Long-term ag investors are keen, but can’t get what they need

Long-term ag investors are keen, but can’t find what they need


Australian Farm Institute's Richard Heath says investment funds are cautious about agriculture because they don't see enough investable products, levels of return are expected to be too low and too few asset managers have enough information about the sector.

Australian Farm Institute's Richard Heath says investment funds are cautious about agriculture because they don't see enough investable products, levels of return are expected to be too low and too few asset managers have enough information about the sector.

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Investors are a lot more keen to put money into agricultural enterprises than many in the sector believe, but they also fear their funds might be trapped if allocated to farming ventures.

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Investors are a lot more keen to put money into agricultural enterprises than many in the sector believe, but they also fear their funds might be trapped if allocated to farming ventures.

A key reason Australian superannuation funds allocate only 0.3 per cent of their $1.2 trillion war chest to agricultural investments is because it is not easy to get their money back in a hurry if it is actually needed.

There are also too few people with investment industry qualifications and experience with agriculture’s unique and sometimes unpredictable business conditions, and few “investor friendly” ag enterprises to put money into.

While agriculture is generally accepted as a long-term investment commitment, even small or mid-sized investors in farming partnerships need the reassurance of better exit strategies, say industry analysts.

The Australian Farm Institute’s (AFI) agriculture roundtable conference has highlighted a few home truths behind the miserly levels of investor sector support for farming, but a lack of patient, long-term investment interest was not really one of them.

AFI’s research general manager, Richard Heath, said financial advisory group BDO had observed investment funds were cautious about ag largely because not enough “investable products” were available, and funds “expected” levels of return would be too low.

Too few asset managers covered the sector and information about agricultural investment was insufficient.

However, funding alternatives to bank borrowings were urgently required to finance agriculture’s hefty productivity growth expectations.

Without equity partnerships ag sector debt –  which has already grown six-fold to a contentious $60 billion in the past 20 years –  would need to blow out to at least $300b in the next 35.

Mr Heath told the AFI conference Australia had some notable hurdles frustrating farm sector investment when compared with our farm trade rivals, New Zealand, Brazil or the US, but few investment funds were greatly worried by the cost of buying into the sector, or the need to take a patient, long-term approach.

Even agriculture’s volatile market and seasonal trends only rated just over half-way up the fund managers’ concerns meter.

Nevertheless, while outside investors were happy enough to tolerate farming’s ups and downs over the long-term, he said they wanted the option of a more nimble investment environment where they could cash out relatively swiftly in an emergency.

That was difficult in an industry dominated by family farms and related agribusinesses which, by necessity, adopted conservative management tactics which were generally not conducive to attracting new capital partners, or hastily dissolving partnerships amicably.

“This is a challenge agriculture must manage better if we want to attract superannuation funds to our industry,” Mr Heath said.

Agricultural Asset Management Investment Group (AAM) managing director, Garry Edwards, agreed.

He said a surprising number of businesses believed they could open their gates to outside investors with little more preparation than “their tax returns and business plans in a shoe box”.

More had to be done to educate agribusinesses and investment sector advisors and managers.

The importance of pre-planning an exit strategy was one of many investment rules the farm sector had to better understand.

“One of the most frustrating aspects about trying to promote agriculture as an investment prospect is the amount of hard work required to get a relatively small level of commercial response.”

Mr Edwards’ AAM group sources funds from wholesale and retail investors to build or buy livestock selling centres, abattoirs, feedlots and irrigation properties, and also provides business development and management services.

Agreeing on what the “divorce settlement” should look like was actually the starting point in partnership or investment discussions.

“It doesn’t matter if we’re talking about doing business with an equity fund, or forming a joint venture, or planning family partnerships or for farm succession, recognising the need for an appropriate and timely exit strategy is critical,” he said.  

AFI’s Mr Heath noted while Australia agriculture had plenty of investment margin advantages, NZ boasted significantly more equity partnerships, many of them involving investors from off-farm sectors.

At the same time, 36pc of NZ’s dairy herd was not owned by dairy farm landholders, but share milkers.

Incentives to invest in NZ agriculture ranged from no capital gains tax on land, no employee superannuation costs and the country’s almost universally good rainfall and farmland fertility.

Similarly another significant farm sector rival, Brazil, had huge agricultural areas with serious productivity capacity and a significant understanding of the industry within the economy and investment community.

A big network of co-operatives also assisted farmers’ access to funds and land ownership and helped grow their productivity.

The US had a “deep and liquid land leasing market” which encouraged outside investment in farmland and farm insurance subsidies with gave farmers the confidence to invest in production.  

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