Special Report: Water is a hot commodity and developer Alterra has found a way to give investors ethical access to the resource.
Most ASX water investments are an ethical minefield as the battle between users, speculators and environmentalists grows more fractious each year.
Land developer Alterra (ASX:1AG) is offering a cleaner way to access the rising value of water rights via its avocado play in Western Australia (WA), says managing director Oliver Barnes.
“Alterra’s investment is focused on the asset development stage, which provides our shareholders direct benefit from the uplift in value of land and water rights,” Barnes said.
The company secures underutilised agricultural land with water rights. It applies its know-how to develop these holdings into investment-grade productive horticultural assets, riding the uplift in land and water values that process creates.
Alterra recently announced its first horticultural development, the 300-hectare Carpenters project, which is located in the “golden triangle” agricultural region of Pemberton in south-west WA, this includes constructing a licensed dam site, installing irrigation and fertigation systems, regenerating soils and establishing an avocado orchard that benefits from the latest production systems.
Why is water different in WA?
Water is a hotly traded commodity on the ASX.
Most funds and companies deal in the openly traded east coast water market where rights are traded openly and are divorced from land. This has created problems with overallocations of water rights in a single area, fraud, and in some cases large-scale theft.
WA is more conservative using a system which ties water rights to land: sell the land and you are no longer eligible to hold a licence.
“The way to realise value from water entitlements in WA is through finding a more valuable land use activity” Barnes said.
“In the case of Alterra that means taking broken down farmland and restoring it, partly by setting up water infrastructure that can responsibly capture water, to enable the development of high-value crops such as avocados.”
Alterra’s water plan
In April, Alterra secured an up to 50-year lease for the Carpenters site.
Landowner Casotti Group guaranteed 500 megalitres of water per annum from their adjoining property, which will be used to support avocado plantings, while a permitted 3 gigalitre dam is constructed.
The site also has access to the proposed Southern Forests Irrigation Scheme which has a pipeline slated to run along the eastern border of the Carpenters project.
Alterra chose avocados because of the high returns per megalitre of water and rising global demand with a global market expected to US$21.56bn by 2026, which in turn is generating strong institutional demand for avocado farm assets, such as from the $207bn Ontario Teacher’s Pension Plan, fellow Canadian PSP Investment and Harvard.
Barnes says more and more sophisticated investors are demanding companies take a responsible approach to their environmental and social impacts, with only a few options on the ASX to get a property-like return that leaves a positive social, environmental and economic legacy.
“These are assets that, once developed, are highly suitable for patient, long-term capital providers such as pension funds. We are seeing investors become increasingly interested in accessing assets backed by the finite resources of land and water,” he said.
Alterra recently inked an agreement with advisory firm CapRaise to access to its extensive international network of large family offices and additional investor portfolio worth more than $15bn.