Capital key in attracting 'new blood'

23 Nov, 2015 01:00 AM
The key consideration the lack of succession planning.

WHILE the farm sector frets about our ageing farmer population - with good reason - the head of the world's biggest institutional farmland manager, Randall Pope, says Australia is actually doing a relatively good job at drawing new recruits into the game.

Although the average age of Australian farmers is a concerning 53, in the US and Europe it is nearer to 60 (and 69 in Japan).

Those aged under 35 represent just three per cent of UK farmers and 5pc in the US.

"Australia and NZ look really good with about 15pc of farmers aged 35 or under - so you're doing a good job at attracting people to the industry," said Mr Pope the chief executive of big US pension fund investor business Westchester Group Investment Management.

However, he said big opportunities for more new blood were poised to open up and needed to be developed.

The next decade would see a mass of farmers retiring from active production worldwide, which had serious implications for agriculture's potential productivity and the way agribusinesses serviced this changing market.

"There are going to be opportunities for people to come into farming, but it is going to take capital - debt and equity - to set them up," said Mr Pope, addressing Rabobank's Leadership Award dinner in Melbourne.

Westchester chief executive, Randall Pope (right), with Rabobank's Australian and NZ managing director Thos Gieskes at the Rabobank leadership award dinner in Melbourne.

"The key consideration here, in what is still a family business dominated industry, is the lack of succession planning.

"A couple of generations from farming backgrounds have gone off to university and often chosen to stay in city jobs rather than return to the farm."

Fewer farmers had resulted in significant land consolidation in Australia - a 50pc decline in the number of productive farm holdings in just 30 years.

To help make agriculture an attractive proposition again, new debt and equity options would be critical to providing farmers with the ability get established in the sector.

"We see our self as providing some of that equity," Mr Pope said.

He regarded family farmers and dedicated agricultural businesses as the best farmland operators, not cashed-up institutional investors seeking a safe haven in which to park their funds.

Westchester, and its associated management groups, manage more than 400,000 hectares of land assets worth $US5 billion, primarily in Australia, US, Europe and South America with New Zealand looking likely to be a future prospect, too.

The 30-year-old company's zeal for holding agricultural assets for the long-term and leasing them out to real farmers had made increasing sense to big North American investment groups burnt by the global financial crisis (GFC) and its impact of shares and financial market returns .

"Returns of about 12pc over 20 years from US farmland make these tangible assets a very appealing diversification to pension fund investors when compared to the volatility of the share market," said Mr Pope.

Investor returns from properties managed by Westchester were typically derived half from lease returns and half capital growth.

But investing in agriculture was no short-term success story and it required consistency and focus.

Farm commodity profitability cycles had made Westchester well aware of the need to budget for the long-term, targeting affordable productive land which tended to be broadacre annual cropping country (although its portfolio includes horticulture and viticulture).

"Our basic premise is to own farmland in major grain exporting countries - Australia was one of the first, and is a big priority for us," he said.

"We're looking for a hedge against inflation and the ability to generate a reasonable return."

Despite there being about $US15 trillion worth of global farmland available in the world, he said a limited number of countries had "scaleable" agricultural opportunities.

Therefore large scale investor ownership in global agriculture totalled less than $40b, or just a tenth of the value of the world's farmland.

"You can't replicate what agriculture has," he said.

"Unlike other forms of real estate, you just can't go out and build more, like office space, if the demand is high and the supply is low."

Andrew Marshall

Andrew Marshall

is the national agribusiness writer for Fairfax Agricultural Media
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Jock Munro
23/11/2015 2:56:42 AM

More of the same self serving banter from those who see huge profits to be made in the sale ,facilitation and bank rolling of our farms and other key strategic assets to foreigners.
23/11/2015 7:48:41 AM

Look at the detail with Westchester owning the farmland and farmers being able to take long term leases. A win win model with farmers expanding with expertise in operating without the need for capital to own land. Good to see new models.
23/11/2015 10:49:14 AM

No one has satisfactorily answered why we need foreign investment? please do not fearmonger about food insecurity. What review has shown early European investment (eg Vesteys) could not have been achieved from within? What is there to stop these people negatively gearing their investments here to take losses home? Is this foreign investment theme really an undisclosed banker bailout and should we be debating the issue of listed companies being allowed to create our public money? If they could not sell to foreign money, wont the market realign to a point domestic investors see value?
John Carpenter
23/11/2015 12:29:56 PM

Why do we need foreign investment? Because Australia saves less than it invests resulting in a sizable current account deficit that is funded through foreign investment, borrowings or depletion of official reserves.
23/11/2015 1:26:14 PM

When u say invests, do u mean spends? isnt our banking model causing this, Why let banks punish savers by low int rates, neg gear etc, these price younger entrants out? is low cost finance/low cap res etc letting people buy all that imported product? its ok for older Austn who owned these assets prior to dereg, but what of people trying to enter farming or home ownership now? real interest rates are negative so they cant save, aren't they paying the price for the gains of older generation have had? is it not coincidental there is a lot of finance industry connections in politics.
23/11/2015 3:43:50 PM

I would say most of the people entering farming under 35 would be taking over the family farm or leasing. The banking sector has made it just about impossible for young people to purchase farms.


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