Aus ag ripe for foreign investment

16 Jul, 2015 02:00 AM
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12
 
We didn't have to do much to promote Australian agriculture - they were already talking about it

THE sliding dollar is sweetening Australia's appeal as an agricultural investment destination ripe for overseas companies and fund managers, particularly from North America and Europe.

While the headlines are frequently all about new farm sector deals between Australian agribusinesses and players in key markets in developing Asia, a new age of 'Down Under' investment interest is dawning in global capital markets from more traditional backgrounds.

"We're seeing strong interest from sources in the US and Europe who are looking at building long-term investment relationships," said director with trans-Tasman corporate strategy and agribusiness advisory firm PPB Advisory, Tim Lee.

Individual pension funds and fund management firms, representing various superannuation or private wealth investor groups, were looking to Australia and New Zealand to diversify their capital portfolios with stakes in farm production and supply chain positions in processing or distribution.

"A noticeably greater number of firms and funds are declaring their wish to be in Australian agriculture," Mr Lee said.

"They're looking at a range of different commodity sectors, different geographic considerations and operations of varying scale - potentially spending anything from $25 million to $500m."

Rising recognition of Australia's agricultural development potential, and the local farm sector's role as a valuable part of the food supply chain into Asia, had already generated significant investor momentum in the past year or two.

Market growth opportunities and optimism evolving from recent free trade agreements had heightened recognition of Australia and New Zealand, too.

But the lower exchange rate had really helped rev up inquiries and deals, particularly in the past six months.

Since November the dollar's value has dropped from US87 cents to this month's exchange rate around US74c - roughly a 15 per cent discount for any American group shopping for farmland or an Australian agribusiness investment, and almost 25pc cheaper than a year ago.

The change against the Euro has been more modest of late, but the dollar currently worth about E68 cents is still well down from highs of E80c 18 months ago.

'No better time'

"At the moment the talk among pension fund managers in the US is definitely about our cheap dollar and how there's no better time to invest in Australia," said PPB director Ben Craw, who with Mr Lee recently returned from US and UK investor group meetings and the Global AgInvesting conference in New York.

"It was pretty clear in New York that we didn't have to do much to promote Australian agriculture - they were already talking about it and understanding what was achievable."

US investors, in particular, had made big strides in valuing the development potential in Australian land, especially for new era irrigation projects involving horticultural industries such as nuts.

With drought continuing to hammer the Californian farm sector, they recognised the risk management advantages of interests in Australia where water efficiency was already a prime consideration for farmers, and they liked the concept of water being a tradable asset separate from an landholding.

However, like Asian investors, the traditional money is also keen to spread its Australian footprint into consolidating a position across the whole supply chain to extract better returns from farm output, although not necessarily buying a 100pc share of any specific business in the link.

PPB partner and agribusiness head Greg Quinn said the trend towards shoring up supplies from the paddock to the customer was rapidly increasing across the industry, notably with recent mergers between meat marketer Sanger Australia and processor Bindaree Beef or the joint venture between Queensland processor Australian Country Choice and the Acton Land and Cattle Company.

Chinese investors in particular regarded Australian meat and dairy investment opportunities as ideal for building food security channels back to China, but also to develop the valuable providence of Australian brands across Asia.

This could eventually expand to growing or processing similar products under the Australian brand names in other parts of Asia.

Slice of the action

The spending power of the big northern hemisphere pension funds or their big corporate-style investment intentions should not deter or intimidate family farmers from looking for a slice of the overseas investor action, according to Mr Craw.

"A family farming operation might be at the lower end of their spending scale, but the farming business has to first position itself to be investor-ready with the right management accountability and business structures in place," he said.

PPB's activities not only include assisting investors to find and buy into suitably tailored Australian agribusiness portfolios, but also guide farm sector asset operators on how to present their business in order to attract outside capital and expand.

The advisory firm boasts about 20 agribusiness specialists in Australia and New Zealand with a practical understanding of the economic and personal side of rural enterprises, and experience in resolving the complex issues which confront agribusiness.

Mr Craw said many overseas investors were seeking joint venture partnerships with local management experience.

However, farmers also had to accept that bringing in an outside partner meant the off-farm investor would have at least an equal say over the business' future direction.

"It's no longer a simple case of deciding you want to buy the place next door if it becomes available - that decision is no longer yours alone to make."

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FarmOnline
Andrew Marshall

Andrew Marshall

is the national agribusiness writer for Fairfax Agricultural Media
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READER COMMENTS

Jock Munro
16/07/2015 4:42:22 AM

Yes-the urban political elite will be able to sell off all of Australia. There will be a political backlash in the not too distant future.
Brad Jones
16/07/2015 7:42:48 AM

You going to stand for parliament Jock?
Percy
16/07/2015 10:31:54 AM

Because of the mining boom and the need to have an equalised balance of payments then farm returns have been screwed down to an unprofitable point turning farmers into peasants and farm land ripe for a takeover by any foreigner with cash to splash. However the biggest driver is the foreseeable need to have food security and Australia can provide that at a cheap price. Cheaper still if you can use your own labour force (without union activity) and your own shipping companies then pick up all the profit in your own country thus not having to pay anything to dumb Aussies. Get real and wake up.
Cocky
16/07/2015 11:06:18 AM

Wish I could borrow at US and European interest rates, then I might be able to afford to buy my neighbour out. I Guess you've just got to let them have it. It would be nice to have a level playing feild though.
wtf
16/07/2015 12:26:33 PM

Farm succession is nearly impossible from within the Australian community, so that foreign countries can come and buy. Land, be it food production or minerals/fuels has to be our greatest asset, why else would we let other countries pillage us. Was the live export shutdown an example of this thinking? As we are seeing with Shenhua, our gov't cannot be trusted to represent our industries best interests. If we want a prosperous future we need to realise this.
Farm-Edge
16/07/2015 1:18:17 PM

The Federal Government highlighted financial education as part of its Agricultural Competitiveness White Paper. I think this is a good starting point. There is a big difference between selling the farm, and selling equity in an agri-management company, founded and operated by an Australian farmer. Separating the real estate and the agri-business open up many opportunities for Australian (and other) farmers.
wtf
16/07/2015 1:27:18 PM

U don't think fract reserve banking and central bank manipulation of interest rates have anything to do with the inflation of asset values and therefore lack of return or destruction of savings (by low int rates)? To me these are the significant factors as well as foreign money that is destroying our succession and requiring the types of thinking u suggest. Rather than do those, why not fix the cause of the problem.
hayseed
16/07/2015 2:32:38 PM

@Cocky, How much cheaper do you want Interest rates to be??I've been borrowing Money for 35 years & NEVER seen Money so cheap.(I've seen It easier to get, BUT never cheaper).I can remember paying 21% in 1990 (still have to contract) Our declining terms of trade are a far bigger problem than the price of Money.
wtf
17/07/2015 9:54:49 AM

Hayseed, if interest rates had been higher recently, assets like farms and housing would not have been inflated in value the way they have been. By allowing privately owned banks to create money out of thin air the inflation of these assets has been heightened. When the "bad times" arrive, the banks will restrict money creation or raise rates to the point money supply is no longer sufficient to repay debts with interest. If rates weren't set and banks were not allowed to create credit, people could save to buy and rates would make risky investing in QE supported stock markets less attractive.
Jim Barton
18/07/2015 5:57:17 PM

There is a big difference between investment and ownership,,,what about some Ozzy investment through a peoples bank(common_(people)_WEALTH bank under its original charter) jail the private bankers and hang the pollies for treason and lets not forget our forefathers sacrifices and in Bob Katter's words on the Sunday Night program, Australians get some backbone,
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