Believe it or not, Australian farmland prices are some of the cheapest in the world. They are also rising faster here than anywhere else.
The combination spells upside for investors. Couple that with stable government and the infrastructure of a developed country, and Australian farmland is in the Goldilocks zone.
It shows in the numbers. Almost 14 per cent of Australia's farmland is foreign-owned, compared to just 2.2pc in the United States.
Foreign interest
While much of the commentary has been on Chinese ownership of Australian farmland, CBRE Agribusiness managing director David Goodfellow said investment interest from right around the world showed no sign of waning.
"In 2014, we started to see that flurry of Chinese market money coming into our market, followed up by some American and Canadian money," he said.
"Our prices have gone up quite considerably but we've come off a very low base, we're still comparatively cheap compared to the rest of the world.
"But we also have a reliable legal system and we've got the opportunity to bring capital in from offshore into Australia, not every country has the opportunity to do that."
With more than 9.2 million hectares of Australian farmland either leased or owned, China still heads the foreign investment leaderboard with the United Kingdom in second place at 8.2m.
Investors from the Netherlands, USA, Canada, Bahamas and Switzerland each held 2-3m ha as at June 30, 2020.
Oxley Capital Partners managing director Ben Craw said a changing of the guard was underway when it came to foreign investment in Australian farmland.
Up, up, up
Wherever they're from, any investor loves to see their assets grow in value and Australian farmland certainly delivers.
According to Rural Bank's 2021 Australian Farmland Values report, land prices grew 12.9pc last year, bringing the 20-year compound annual growth rate to 7.6pc.
Savills will produce its definitive Global Farmland Index in September, but the most recent figures from 2019 show a 10-year compound annual growth rate of 13.9pc for Australian farmland valued in US dollars.
That's three times the 4.5pc growth of US farmland prices and a stark contrast to the 1.9pc for Argentina or the 3.4pc fall in Ireland.
Exchange rate ecstasy
The exchange rate has helped Australia look cheap, too. Ten years ago, the Australian dollar was worth US1.03 while it sits at just 74 cents today.
It means that although the average price Australians pay per hectare is around double what it was in 2011, that increase is far less steep for anyone trading in US dollars.
Australia really is cheap
In the face of rapidly rising prices, it's hard to believe that Australian farmland could be considered cheap.
The 2020 Savills Global Farmland Index puts our land at equal pegging with Canada and just a few dollars ahead of Romania, with Agentina and Hungary only 10pc behind.
Land prices in Ireland and New Zealand are about three times higher than in Australia.
Those bald figures don't take productivity into consideration. In 2018, AGD Consulting calculated the cost of land per tonne of wheat harvested.
Of course, the graph doesn't show regional or commodity differences across a country as big and diverse as Australia but it does illustrate that, as a nation, land prices could certainly be more costly.
Productivity and prices decouple
The prices certainly don't seem cheap for local farmers, with good reason.
Although many commodity prices have risen to record levels, farmland prices have risen even faster.
Rural Bank head of sales Andrew Smith said the bank had been analysing prices and productivity.
Its charts showed a close alignment in commodity and land prices, other than during 2011, when land prices fell in response to an extremely wet season across much of Australia.
"Over 25 years, you can see this sort of decoupling of returns and values, which can create a bubble," he said.
Mr Smith thought that decoupling was largely due to low interest rates.
Sensitive investment
Conscious that low interest rates wouldn't last forever, Mr Smith said it was good practice to "sensitise" mortgage applications.
"If someone was doing their maths based on a rate of, say, 3pc today, we would want to look at it at 5.5 or 6pc to make sure that it can still stand that," he said.
"I think people have been able to probably expand comfortably enough for now and there's a fair bit of that through the fence expansion, buying the place next door that's gone on.
"It'll probably just be if values firm a little bit, and if returns were to drop a bit and interest rates were to go up a bit that we've got to be careful as a bank that we're not putting people into difficulty."
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