more specialty banks. And there’s, yes, banks that provide loans, but the loan industry also isn’t that developed. You can get your traditional mortgage, you maybe can get some sort of vendor financing, but it’s not the same as it is in real estate. So the flexibility isn’t there, actually. That’s why FarmTogether, I think, is successful, is because we’re able to fill those gaps in financing. But let me then take a flip side here. The reason that interest rates are rising, is because inflation is rising. And so, then, farmers actually should be raising the price, which it has. So you have that, yes, mechanically, the rising interest rates will decrease the value of land, but it’s only because it’s increased by quite a bit, and because of inflation.

Structural Drivers of Price Moves 

Bilal Hafeez (20:29):

Understood. Yeah. And as you said earlier, it’s not a market that speculative investors are piled into, for the last 20 or 30 years. So it doesn’t have that froth. Now, as there has been more interest in alternative assets over the last five, 10 years, most recently, crypto has become very big. But there’s those areas, like the private markets have become much bigger as well. There’s also been a lot of interest in forest and timber, as you alluded to earlier. Commodities, of course. What do you think has been driving this move or this focus to alternatives, in general? And then, follow up question to that, do you think farmland will be one of the core alternatives for the next five, 10 years?

Artem Milinchuk (21:11):

Well, the second question, I’ll answer first, which is, absolutely. I think it’s such a fundamental thing for our living, that it needs to be also core to investment portfolios. But to answer your first question, I thought a lot about this and I had a bit of a front seat to that trend of alternatives opening up when I was at The Ontario Teachers’ Pension Plan. And I’m sure there’s articles out there, that speak about this better than I can. But here’s what I see in general. One, is you had the defined benefit pension plans running into major issues, as we came to this new, normal interest rates, where they just could not meet the obligation. So they had to take more risks than just government bonds. And that led to the liberalisation of laws around pension fund investing, which freed up trillions of dollars of capital.

So we moved from government bonds, to then 60, 40, more stocks, more bonds. And from there, as the pension funds also started looking more and more into what it is that they need to do, and then, sovereign wealth funds. And the reason I’m talking about this place, is I think, because they’re the ones that move the market. Retail is big and everything, but it’s this really sophisticated long term investment that I think truly define, restructure the markets, and that pull out products from them, the bankers, and everything else where they said, “This is what we need to do.” And so, then, that led to the traditional asset classes being bid up, and as mentioned, financial investors continue to look for alpha for returns. They said, “Well, what else is out there?” Well, real estate became next. And then, they looked at timber infrastructure. So there’s this general understanding, that at the end of the day, investing is having rights to an asset that produces cash flows, and there’s a lot of assets that’s produce cashes. So can appreciate in price, right?

We’ll look at things like art, collectables. And so, it’s just, I think this step away from very ivory tower, academic view of investing. And that’s the world where I lived in, to saying, “Let’s make some money.” And so, everyone is now saying, “Okay, what are the ways that I can invest?” And it moved from being this exotic thing, to something very common, very mainstream. Alternative investing, one day, just will be called investing. And there’ll be no difference between a Pokemon card, and an Apple stock maybe. Or a apple farm and Apple stock, is probably better person here.

Bilal Hafeez (23:27):

Yeah. And of course, COVID has changed so many different things. And you have an interesting background. You were on the so-called traditional asset management side, and now, you are in an alternative space on the farmland side. What do you think will happen to the investment landscape in the long term, after COVID?

Artem Milinchuk (23:46):

Well, the alternatives will definitely grow massively. I think the research I’ve seen, I believe Deloitte says that we’ll go from some 8, $9 trillion in capital, deployed today in alternatives. And this is up from 3 trillion, 2008. So massive increase already, to closer to 13, 14 trillion, the next four or five years. So that’s definitely going to grow. I think from the perspective of remote work, we saw how easy it was, although there’s some challenges, to continue to collaborate, being fully remote. And I think it’s opening up the world a bit more, where people will start looking more at different asset classes, different countries even.

Then, you do have, at the same time, deglobalization, I think, is a very real thing. Reshoring going on in the US, and then, securing critical supply chains, which food is the most critical of all. So, it’s going to be really interesting to see that play out, where the US is a very reliable supplier, both from a climate perspective, and just this sheer volume of food, to the shipping lanes, to the network it has. So, I think the US will benefit from continuing to be this really reliable food exporter. But you might see a bit of a disintermediation of these global financial flows, and more local markets emerging. As an economist, it’s a fascinating thing to watch. We have inflation, the highest in 40 years, and megatrends of deglobalization. So, it’s historical times. And anyone’s guess is as good as mine.

