Tag Archives: markets
Soaring Farmland Prices A Crisis In The Making: Don Pittis
If you knew there was a very safe Canadian investment that skyrocketed by 20 per cent last year, you’d probably say that was a good thing. But when the thing that’s going up in value is farmland, Christie Young says it’s a crisis in the making. The latest survey by Farm Credit Canada shows the price of farmland in Quebec rose by a staggering 19.4 per cent last year. Nationally, Canadian farmland from coast to coast has risen by an average of 12 per cent a year since 2008. That’s more than five times the rate of inflation. For people who already own farmland, soaring prices are a windfall. But Young, executive director of FarmStart, a group trying to help young farmers get into the business of farming, says Canada is facing a sea change that bodes ill for agriculture. “The average age of farmers is 60 years old across Canada,” says Young. “According to StatsCan data, about 50 per cent of our land assets will be transferred in the next five years. And of the retiring farmers, 75 per cent of them don’t have successors. It’s a transition we’ve never seen before in agriculture. And it’s one we are wholly and completely unprepared for.” FarmStart has two incubator farms in southern Ontario to bring new farmers into the business, but at current prices, Young says there is no way those starting out could earn enough from their farms to make a living and pay their mortgage. Overpriced land It is a problem that Rejean Girard, who farms southwest of Montreal, understands. He bought his small plot of land near Saint-Cesaire 20 years ago. But Girard says the return he gets from the sheep he raises would never pay for that land today. By that measure, he says, the land is overpriced by about three-quarters. The steadily rising price of land has caught the attention of savvy Canadian investors. Global investors have an interest, too, but in most provinces only Canadians are allowed to own farmland. That has created an opportunity for Canadian farmland investment funds like Bonnefield, Agcapita and Assiniobia, which have been assembling blocks of farmland and selling shares to high net worth Canadians. The president of Toronto-based Bonnefield, Tom Eisenhaur, says farmland has been one of the most lucrative and secure investments especially when markets are volatile, and “a better hedge against inflation than gold.” Eisenhaur says he expects the price of land to continue to rise, if not at the same rate as over the past decade. He quotes a United Nations survey that shows world food production will have to double over the next 20 years. “While it’s trite to say, no matter how bad or how good things get in the markets, people still have to eat.” Profits from rising prices While Eisenhaur is profiting from rising prices, he scoffs at the idea that funds like his are responsible for the land boom. He says that while farmers buy and sell some $15 billion worth of land each year in Canada, third-party investors like his company trade a mere $100 million worth. So it seems clear that farmers’ pursuit of more acreage is helping to push up the price of the land. That seems to be in direct conflict with what Girard, Young and many others say about the difficulty of paying for farmland with a farm income. That is, until I speak with Gary Brien who farms near Chatham, Ont.. “The way we’ve looked at it is more of a way of life. It just so happens the land has gone up as we accumulated it over our lifetime,” says Brien. “I really don’t think we own it. We’re just using it while we’re here. The value to us may not be in a dollar value.” Brien says that the last few years, bumper crops have pushed up farm incomes to record levels, so farmers have had cash to spare. And when farmers have money on hand, their non-monetary way of thinking of land, combined with the tax rules, encourages them to put that spare cash into farmland, whatever the price. “Farmers don’t like paying income tax,” says Brien. “And if they get a bunch of money and have a choice to pay income tax, or buy more land, they buy more land.” Bigger and bigger That tends to mean existing farms are getting bigger and bigger, able to take advantage of the efficiencies of expensive modern farm machinery and make the money to buy more land. But that doesn’t help the farmers who are just starting out small, without inherited family land and little prospect of paying off a mortgage, even if they could get one. “We have farmers in rural areas paying far over the productive value of the land that they are buying because they have the income or there are such scarce land resources that they’ll pay anything,” says Young. “For a new entrant looking at that landscape, it is almost impossible to conceive of buying a farm.” Continue reading
Sustainable Investing: Opportunity Awaits Islamic Finance Industry
New opportunities in sustainable and responsible investing By Usman HayatSpecial to Gulf News Published: 13:06 September 8, 2013 Islamic finance and the forms of finance generally referred to as sustainable and responsible investing (SRI) are yet to actively collaborate with each other. One would think that to strengthen their position in a market dominated by conventional finance, Islamic finance and SRI would be sharing their successes and failures, coming together for joint ventures, and supporting each other on issues where they have similar views. But such collaboration has not occurred. Building bridges between the two remains an opportunity that is waiting to be seized upon by the industry leaders from the two sides. Islamic finance and SRI share some obvious similarities in their objectives (do good; avoid harm), methods (e.g. exclusionary screening) and claims (such as emphasis on ethics). Both seem to trigger similar expectations among their proponents of being ethically different from conventional finance. They also face similar criticism of not being able to live to up to these expectations as shown by the ‘form versus substance’ debate in Islamic finance and ‘green washing’ debate in SRI. Although SRI is older and larger than Islamic finance, which is estimated between $1 to $2 trillion in terms of global assets, both are relatively small and growing segments. Why are then Islamic finance and SRI not actively collaborating? Some apparent reasons are different countries of