Woman: On Landline last week, Deputy Prime Minister Barnaby Joyce made it clear he wants Australian super funds to boost their tiny investment in the country’s rural portfolio. But what’s needed to make that happen? National rural and regional correspondent Dominique Schwartz went looking for answers in Canberra this week at the annual conference of ABARES, the Australian Bureau for Agricultural and Resource Economics and Sciences.
Dominique: It takes a lot to grow a profitable farm, plenty of brawn, brains, and bucks. About $2 billion every year is plowed into farm assets other than land.
Karen: The majority of that comes from the family farm. The traditional family farm contributes something like 60% to 70% of the capital needed in the farm sector and that’s been the case for a very long time. About 15% comes from debt funding and the rest of it comes from other forms of equity.
Saul: Thank you, Lee, and good morning, ladies and gentlemen.
Dominique: But that model will need to change, according to independent economist Saul Eslake. He says, “Australian agriculture will need $1 trillion in investment over the next 35 years to remain globally competitive. ”
Saul: The capacity to meet those requirements for capital from traditional sources, debt and internally generated equity is significantly limited. Much of it is going to have to come from places where it hasn’t traditionally come in the past. That could be and desirably would be from domestic institutional sources.
Dominique: Such as Australian super funds, which together hold $2 trillion.
Barnaby: And there is the capacity. With $2 trillion in it, there is the capacity for this to happen. We should be working out how we do it.
Dominique: First State Super made its foray into the rural landscape less than a year ago and it’s already nuts about agricultural investment.
Damien: First State Super is about a $52 billion not-for-profit superannuation fund, about the third largest in Australia. We have great hopes for agriculture as an investment.
Dominique: The fund has 740,000 members, mostly teachers and health workers. It spent $150 million buying almond orchards across 3 states, which it now leases back to the seller, listed agricultural company Select Harvest.
Damien: We primarily get our return via a sort of a rental income stream. They can then use our capital to expand, grow more trees, which take about four or five years to generate income, helps them grow, we get a rate of return. It’s a good transaction.
Dominique: Damien Webb says both the super fund and the farming opportunities on offer are now big enough to make investment worthwhile.
Damien: I think in the past there has probably been better options available to us in terms of real estate, infrastructure, listed shares, other opportunities. I think now we’re at the stage where there’s a larger opportunity set of investments to do as farms are sort of conglomerated and work together to be a larger scale and opportunity set for us to invest in.
John: A figure in Western Australia is that 15-odd years ago, there were 10,000 grain farmers producing, say, 9 million tonnes of grain. Today, we’re a bit over 4,000 producers producing about 12.5 million tonnes of grain.
Dominique: John Corbett is finance director of Australian Grains Champion, which is behind the push to change West Australian grain handler CBH from a cooperative to a corporation. He’s also a director of Hassad Australia, a Middle Eastern-backed company, which has spent half a billion dollars over the past six years buying sheep and grain farms across the country.
John: It’s an operation that will turn off 100,000-odd head of sheep plus and 150,000 tonnes of grain plus, given seasonal conditions.
Dominique: Hassad Australia is bankrolled by the sovereign wealth fund of Qatar as part of the Arabian nation’s plan for food security, so the company can afford to take a long-term view of investment in a way that local super funds cannot. John Corbett says many foreign pension funds are also structured for long-term investment.
John: In Australia, as a super fund, you might have, you know, 100,000, 500,000 members, whatever. Theoretically and literally, they could all walk in the door tomorrow, all demanding to cash out and you’ve got to be able to have sufficient liquidity in your fund to be able to deal with those sorts of events.
Man: A real opportunity exists to own a piece of Australian outback history.
Dominique: Mr. Corbett believes self-managed funds, worth more than half a trillion dollars in Australia, are a potentially deep well of agricultural capital. He’s not alone.
Man: You can join a growing list of investors.
Dominique: Property investment company DomaCom late last year launched a campaign to crowdfund a bid for the iconic S. Kidman & Co land holdings. So far, it says about 4,500 investors have pledged $67 million.
John: Mum and dad investors inherently have an affinity for Australian agriculture, so I think there’s one opportunity for us, but then you’ve got the institutional side. We’ve got to find ways that we can package product that actually meets the investment requirements far better than we have as an industry to date.
Dominique: The value of Australian agricultural production is expected to rise to a record $60 billion next financial year. And while export receipts are forecast to remain steady at about $45 billion, the take-home message from this year’s ABARES conference is upbeat.
Karen: Have confidence in the agricultural sector. It’s a sector worth investing in.