Bullish farmland index deserves more corporate ag support

Farmland index shows 12.8pc return, but eager investors want more data

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Corporate farmland operators owe it to their industry and the investment market to share their performance results

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Corporate agriculture is being urged to share more of its profitability performance data to give investors clearer insights into just how strongly the Australian farm sector is doing.

As good corporate citizens, the big private agribusinesses and investor conglomerates currently enjoying increasingly bullish returns from farming owe it to their industry, and the investment market, to be more transparent with the facts says Australian Farm Index founder, Frank Delahunty.

Latest data reported quarterly by the farmland index shows big scale farming investors enjoyed returns of 12.8 per cent in the year to June.

That was about 0.3pc better than in 2018-19 and well above returns - after a 10pc fall - in the Australian share market's All Ordinaries Index.

Income and capital appreciation gains across a pool of 40 rural properties worth about $1 billion also continued to show Australia achieving far better returns from farm investments than equivalent operations in the US, where the NCREIF farmland index gained only 3.8pc for the financial year.

Since the not-for-profit Australian index began under NCREIF's auspices five years ago it has reported pooled annualised corporate investment returns of almost 14pc, based on income of 6.5pc and capital appreciation of 7.1pc.

That compares with less than 11pc on the US index.

Snubbed

While notable corporate players such as Rural Funds Management, GoFarm Australia and Laguna Bay have been long time contributors to the local index, anonymously submitting profit and asset valuation information, Mr Delahunty was frustrated other prominent rural land players including Macquarie Bank and Warakirri Asset Management had snubbed it, or procrastinated about getting on board.

Macquarie Bank alone ranks as the nation's second biggest agricultural investor with assets in its Paraway Pastoral Company, Lawson Grains and Viridis Ag portfolios worth more than $2.5 billion.

I think the big corporates carry some responsibility to contribute this sort of useful information for the good of the whole ag industry - Frank Delahunty, Australian Farmland Index

"If we want to attract more investors into agriculture at any level you need to have good data and the more contributors we have from different commodity categories around Australia, the better," Mr Delahunty said.

"I think the big corporates carry some responsibility to contribute this sort of useful information for the good of the whole ag industry."

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GoFarm Australia managing director Liam Lenaghan, said there was widespread interest in the sector as many investors recognised "the considerable upside in returns that could be achieved from transformational investments in underutilised or under capitalised assets".

Potential institutional investors were attracted to farmland's defensive characteristics in the current uncertain economic climate.

Given more overseas and domestic investors were pondering whether to put money in agriculture, especially as other investment categories under-performed, Mr Delahunty said the farmland index was the only real monitor providing the sort of detailed and consistent performance feedback they needed each quarter to help them make decisions.

ABARES isn't enough

While the Australian Bureau of Agricultural Resource Economics and Sciences was a useful general indicator of agricultural performance, its data was at least nine months old by the time it was released.

The farm owners interviewed to provide ABARES' profitability statistics also varied.

Compared to the investment performance data available in other asset classes such as infrastructure, commercial property, retail or healthcare, there was no doubt the agricultural analysis available to funds, private wealth estates and financial markets lacked the diversity and geographic-specific density which could be provided.

Mr Delahunty said a recent surge in US farmland index asset portfolio coverage to a $16b asset base, suggested the North American market also now placed a much higher value on agriculture sector data.

His observations come as the Australian Farmland Index prepares to shift its alliance with the US data monitoring platform to another popular Hong Kong-based body, the Asian Association for Investors in Non-Listed Real Estate Vehicles.

New AFI alliance

ANREV, which has a strong reputation in analysing commercial and industrial property investment returns and trends, is keen to expand its website to promote agriculture as an alternative investment class.

Mr Delahunty said the AFI would continue providing quarterly comparative information on US farmland returns and in time may source New Zealand data, too.

He has been using the new ties with ANREV as a chance to rustle up more potential ag investor sources to enhance the data available.

"We must thank NCREIF, and especially its president Dan Dierking who in 2014 strongly supported the commencement of the Australian index, and has encouraged the swap to ANREV," he said.

The agricultural sector has a strong track record of delivering competitive returns during periods of wider market volatility - Liam Lenaghan, GoFarm Australia

Commenting on the latest index results, Mr Delahunty said while the coronavirus pandemic continued undermining many parts of the economy, annualised returns from farm sector income more than doubled from 4.1pc to 8.7pc.

However, capital appreciation was only 3.7pc, or half the gains achieved in 2018-19, dragged down by a fall in the June quarter from 3.1pc a year ago to 1.3pc in 2020.

Liam Lenaghan

Liam Lenaghan

GoFarm's Mr Lenaghan agreed the farm sector had largely avoided the economic fallout of the past six months, but the headwinds of slowing global economic growth and rising trade tensions may be an ongoing challenge for land values.

"Nevertheless, the agricultural sector has a strong track record of delivering competitive returns during periods of wider market volatility," he said.

"Investments in farmland provide an excellent natural hedge against inflation and uncorrelated returns to other asset classes.

"The long term outlook for ag in Australia remains very positive."

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