ANZ tips a year of agribusiness takeovers and little rate relief

Despite plenty of hungry markets for Australian protein, 2024's continuing high interest rates, climate and carbon market disclosure pressures, and rationalisation in the crowded agtech sector will be factors pushing some agribusinesses to accept takeover options rather than continue to go it alone.

At the same time, investors from other sectors were diversifying and looking at food industry prospects, said ANZ's head of food, beverage and agribusiness insights, Michael Whitehead.

Demand growth in food and beverage markets was expected to see more investor interest in livestock feed and protein processing industries and agribusiness-related infrastructure.

In particular, he noted chicken could be one to watch within Australia and in nearby Asia.

Existing poultry players and new investors were likely to seek out growth opportunities in the relatively self contained and rapid turnover chicken processing, trade and research sectors.

Meanwhile, ANZ is itself set to lead a significant agribusiness-related merger, absorbing the big farm sector banking business and other lending actiivies of Queensland's Suncorp Bank in a $5 billion takeover.

Bank interest rate reality would be another factor hitting home in the ag sector after the past year's rising borrowing costs, prompting some food businesses to sell assets as they juggled their own costs with current subdued domestic consumer spending trends.

ANZ suggested rates would change little during 2024, although there was a "reasonable possibility" of an interest rate cut later in the year.

Mr Whitehead noted last year saw several big ticket, market defining transactions in the grain, red meat, dairy and aquaculture industries, while global demand for high quality assets continued.

Among the big name businesses to change hands were Australia's United Malt Group sold to giant French farmer co-operative group, InVivo; salmon farmer, Tassal, going to Canada's Cooke Seafood; the Australian Lamb Company sold to Brazilian and Saudi-owned Minerva Foods in late 2022 and Coles buying Saputo's big milk plants in Sydney and Melbourne.

Processing sector consolidation meant increasingly fewer large valuable assets remained, which could force customers to lock in more long term offtake contracts this year as they sought to secure routes for their supplies in distribution channels.

In the farm technology space, 2024 could be the year the relatively small domestic marketplace forced rationalisation among the many recently emerged agtech businesses, or the year some would simply be left behind by the speed of change.

"There's no question the agtech industry continues providing opportunities for food producers to massively boost production and efficiency, particularly in the face of labour shortages," Mr Whitehead said.

"But the potential large-scale clients who are most likely to use these technologies are not numerous."

In compiling a list of the top 10 factors likely to impact the agribusiness and food sector in 2024, he noted the 2020s had already been an eventful decade.

The COVID pandemic, conflict in Eastern Europe and economic volatility had all impacted the global food, beverage and agribusiness landscape so far, and India's free trade deal with Australia would likely see it fast expanding its market influence this year.

"India has been 'the next big thing' for a few years, but it's notable how few companies in this sector previously made decisions to learn more about the opportunities and challenges from this rapidly modernising economy and its 1.4 billion people," Mr Whitehead said.

This year would see many educating themselves and spending time in India learning about regulatory challenges, legal and bureaucratic processes, and looking for investors and partners.

Meanwhile, the past few years in Australia had been made more unpredictable by seasonal extremes.

Drought had swung to unusually wet years, then back to a dry winter and spring which sent livestock prices plunging on expectations of even drier conditions into 2024, which instead turned into a wet new year for many, including monsoonal weather cycles in northern Australia.

"Across most domestic food sectors, industry players will be paying closer attention to weather forecasts to plan strategies around any impact on supply volumes, availability and pricing," Mr Whitehead said.

ANZ ranked sustainability at the top of the industry's 10 leading impact factors for 2024, expecting many companies to make a fundamental shift from an awareness of environment, sustainability issues and regulations, to formally implementing these ESG (environment, social and governance) requirements into their business.

"Requirements for companies to measure and offset their carbon emissions would grow rapidly in the next financial year, with the demands coming from governments, customers or export buyers," he said.

"This will be the year many companies need to make a big shift to actually making this happen."

The full top 10 on the impact list in ANZ's latest Food For Thought report: