It is little wonder superannuation funds shy away from investing in agriculture.
There is simply not enough good data to give fund managers the qualifying evidence they need to decide which farming businesses are really worth investing in.
While the long-term returns from many successful farm businesses might seem pretty good to producers and their bankers, property investment specialist, Tim Atkins, says the figures for most ag sectors and individual enterprises are too closely guarded, or rarely transparent enough to make fund managers feel comfortable.
Published data, such as analysis from the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES), was useful, but “far too broad and averaged out”.
Without detailed data to help them make sound investment decisions, fund managers and analysts tended to play it safe - and avoid risking their quarterly bonuses - generally ignoring the farm sector and its awkward weather influences and volatile global markets.
Unlike the retail and office investment categories which attracted the bulk of property investment funds, he said it was hard to benchmark farmland or farming businesses, partly because there was limited uniform performance data for outsiders to identify a good investment option.
Mr Atkins, a director of Sydney-based Titanium Property Investment, said the dairy industry seemed to be an exception.
Interestingly, it also appeared to outperform other livestock categories over the longer-term, possibly because milk producers had access to so much comparative performance data to help them make good business decisions.
For example, his firm calculated top quartile dairy farms earnt about 15 per cent return on capital in 2012 and 2014, while top beef enterprises generated about 8pc and lamb lifted from 6pc to 7.75pc.
It was a much tougher year in 2013, but dairy still topped at 6.5pc - about 1.5pc better than beef and lamb.
“Establishing some common measuring and performance bases and communicating that information would go a long way towards attracting the outside capital agriculture badly needs in the next 10 to 20 years,” Mr Atkins said.
His comments followed last week’s release of Rural Bank research findings showing Australian commercial farmland values achieved commendable average annual growth of 5.8pc in the past 20 years - well ahead of inflation at 2.6pc.
In the past decade farmland values grew slightly less at 3.2pc, but were still stronger than shares in the top 500 companies listed in the Australian Securities Exchange’s All Ordinaries index, which had 1.3pc growth in value (or 4.5pc over 20 years), or inflation growth at 2.6pc.
Rural Bank’s agribusiness general manager, Andrew Smith, told an Agribusiness Australia forum, agriculture, which generally rated as an “alternate asset investment class” to traditional shares, commercial property or cash investments, was clearly proving its long-term property investment worth.
Current low interest rates were also helping farm enterprises wanting to expand their holdings and improve farm capacity by investing in new equipment, livestock and infrastructure, unlike the lending environment of the 1980s when borrowed money cost up to 20pc.
However, while European and US investment funds traditionally tended to be more in tune with return on capital from agriculture and the longer-term return cycle, Mr Smith said Australia’s pension fund markets leaned towards other short-term earnings options.
New Zealand-based investor groups also appeared more alert to agribusiness options, partly because agriculture was such a big player in the NZ economy.
NZ farmers also tended to be more “investor-ready”.
He said it was common to find NZ farm models with outside equity partners and the business reporting, compliance and entry structures which accommodated investor expectations.
“Perhaps it’s because the nature of NZ’s dairy industry, including its share milker tradition, lends itself to equity partnerships, so the whole ag sector across the Tasman has adapted itself to private capital investment more than we see in Australia,” he said.
Titanium’s Mr Atkins, whose firm primarily supports high net worth property investors, said while certain overseas funds and private wealth managers were successful agricultural investors worldwide and happy to target those opportunities in Australia, more must be done to convince the local superannuation and private investment sector about farming’s solid long-term returns.
Ag could also be a sound diversification from mainstream property and capital market volatility.
“However, people in the investment industry spend a lot of time examining and qualifying likely outcomes, so unless they can quantitatively support their recommendation decisions it’s very difficult to ask them to kindly jump off a cliff into the farming investment unknown”, Mr Atkins said.
“I think ag is doing itself a disservice by not openly promoting the financial performance of corporatised family businesses - those who are making business decisions on growth opportunities, not just treating the farm as a family tradition.
“There’s certainly an appetite among funds for diversity, and some individual private equity investors are already leading the way.
“But much more capital needs to be cycled into agriculture in the next 10 years as we experience a bulge of farmer retirees withdrawing their investment from the industry.”
Mr Atkins noted between 1981 and 2011 farmer numbers aged over 65 jumped from about 25,000 to 40,000. more than twice the number now aged between 30 and 35.