Pension fund's agriculture investments increased significantly

Photo: Marius Renner
AMWatch 11/04/2023

Pension fund's agriculture investments increased significantly

AP Pension’s agriculture investments more than doubled in net income, partly due to a higher land value. The pension firm has noticed an increased interest in land from other actors as well.

by Jonas Okholm Nielsen, translated by Katrine Gøthler

AP Pension’s agricultural investment skyrocketed in 2022 when net income more than doubled.

Through Danish investment company Dansk Farmland, which handles the pension fund’s investments in agriculture, AP Pension owns 4,000 acres of land.

The company ended 2022 with a DKK 57.1m (EUR 7.66m) in net income, up from a result of DKK 22.8m (EUR 3.1m) for the year 2021, shows a newly disclosed financial statement.

Dansk Farmland was founded in 2013 with the aim of buying agricultural properties and leasing them to Danish farmers. AP Pension earns its profits from the ongoing interest payments by the farms and from returns deriving from the increases in value of properties and land.

Income from share capital as well as other financial income from connected firms – including interest rate earnings from agricultural investments – rose from DKK 32.6m (EUR 4.37m) to DKK 62m (EUR 8.32).

”We must note that agricultural investments are standing strong in continuously changing times of interest rate hikes, inflation and uncertain markets. When comparing these to other investments, they have fared well. This serves as proof that the investment can handle fluctuations because it is food production,” says Hans Christian Jørgensen, managing director of Dansk Farmland and Agrofond – which is the management firm behind AP Pension’s investments in agriculture.

He informs that the expected return over a ten-year period, depending on the interest rate level and other factors, is between 3.5% and 6%.

”It has been our belief from the start that agricultural land is a stable investment asset where you don’t get high returns but avoid fluctuations. And that is just as interesting as high returns for a single year,” Jørgesen notes.

The equity capital amounts to DKK 699.8m (EUR 93.98m), and the agricultural investor had a balance sheet total of DKK 710.2m (EUR 95.31m) by the turn of the year.

Big players on the market

Since Dansk Farmland started investing in agriculture in 2013, new big players have entered the market, and more companies are buying large shares of agricultural land.

Renewable Energy Holding, for instance, has in only a few years’ time built an agricultural portfolio of 1,700 acres, while Biocirc is investing massively in farmland with the aim of creating energy islands.

This is also felt by Dansk Farmland.

”We are noticing increased interest in our farmland. It’s healthy for the sector if it just doesn’t get out of hand and ends up as prior to the financial crisis,” he says, referring to how the prices were inflated until the bubble burst, and several farmers became technically insolvent.

”The green transition has to happen in agriculture, but it requires capital that isn’t found among the farmers. This makes up an interesting investment case for others. Some invest in order to ensure value while others do so to establish energy projects,” adds Jørgensen.

More new investments

When Dansk Farmland was founded, DKK 500m (EUR 67.1m) was set aside for acquisitions, but the amount has since been raised to DKK 900m (EUR 120.79m), a number that the firm is now approaching.

Jørgensen informs that the investments in agriculture have a value of almost DKK 700m (EUR 93.95m).

”It’s important to reach the DKK 900m, but we won’t invest in something that doesn’t match our criteria. We are taking care of other people’s money and we have a lot of respect for that,” he says.

Dansk Farmland has invested in several new properties in 2022 but hasn’t added any new farmers to its collection. Jørgensen doesn’t want to reveal how many properties, nor their value, but he says they are included in the 12 existing companies.

He also doesn’t wish to predict whether additional acquisitions will be made in 2023.

”We are on the market but we have to make things match up. We have invested in what we think blends well together. That’s the experience we’ve obtained throughout the years. Ultimately, the most important thing is that the people, property and price fit together. We have a lot of cases to which we politely decline,” he says.

The farmers have made an agricultural lease agreement, entailing that they can purchase the farms from AP Pension at a set price after ten years. The first agreement expires next year. But whereas the initial plan was to have ten-year investment periods, AP Pension has stated a wish to prolong its investments.

(This article was provided by our Danish sister media, AgriWatch)
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