concentration, differences in target markets, pre-occupation with their own growth, perception and reputational concerns, cultural barriers, lack of initiative by industry leaders, and simply insufficient understanding of each other. But in the absence of survey data, it is difficult to get to the bottom of this lack of collaboration. Islamic finance is practised by international financial institutions offering conventional finance, such as HSBC. It has also drawn increasing interest from other international organisations, such as the World Bank, which organises an annual conference with the Islamic standard setter, Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI). Similarly, many conventional financial institutions are active in SRI. For instance, Goldman Sachs has participated in the first social impact bond in the US, it has 10,000 women initiative and its asset management arm is a signatory to UN Principles for Responsible Investment. If both Islamic finance and SRI can work with the leading and sometimes controversial faces of conventional finance, why can’t they work with each other? At times, we do observe financial products that meet some traditional Islamic and modern environmental, social, and governance (ESG) criteria. For instance, the Sustainable Resources Fund launched in 2012, that invests in a mix of agro-forestry, land and sustainable agricultural sectors is supposed to appeal to both Islamic and ‘green’ investors. Similarly, amid increasing news reports about ‘green’ sukuk, Australian solar companies secured funding through ‘green’ sukuk for projects in Indonesia in 2012. Other earlier examples include Dow Jones Islamic Sustainability Index introduced in 2006. Nonetheless, such examples remain exceptions. Their general lack of interaction can also be observed in professional education. For instance, the curricula for Sustainable Investment Professional Certificate (offered by John Molson School of Business, Canada) and Islamic Finance Qualification (offered by Chartered Institute of Securities & Investment, UK) have limited, if any, content about each other. The same trend is observed in industry reports even in a country like the United Kingdom which is home to both SRI and Islamic finance. For instance, the Islamic finance report 2012 by the City UK does not talk about other forms of ethical finance and UK Sustainable Investment and Finance Association’s annual review 2011-12 does not talk about Islamic finance. Unsurprisingly, one sees the same trend of lack of interaction in industry conferences in Islamic finance and SRI. There are of course differences between Islamic finance and SRI. One significant difference is that the concerns of Islamic finance go beyond the purpose of financing and also cover its structure. This is because of Islamic prohibitions of riba and excessive gharar, which are generally interpreted to include lending money on interest and the trading of risk. Also, the exclusionary screening applied in Islamic finance goes beyond the usual suspects (such as alcohol, tobacco and gambling) and covers conventional financial services because of prohibition of riba. However, the current form-oriented and legalistic compliance in Islamic finance that often has little effect on economic substance of transactions suggests that these prohibitions cannot explain the lack of collaboration with SRI. Recently, we had two experts, one on Islamic finance and one on impact investing, at CFA Institute Middle East Investment Conference in Dubai on March 20-21, 2013. Speaking on Islamic finance in the global economy, Ebrahim Warde, professor at Tufts University, was clear that offering social value ought to be a part of Islamic finance. Talking about Impact Investing, Harry Hummels, professor at Maastricht University and a European liaison for Global Impact Investing Network (GIIN), was of the view that it is intending and measuring a positive difference to society that turns an investment into impact investment and by implication Islamic finance could be structured as impact investing. Listening to Warde and Hummels reinforced the idea that there is room for collaboration between Islamic finance and SRI and at the core of expectations from them is the desire to see finance making a positive difference to the society. Interestingly, in London, in October 2013, there are two significant events planned, one from impact investing and the other from Islamic finance. First is the GIIN Investor Forum, October 10-11, a global fathering for impact investors, to be held in partnership by the Global Impact Investing Network and the City of London Corporation (which also has an Islamic finance secretariat). Second is the World Islamic Economics Forum, October 29-31, a mega Islamic finance event that will be hosted in a country without a Muslim majority for the first time. At this stage, the most likely scenario is that the two events will take place independently of each other with no planned interaction. Had Islamic finance and SRI actively been collaborating, these two events in London in the same month could have been a golden opportunity to further collaboration and grow both fields. With so much in common between Islamic finance and SRI and so much to gain from active collaboration with each other, bringing the two sides together is an opportunity waiting to be taken up by the leaders from the two sides. Let’s see if this opportunity will indeed be realised, who those leaders will be and most importantly what gains will be brought about by active collaboration between Islamic finance and SRI. — Usman Hayat is Director of Islamic Finance and ESG investing at CFA Institute Continue reading
Why Isn’t There More Collaboration Between Islamic Finance And SRI
