The big spenders pumping institutional money into the farming sector are confident agriculture's bull run of soaring commodity and property prices has plenty more growth momentum.
But the industry will need to adjust much faster to sustainability scrutiny by investors, financiers and customers.
Despite surging input costs, trepidation about too much wet weather this summer, and unease about farm and corporate level skills shortages, expert investors have told a Sydney forum the boom cycle had not reached its peak and agriculture still offered "a lot of upside for us".
Aside from exciting grain and livestock product prices making headlines globally, more local and overseas institutional investors were being lured by opportunities to scale up and improve Australia's farm output efficiencies.
Our comparatively low broadacre production costs; the long term inflation hedge offered by farmland, and the appeal of the food production experience were also enticing private equity and superannuation investors.
We're holding our own as an industry worth investing in
- Andrew Tout, Centuria Capital
Since 2014 agricultural commodity and property prices had averaged growth of 13 per cent and 14pc a year, respectively, said head of agriculture with real asset investment giant, Centuria Capital, Andrew Tout.
Farmgate production had risen in value from $50 billion to $80b in a decade and overseas buyers still wanted more.
Despite concerns about the red hot rural property market being overheated, Mr Tout said prices being paid for farmland were justified given the increases in farm profitability and productivity of late.
"We're holding our own as an industry worth investing in and I don't think anybody will be cashing in their chips any time soon," he told the NSW Writers' Association's "Financing the future of farming" forum.
RELATED READING
While cautioning against over-hyping the sector's prospects with terms like "super boom", managing director of Gunn Agri Partners, Brad Wheaton, noted Australia's overall agricultural performance still varied widely, with many farms barely big enough to sustain themselves while others raked in huge earnings.
The industry therefore offered much more "evolution and efficiency potential to achieve safer targeted returns".
"At the same time, compared against similar countries with equivalent sovereign risk, Australia sits near the bottom when it comes to what you spend to produce a tonne of wheat, especially against the cost multiples involved in the US Midwest," he said.
Gunn Agri, which manages more than $500 million in agricultural assets and commitments spanning beef, grain, dairy and permanent crops, saw its investors generally adopting 10-year investing horizons to gain full advantage of farm sector returns and avoiding a correlation with other popular, but volatile, investor categories such as commercial real estate and share market equities.
Mr Wheaton acknowledged input costs were going up, too, but solid returns meant farmers were "still paying the bills".
We've got a long way to go yet, before you'd think of getting out
- Bradley Wheaton, Gunn Agri Partners
"We've got a long way to go yet, before you'd think of getting out," he said.
In the audience, LAWD director, Colin Medway, pointedly observed how wealthy families he knew never looked to get out of agriculture.
Mr Wheaton said considerable overseas investment in Australia was simply reaping ongoing returns and capital gain from leasing strategies which enabled their owners to "set and forget".
At Centuria, which just bought 75 hectares of Accolade Wines vines in South Australia on a purchase and leaseback deal, Mr Tout observed patience was more than just a virtue in agriculture.
"A lot of short term investing groups come unstuck because they pull the plug at the end of a weather event, but if you're not patient about rural property investments you shouldn't be investing in them in the first place," he said.
Investor attractions
Importantly, however, while long term agricultural assets may not appeal to the traditionally short term focus of many share market players and local superannuation funds, these groups were attracted to the cash flow generated by consumer food opportunities, particularly premium brands.
They were also increasingly keen to support environmental sustainability objectives.
Getting involved in agriculture enabled them to have a positive investment impact on natural capital assets, which in turn, helped farming's profitability and regional community sustainability.
Australian Agricultural Company director and partner with Roc Partners, Anthony Abraham, said AACo's high end branded Wagyu beef strategy was developed to generate the "sort of cash flow people are looking for".
The big listed beef business had upscaled from 19 cattle stations growing and selling cattle, to an integrated supply chain marketing quality meat in premium markets.
AACo still enjoyed capital gains from farmland assets, but it was building fresh investor appeal with its food market relationships and sustainability credentials along its supply chain.
Sustainability appeals
Gunn Agri's Mr Wheaton said investors, including mums and dads buying shares and individuals choosing a pension fund, now demanded more sustainability goals.
There had been a quantum shift in the debt market, too, with finance providers placing "huge importance on what we are doing on sustainability issues".
"The reality is the market has become a lot more sophisticated - investors are not just looking at land and water assets," he said.
Sustainable investing strategies and emerging carbon management opportunities in agriculture were bringing a lot of broad based Australian investment participants back to the farm sector.
"We think there are huge opportunities for local and overseas investors to play a more sophisticated role in agriculture."
Start the day with all the big news in agriculture! Sign up below to receive our daily Farmonline newsletter.
Andrew Marshall
Andrew Marshall is the group agribusiness writer for ACM's state agricultural weeklies and websites. He is a former editor at The Land and has worked in various Rural Press group roles in Canberra, North Richmond (NSW) and Toowoomba (Qld).
Andrew Marshall is the group agribusiness writer for ACM's state agricultural weeklies and websites. He is a former editor at The Land and has worked in various Rural Press group roles in Canberra, North Richmond (NSW) and Toowoomba (Qld).
