MAKING money in agriculture starts with the basics - don't pay too much for your land and keep production costs low.
Long-time farm sector consultant and managing director of the successful Growth Farms Australia investment and management group, David Sackett, says the rules are basically as relevant for family farmers as large scale corporate investors.
"The fundamental rule is to buy well, and not to pay too much," he said.
"If you stuff up you can wipe out five years of capital growth from your investment and reduce your return on capital for more than five years."
Institutional investor groups often struggled to make money in agriculture because they invariably set themselves acquisition deadlines and had "a bucket of money" to spend in a relatively short time.
"They've got two years to build an initial portfolio and risk losing that money if they don't spend it," he told the agricultural Outlook 2016 conference.
Some went out with a strong incentive to spend as much as $50 million or $100m buying large scale aggregations.
"But in reality there are very few aggregations you'd want to own all of."
"Much of what's available might be good country, however there's nearly always rubbish in there, too.
"The whole package can get over-priced, particularly if others are in the market which pushes it to a point where the eventual buyer ends up paying too much."
Mr Sackett's also warned the value of large scale operations was often over-played.
While corporate asset managers often chased scale because big land areas might be considered easier for them to run as one enterprise, smaller sized operations, particularly those of family farmers, were often better, more efficient earners in the long run.
He said agriculture's best returns came from producing grain, meat, fibre or other farm commodities at low cost.
Farm productivity for every dollar spent on farm inputs had to be better maximised, particularly in the wool and beef sectors.
Achieving better productivity sometimes required a sizeable initial outlay of extra funds on labour-saving infrastructure, new machinery or livestock genetics, or re-designing farm systems to improve management efficiency.
Most Australian farmers were in the commodities business and just like hard commodities success stories BHP Billiton and Rio Tinto, they were most likely to be profitable if they concentrated on being low cost producers who avoided getting "muddled about what really matters and what doesn't".
"Don't get diverted into doing things which drive up costs and undermine profitability," he said noting he often saw farm enterprises trying to branch out into owning butcher shops or producing processed grain or baked products.
"We need to get agriculture thinking harder about producing beef at a low cost per kilogram, rather than trying to capture premiums from a range of specialist products or looking to buy into a retail chain in Asia.
"It's not about having the cheapest product, but growing it at the lowest possible cost for each tonne of grain or kilogram of meat."
Family farms also had the advantage of not only having lean business structures, but also thinking in patient, long-term investment periods - up to 20 years at a time - compared to institutions which invariably expected results from their investments in five or seven years.
"That's rather unfortunate for those who have invested in agriculture in the past seven years," he said.
But unlike family farmers, whose business ties were generally committed to staying in their home district, corporates had the flexibility to move to where they saw the most opportunity and spread their interests widely from cane enterprises in North Queensland to grain farms in Western Australia.
They also generally had access to rich funding sources so they could quickly capitalise new investments, but institutional investors also had to be prepared for strong markets and good seasonal conditions to change dramatically, making a promising investment decision far less profitable for a while.