By Usman Hayat, CFA Islamic finance and the forms of finance generally referred to as sustainable and responsible investing (SRI) are yet to actively collaborate with each other. One would think that to strengthen their position in a market dominated by conventional finance, Islamic finance and SRI would be sharing their successes and failures, coming together for joint ventures, and supporting each other on issues for which they have similar views. But such collaboration has not occurred. Building bridges between the two remains an opportunity that is waiting to be seized upon by the industry leaders from the two sides. Islamic finance and SRI share some obvious similarities in their objectives (do good; avoid harm), methods (e.g., exclusionary screening) and claims (such as emphasis on ethics). Both seem to trigger similar expectations among their proponents of being ethically different from conventional finance. They also face similar criticism of not being able to live to up to these expectations as shown by the “form versus substance” debate in Islamic finance and “greenwashing” debate in SRI. Although SRI is older and larger than Islamic finance, which is estimated between USD $1 to $2 trillion in terms of global assets, both are relatively small and growing segments. Why then are Islamic finance and SRI not actively collaborating? Some apparent reasons are different countries of concentration, differences in target markets, preoccupation with their own growth, perception and reputational concerns, cultural barriers, lack of initiative by industry leaders, and simply insufficient understanding of each other. But in the absence of survey data, it is difficult to get to the bottom of this lack of collaboration. Islamic finance is practiced by international financial institutions offering conventional finance, such as HSBC. It has also drawn increasing interest from other international organizations, such as the World Bank , which has organized an annual conference with the Islamic standard setter, Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI). Similarly, many conventional financial institutions are active in SRI. For instance, Goldman Sachs has participated in the first social impact bond in the United States, it has its 10,000 Women initiative , and its asset management arm is a signatory to UN Principles for Responsible Investment . If both Islamic finance and SRI can work with the leading and sometimes controversial faces of conventional finance, why can’t they work with each other? At times, we do observe financial products that meet some traditional Islamic and modern environmental, social, and governance (ESG) criteria . For instance, the Sustainable Resources Fund, which was launched in 2012, invests in a mix of agro-forestry, land, and sustainable agricultural sectors, and it is supposed to appeal to both Islamic and “green” investors. Similarly, there are increasing news reports about green sukuk — Islamic financial certificates that are also environmentally friendly — and just last year an Australian solar company tapped the huge Islamic finance market to fund projects in Indonesia . Other earlier examples include the Dow Jones Islamic Sustainability Index introduced in 2006. Nonetheless, such examples remain rare. The fields’ general lack of interaction can also be observed in professional education. For instance, the curricula for the Sustainable Investment Professional Certification Program (offered by the John Molson School of Business) and the Islamic Finance Qualification (offered by the Chartered Institute for Securities & Investment) have limited, if any, content about each other. The same trend is observed in industry reports, even in a country like the United Kingdom, which is home to both SRI and Islamic finance. For instance, a 2012 report on Islamic finance by TheCityUK does not talk about other forms of ethical finance, and the UK Sustainable Investment and Finance Association’s annual review does not talk about Islamic finance. Unsurprisingly, one sees the same trend of lack of interaction in industry conferences in Islamic finance and SRI. There are, of course, differences between Islamic finance and SRI. One significant difference is that the concerns about Islamic finance go beyond the purpose of financing and also cover its structure. This is because of Islamic prohibitions of riba and excessive gharar , which are generally interpreted to include lending money on interest and the trading of risk. Also, the exclusionary screening applied in Islamic finance goes beyond the usual suspects (such as alcohol, tobacco, and gambling) and covers conventional financial services because of prohibition of riba . However, the current form-oriented and legalistic compliance in Islamic finance that often has little effect on economic substance of transactions suggests that these prohibitions cannot explain the lack of collaboration with SRI. Recently, we had two experts, one on Islamic finance and one on impact investing, at CFA Institute Middle East Investment Conference . Speaking on Islamic finance in the global economy, Ibrahim Warde, professor at Tufts University, was clear that offering social value ought to be a part of Islamic finance . Talking about impact investing, Harry Hummels, professor at Maastricht University and a European liaison for Global Impact Investing Network (GIIN), said that it is intending and measuring a positive impact on society that defines impact investment , and by implication Islamic finance could be structured as impact investing. Listening to Warde and Hummels reinforced the idea that there is room for collaboration between Islamic finance and SRI, and at the core of expectations from them is the desire to see finance making a positive difference for society. In London this month, there are two significant events planned: one on impact investing and the other on Islamic finance. First is the GIIN Investor Forum on 10–11 Oct, to be held in partnership by the Global Impact Investing Network and the City of London Corporation (which also has an Islamic finance secretariat). Second is the World Islamic Economic Forum on 29–31 October , a mega Islamic finance event that will be hosted in a country without a Muslim majority for the first time. At this stage, the most likely scenario is that the two events will take place independently of each other with no planned interaction. Had Islamic finance and SRI actively collaborated, then these two events in London could have been a golden opportunity for further collaboration between and growth in both fields. With so much in common between Islamic finance and SRI, and so much to gain from active collaboration with each other, bringing the two sides together is an opportunity waiting to be taken up by the leaders from the two sides. Let’s see if this opportunity will indeed be realized, who those leaders will be, and most importantly what gains will be brought about by active collaboration. Continue reading