Bilal Hafeez (25:12):

Yeah. And we’ve mentioned climate a few times here. Are you seeing the actual impact of climate on the farms that you manage, and in the farmland sector in general? And how should we think about climate change’s impact on farming in the next, say, 50 years?

Artem Milinchuk (25:26):

With climate, it’s really interesting. Of course, you have overall, a negative going on at a planetary level. But you almost need to think about farm investing, and climate as a climate portfolio. So California is the market we know best, so let me talk to that. There’s obviously this issues of water and increasing temperatures. At the same time, you have others that have good water supply, to benefit from the other farms struggling. And then, you have warming up climates up North in Canada, and North of US that, again, will benefit even more from this climate change. So overall, it’s of course, it’s negative. But there are definitely areas that do stand to benefit.

Bilal Hafeez (26:17):

Okay, so some areas of farming could struggle a bit, because of water issues. But then, other new areas will open up as Northern areas will get warmer, and then, that allows them to become more amenable to certain types of farming, than before? So, it’s hard to make a blanket statement, I suppose?

Artem Milinchuk (26:34):

The blanket statement is that it’s definitely something that we need to solve. But you’re right in that, as with the trite, every crisis is an opportunity. You do have that opportunity with investing with foresight into land, that will be resilient or benefit from climate change. And look, it’s a topic we could go into for another hour.

Bilal Hafeez (26:56):

So, it’s a big issue, and we’re seeing all sorts of strange weather patterns around the world. China’s going through this huge heat wave and drought. Pakistan’s going through this massive rainfall, a third of the country is underwater. It’s all sorts of strange things, and has been happening across the world. So yeah, if it’s not great for all aspects, or many aspects of our lives. Now, in terms of those more practical side of things, how would investors typically invest in farmland? And your company FarmTogether, what does it do differently, that enables investors to make allocations?

Artem Milinchuk (27:31):

Yeah, so from a practical standpoint, here’s how it works. We will go through literally thousands to different land opportunities, that come to us through public channels, as well as private channels and partnerships, we develop. Using our engine, Terra, which is this internally built tech engine, that allow us to really quickly source and underwrite land. We are able to then, filter it down to a subset that is more attractive. And then, we’ll build financial models, we will do a lot of due diligence, and really, probably one out of a thousand farms will pass this filter.

That farm will then be put into its own Delaware LLC, and we will find a farming company or farmer, that will operate the farm. And sometimes there’ll be the seller, actually, that wants to continue doing that. We will then put together an investment memorandum, a webinar, publish it all on our website. And then, you’ll be able to go online, listen to all of that, ask our team questions, make sure that you understand everything. We have really easy to understand materials, how to think about the key risks, the key factors, cash flow profile. And then, online, you can sign all the documents online, wire or ACH the money, become far more than a matter of minutes. So it’s a very quick and easy process, from a UX standpoint.

Bilal Hafeez (28:52):

And without a company like yourself, then the issue would be that you would have to find a farm yourself to buy into, or presumably, are there funds that specialise in farmland, that you could invest into the fund?

Artem Milinchuk (29:08):

There are. There are funds, but typically, their minimums are much higher than ours. Our minimum is 15,000, and you also have no choice over the sector that we invest in, which farm. They also tend to be either on the smallest side, so we have quite a bit of diversity, in terms of the farms we offer. And we’re not limited as a funders by a portfolio allocation policy, because we really just look at what our clients already have in their portfolios, what their demand is, and look to find farms that fit that. So if you want, let’s say, hazelnut farm, and that fund already has hazelnut farms, maybe you want more, and you don’t want corn farms. Well, you have no choice. Whereas, with us, you can be fully in control. You can also choose different farms. We’ll have different cash flows, different risk profiles, different setups.

So it’s really much more flexibility. But then, to that point of, Bilal, we do have a fund. So some people they don’t want to spend their time selecting different farms. They maybe want just something, invest and forgets. We do have a diversified farm, a fund that you can invest in as well. The minimum there is a bit higher. It’s a 100,000. But yeah. And then, we have, just to mention, a third offering. If you want a farm completely in your own name, so like The Mini Fund, where you have one or more farms in there. And if you have the means, then you can do that with us. We’ll essentially will be your bespoke private farm manager and farm investor, that will build a portfolio for you.

