Farmland investment still paying serious returns for corporates

Farmland investors returns lift again to 14pc, despite dry setbacks

Agribusiness
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Investing in agriculture continues to defy the drought, particularly major asset managers with water assets and horticulture

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Farmland investment returns continue defying the drought and keep rising for Australia's major agricultural asset managers, hitting an overall 13.8 per cent last year.

Investing in Australian farmland also continues to pay much better returns than those achieved in the US farm sector according to the Australian Farmland Index's assessment of data to the end of 2018.

Although the index's total annualised result was lower than the 17pc highs posted in mid-2017, despite the drought, it spent the second half of last year rising from 11pc.

Thriving returns from horticulture, in particular burgeoning markets for citrus and almonds, have been key contributors to the resilient performance, offsetting slowing gains from livestock and grain crops.

Horticultural and water asset appreciation reflects the progressive benefits Australia's agricultural sector has achieved via a raft of bilateral free trade agreements - Frank Delahunty, Australian Farmland Index

The farmland index, which covers a portfolio of 48 properties worth $1 billion, recorded a total return of 4.32pc across an aggregate of permanent planting and annual cropping or livestock enterprises for the December quarter alone.

It was up from 3.32pc for same quarter in 2017.

However, the drought is biting earnings from the annual crop and grazing sector.

Livestock and grain returns hurt

Drought conditions across most of eastern and northern Australia wiped about 16 basis points from livestock and annual cropping returns, down to an annualised 5.54pc return for the year.

A year earlier annualised returns from annual cropping and grazing enterprises were about 22pc.

The farmland index tracks income and land appreciation performance of some of Australia's major agricultural asset investor-manager players, including Rural Funds Management, Laguna Bay and GoFarm Australia.

Production activities monitored range from permanent crops such as almonds and citrus and annual crops such as grains, oilseeds, pulses and land used for livestock grazing.

Since the index began four years ago, farm sector annualised returns have averaged 14.16pc, derived from income of 6.27pc and capital appreciation of 7.59pc.

Outperforming the rest

Despite losing some traction in the past two years, returns generated from premium farming assets still ended 2018 outperforming the national property market's total return of 10.3pc and matching those generated from unlisted property funds for retail investors.

Even worse were real estate investment trusts which achieved just 2.7pc return in 2018, while Australian share market equity returns slumped into negative territory by almost 2.8pc.

The Australian Farmland Index also compared favourably with its US compatriot, the National Council of Real Estate Investment Fiduciaries (NCREIF) Farmland Index, which recorded a total return of 6.74pc for 2018 - 4.47pc income return and 2.19pc capital appreciation return.

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While eastern Australia's annual enterprise returns were hurt by drought, West Australian grain growing operations benefitted from near record yields, good harvest conditions and well above average farmgate prices.

Drought-induced grain demand from east coast markets desperate for feed-grains and milling wheat also supported international grain market gains.

Permanent crop returns continued gaining momentum, hitting 18.14pc for the year to December 31 - up from 17.2pc for the September quarter's annualised result.

"This reflected improved income returns with higher prices received for almonds and citrus, as well as higher returns for perpetual water rights associated with permanent crop enterprises," said farmland index co-ordinator, Frank Delahunty.

Frank Delahunty

Frank Delahunty

"Horticultural and water asset appreciation reflects the progressive benefits Australia's agricultural sector has achieved via a raft of bilateral free trade agreements in the past decade with large and high paying Asian import markets.

"In turn, this has stimulated a shift in water use from lower value commodity export crops to higher value specialty horticultural crops and fresh produce."

Adding water helps

Permanent crop annual income returns for 2018 hit 7.27pc, while land and asset capital appreciation was worth 10.38pc.

Blue Sky Water Partners, a data contributor to the index, noted irrigated farms with associated water rights located in the southern Murray Darling Basin benefitted from 30-plus percentage appreciation in the value of scarce water entitlements over the calendar year.

"Two back-to-back years of below average rainfall and river flows led to tight water supplies and high prices bid to ration that water supply among competing irrigators for 2018-19."

The farmland index, established in Australia in 2015, based on the NCREIF model in the US was launched to provide better quality and timely information on the returns generated by agricultural investments over time.

It is supported by external subscribers ranging from property market players CBRE Agribusiness and Colliers International to agribusiness banks.

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The story Farmland investment still paying serious returns for corporates first appeared on Farm Online.

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