THE traditional bank loan is no longer enough to fund agricultural growth in Australia, particularly when other sources of capital are keen to get an investment foothold in the promising sector.
Head of the nation's farm industry forecasting body Karen Schneider has weighed into the debate about whether Australian agriculture has the funding capacity to take advantage of ballooning export and value-adding opportunities.
Agriculture needed to better tap into the global investor capital market, she said.
First, however farmers and agribusinesses had to prove farming was a worthwhile investment, delivering returns comparable with other industry segments.
Commercial scale farm businesses could be good investments compared to other uses of investment capital, she believed, although beef production was currently struggling to make the grade.
Addressing last week's Outlook 2015 conference Ms Schneider said many believed a major transformation of the farm sector was urgently required and new financing structures and sources of capital were needed to make that happen.
The executive director of the Australian Bureau of Agricultural Resources, Economics and Sciences (ABARES) said doubts abounded about whether current local lending arrangements had the capacity to drive the sort of investment required to swiftly ramp up rural productivity and deal with the challenges of supplying food markets.
While agriculture had been traditionally and successfully financed by debt for generations, Ms Schneider said other sources of capital were now increasingly interested in agriculture worldwide, including institutional investors.
Australian bank-funded farm debt shot up about 75 per cent to about $70 billion during the past decade, but has plateaued as lenders tightened finance availability after the global financial crisis and farmers have grown reluctant to borrow more.
Although farm debt-to-equity ratios were "quite strong" and interest rates unusually cheap, Ms Schneider said too much debt remained a problematic issue in some regions, particularly in drought areas.
Debt levels grew about 5pc last year in areas hit hard by several years of drought, primarily covering cashflow shortfalls.
She said to meet food demand and to achieve a much-needed productivity boost and farm consolidation a lot of new on-farm investment was needed to expand our enterprise scale.
Big funding injections were also required off-farm to provide technology support and infrastructure, particularly transport.
ABARES research indicated commercial-scale farm businesses could achieve returns in line with investment earnings with equivalent risk from other asset classes, including term deposit savings and shares in top 200 companies on the Australian Securities Exchange (ASX).
"Cropping and vegetables offer the highest rates of return and dairy sits on a similar line to returns available from alternative investments, based on the risk involved," Ms Schneider said.
"The beef sector falls under the line - reflecting the highly variable seasons and market conditions of the past decade and major land valuation declines in northern Australia.
"Essentially we think Australian agriculture's going to be a good investment bet.
"In a general sense commercial-scale returns are commensurate with the risk profile of other alternatives and Australian farms can be a good strategy for those investment funds around the world looking to diversify portfolios and to maximise returns."
Ms Schneider reiterated Agriculture Minister Barnaby Joyce's comments at Outlook about Australia being a "very open market" for foreign investment and had always imported capital.
However, she said New Zealand probably had a more diverse investment structure within its agriculture sector.
Addressing risk issues associated with ag investment, former National Australia Bank agribusiness head Mike Carroll noted too much debt "almost always played a role" in sudden farm enterprise collapses, particularly if big decisions went wrong.
Intensive agriculture accounted for a relatively high share of those failures.
Other factors contributing spectacular collapses included poor investment judgement, bad timing and the sort of irrational exuberance about the market's prospects which occurred with last decade's run on northern beef properties.
Many assumed commodity price slumps and tough climatic conditions caused farm failures, but in his experience they were usually a second order factor.