Bilal Hafeez (30:26):

And what types of investors are investing in this, would you say? What’s profile of-

Artem Milinchuk (30:31):

US and international investors, family offices, we have some registered investment advisors. Increasingly, we are talking to endowments, foundations, pension funds, insurance companies. Yeah, so it’s really, it’s who is who. Again, because farmland is so, I think, easy to understand and fundamental, that we are finding interest from a lot of different investors.

Bilal Hafeez (30:55):

… And more, when I think, so more globally, which other countries are big farming countries?

Artem Milinchuk (31:02):

United States is the biggest. Out of the $10 trillion market, US is about 30%, 25, 30%. Canada is another big one. I think it’s about half a trillion. Australia. But really, every country has farming, of course. But when we talk about the market, and what’s important to remember is that when you invest in farmland, it’s such an illiquid, immovable asset, that you really need to trust the government regulation, the rule of law. And so, while Latin America, for example, has some excellent farmland and farming, but currency exchange, has political risks, over a period of 10, 20, 30 years, are just much higher than investing in United States or Canada.

How to Invest 

Bilal Hafeez (31:40):

Okay. Yeah. No, that’s interesting. And a final question I wanted to ask, we could go on more about this, is just the question of technology and farmland. Technology can be used in farmland. Has there been much innovation in that space? You see these giant industrial style farms, which use drones and different machinery to farm the land. Is there much innovation in that space? Is that something that would reduce the operating cost of farms, or provide more crops, or service more livestock?

Artem Milinchuk (32:12):

Yeah, a tonne. There’s dedicated AdTech VC funds, there’s a tonne of innovation all across the value chain. All the way from genetics and seeds, to new types of fertiliser. Then, going of course, into what everyone thinks about, drones, all of the fun things. And we definitely use drones all the time. Satellite imagery, multi-spectral imagery on farming, equipment for different harvest, because that’s the most labour intensive part, to monitoring and software. Well, now, and there’re a lot of innovation, besides the farm management component, comes from the farm sourcing and underwriting component, where, what’s important to know, is that farmland in US is such a fragmented market.

That most farms as small to medium sized. And then, not like you can go to Zillow, Bloomberg, and just click somewhere, and find that farm, how much it’s worth. It’s very disconnected. And so, you have to do a lot of work to bring it all online, and to properly underwrite it. So that’s a lot of what we do. Being able to automate our investment process, so that it becomes actually economically feasible, to bring that investment to investors. Because otherwise, it’s just so expensive to use manual investment analysis work, and getting information, that it just becomes slow and prohibitive to allow you to invest in a farm. That’s actually a big reason why farmland investing has not taken off as much, because of that fragmented nature of the market.

Bilal Hafeez (33:35):

And I saw you have something called the sustainable farmland fund.

Artem Milinchuk (33:39):

Mm-hmm.

Bilal Hafeez (33:39):

Is that the fund you referred to earlier, or is-

Artem Milinchuk (33:41):

That’s right. That’s right.

Bilal Hafeez (33:42):

… And when you say sustainable, what’s the sustainable part of it?

Artem Milinchuk (33:46):

So we are part of a standard that the farmland industry recently rolled out, called the Leading Harvest Standard. It is a set of principles that talks about the different aspects of farming. So you have parts related to soil management, parts related to how do you work with community, parts related to how do you treat your workers. And so, it’s an evolving set of standards that we are part of as well. So there’s more details that we can provide on the website.

Bilal Hafeez (34:12):

Yeah, I’ll include a link to your website on the show notes. And presumably, on the website, you also just have background information for people who aren’t that familiar with this asset class, and so on. It’s certainly something that’s really piqued my interest, hence why I invited you to this show. Because we’re always struggling just to find types of assets that will do well, in this inflation environment we’re in. We have to think out the box. It seems almost like every single asset class is being hit, but farmland certainly looks interesting, in the sense that it should, from first principles and also performance, it should do well in an environment of higher inflation. And then, also, just if you look at all the other challenges, whether it’s climate change or just other challenges, it does seem like farmland should do quite well, or ensuring geopolitics as countries want to have food, independence, and so on. So all those mega trends seem to be pointing to quite attractive backdrop for farmland.

Artem Milinchuk (35:02):

Mm-hmm. Yeah. Absolutely.

Bilal Hafeez (35:03):

And I did also want to ask some personal questions as well, which I always do to all of my guests. One is, and you have quite a varied background, but what’s the best investment advice you’ve ever received from anyone else?

Artem Milinchuk (35:16):

Long-term thinking.

Bilal Hafeez (35:17):

Yeah. Yeah. It’s great to remind people about that, because it’s so easy, especially if you are on social media, or in front of a Bloomberg screen, to get really caught up in the very short term dynamics of markets. But yeah, absolutely. And the other thing we have found is, many younger people who are just leaving university, come to me or others at Macro Hive and ask us, “What should we do next?” And so, let me push that onto you, Artem. What advice would you give to young people who are leaving university, entering the jobs market?

Artem Milinchuk (35:47):

Actually, it’s going to be the same, long-term thinking. It’s make sure that you spend time understanding what you really, not even necessarily deeply passionate about. Because sometimes those things don’t overlap, and when they do, you tend to lose the passion, when you marry this passion to work. But it’s like, understand what you’re really good at, and just working at it. Because it’s this law of exponential returns. So if you keep at something for long enough, you become really good at it, people get to know you in industry, you to develop a reputation, and then, it just becomes very easy. And you get to get into this flow state, where it’s almost like art, in what you do. So yeah, I think that would be the advice I would give to the young people.

Bilal Hafeez (36:25):

Yeah. No, that’s great. That’s great. And I’m always looking for hints about productivity, and so on. So I imagine you are overloaded with information, you’ve got a lot of work to do all the time, but do you have a system to manage your time, or to make sure you’re productive?

Artem Milinchuk (36:41):

I do have a system. It’s fairly long, but if I had to maybe take a tip out of it. Yeah, make sure you clear out your inbox. It’s not that hard. Really quickly because it frees up your mind, and that you don’t need to remember too much. And then, look, we use the sun extensively. It’s a great tool. So I’ve highly recommend it.

Books

Bilal Hafeez (37:00):

So that’s a good one. And then, finally, I’m a big reader. And so, what are some of the books that really influenced you, over your career?

Artem Milinchuk (37:07):

Principles by Ray Dalio. Used to read his letters even back in 2008, ’09. And it just such a, the way he explains so simply complicated concept, just shows how deeply he understands it. I know that he’s been a bit of a mixed track record at times with Bridgewater, but it’s the fundamental truth about life remained the same. Nothing is new under the sun. And so, his basic principles are understand what’s true, and what do you want to do about it? And he’s just so simple but complex, and I just, I think I reread it all the time, and I think it’s something that is timeless and really, really helpful. Especially for people in financial markets.

Bilal Hafeez (37:46):

Yeah, that’s great. Now, I mentioned we’ll include the link to FarmTogether’s website. Are there other ways for people to follow you?

Artem Milinchuk (37:53):

Yeah, so we are on Instagram, we are on LinkedIn, I’m on LinkedIn, Artem Milinchuk, on Twitter, FarmTogether. But I would say, making sure that you register our websites is probably the most sure way, to make sure that you don’t miss anything. And we put out monthly newsletters. If you invest in the farm you get this, also. Videos and photos. Sometimes we’ll do a little interviews with farmers, so a lot of fun. You don’t get that when you invest in the diversified index.

Bilal Hafeez (38:21):

I’ll include links to all the different sorts of social media stuff as well, and the link to the registration on the site, as well. So with that, thanks a lot. I’ve learned a lot. It’s definitely something I’m going to explore further myself, and it’s been very informative speaking to you. So, thanks again.

Artem Milinchuk (38:37):

Thank you, Bilal.

Bilal Hafeez (38:39):

Thanks for listening to the episode. Please subscribe to the podcast show on Apple, or Spotify, or regularly listen to the podcast, leave a five-star rating, a nice comment, and let other people know about the show too. We’d be super grateful. Finally, sign up for our free newsletter at macrochive.com/free. We’ll be back soon, so tune in then.

Bilal Hafeez is the CEO and Editor of Macro Hive. He spent over twenty years doing research at big banks – JPMorgan, Deutsche Bank, and Nomura, where he had various “Global Head” roles and did FX, rates and cross-markets research.

(The commentary contained in the above article does not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs.)