INSTITUTIONAL investors have continued to find Australian agricultural assets appealing, according to Colliers International.
The real estate company, which specialises in large-scale, high value asset transactions and whose clients are commonly corporate farmers and investors, released a research and forecast report which said agriculture offered institutional investors portfolio diversification and long-term returns.
While corporate and investor activity makes up a major part of the market, Colliers International research associate director, Karina Sales, who is one of the report authors, said that farming families still dominated the sector because of "their historical presence, ability and preparedness to ride out seasonal and market cycles and their sector know-how".
The past few years has seen a steep increase in the players involved in the Australian agribusiness investment sector, particularly with Canadian and American pension funds.
"These players generally have a long-term view of the drought and climate risks, remaining cautious and supporting investment decisions with a conservative feasibility analysis including the identification of relevant strategies to mitigate risks," Ms Sales said.
"These players also have access to capital to finance the asset acquisition and productivity upgrades using new technology or process integration, which ultimately allows them to maximise their returns."
The appetite for investment is expected to continue to rise among institutional buyers, particularly for assets offering vertical integration opportunities, water licences/permits and favourable global trading conditions.
Family ownership of farmland is also anticipated to stay strong.
Despite the global uncertainty due to the COVID-19 pandemic, Ms Sales forecast a similar market environment to that of 2019.
She expected the market to remain tightly held and as such, there could be an increase in off-market transactions.
Company director of agribusiness transaction services, Jesse Manuel, echoed Ms Sales in that he anticipated the market to remain strong across Australia.
"At this stage we haven't seen any evidence of the market slowing down," Mr Manuel said.
"In many respects it's business as usual, however one hurdle that we're currently faced with is the restrictions around travel with buyers looking to cross borders to inspect properties."
Mr Manuel said that COVID-19 could potentially prolong some processes but it hadn't reduced interest or inquiry levels.
"COVID-19 has really intensified the importance around food and agriculture and there is currently a real spotlight on the sector, not only from existing operators looking to expand but there are investors outside of the industry wanting to get a piece of the action, so we are expecting for the food and agriculture sector to be a safe haven going forward," he said.
Changes to the foreign investment review framework, as announced by the Federal government in March, have expanded the Foreign Investment Review Board's (FIRB) assessment criteria on foreign agricultural land and business purchases, which will prolong the purchasing process to up to six months.
"The impact of these measures on future offshore agribusiness real estate acquisitions is still uncertain, albeit in the first instance we envisage the opportunity for domestic institutions to like superannuation funds to extend their investment activity in the Australian agribusiness sector," Ms Sales said.
Mr Manuel said that the FIRB changes were not likely to deter foreign buyers from investing in Australian agriculture.
"These sophisticated institutional investors are used to the process and due diligence so they just see this as just another part of their acquisition process," Mr Manuel said.
While the scale of impact of COVID-19 on the Australian economy and the capital markets of agribusiness assets are still unquantifiable, Ms Sales speculated some possible effects.
"Potential effects could include the halt of investment opportunities reaching the market, the disruption of capital flows, the international and State border restrictions limiting site inspections and the loss of market value of companies listed in stock exchange markets," she said.
"Despite the current worldwide uncertainty, demand fundamentals of the agribusiness sector are very solid and supported by the non-discretionary nature of many agribusiness products, the consistent population growth demanding high-quality food products and the low level of the Australian dollar improving the competitiveness of the Australian agribusiness sector."
Colliers International estimated capital investment above $5 million on farmland to be well-diversified across Australia's States, however WA and Tasmania were the only States to not see an increase in foreign investment in 2019.
Beef:
Despite the severe drought in Eastern Australia, the Northern Territory and WA, demand for cattle properties remained strong in 2019.
Colliers International expected this demand to continue throughout 2020, particularly for opportunities of scale including livestock.
The buyer profile in this sector includes high-net-worth individuals, corporate and family companies, and foreign investors and pension funds.
Mr Manuel said 2019's large scale beef transactions were concentrated in other States, as the WA market had been tightly held.
"If a quality asset of reasonable scale was to hit the market in a time of such limited supply, it would achieve strong interest," he said.
Grain
Extreme dry conditions throughout the Eastern states hadn't dampened demand for broadacre cropping assets in 2019.
The market is considered to be 'two tiered' at present, with strong appetite from local established farming families who are prepared to pay a premium in value for nearby or adjoining parcels.
There has also been strong demand from corporate buyers seeking larger scale offerings which have fetched significantly higher prices.
Below average rainfall across Australia adversely affected crop yields and reduced earnings, which could dampen buyer demand in 2020.
However, the company still expected demand for cropping properties to hold firm in 2020, with particular strength in highly regarded regions.
Should positive seasonal conditions prevail, there is likely to be an increase in the number of listings.
With land values reaching record highs in some areas, there could be an increase in the uptake of leases in an effort to maintain scale without operators increasing their debt loads.
Sheep, lamb and wool:
Land values for sheep grazing country are forecast to increase, as landholders will look to increase their existing holdings in a bid to capitalise on the current strong returns of lamb and mutton.
There's expected to be an increase in properties hitting the market, particularly in areas that receive good rainfall, "which will not hamper land values but offer purchasers greater variety and optionality in seeking to expand grazing operations".
Colliers International said that global forces would play a part in the industry during 2020, with the threat of both human and animal diseases impacting exporting opportunities.
