Investment in Agriculture – Head Winds and Tail Winds

Investment in Agriculture – Head Winds and Tail Winds
Re-visiting Agriculture as an Investment
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This presentation contains general information and does not contain personal advice or financial product advice. The information contained in this presentation has
been prepared without taking account of your objectives, financial situation or needs.
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Nothing in this document suggests that it is all the information you need before making an investment decision and it should not be the sole basis on which you make a decision to
invest. You should make your own investigation and analysis before you invest.
Before acting on this information and making financial decisions, you should consider whether this information is appropriate for you and seek independent financial, investment,
tax and/or legal advice having regard to your own objectives, financial situation and needs.
This presentation may contain material provided to Australian Outback Grazing Pty Limited or Open Resolve Pty Limited by third parties. While such material is published with
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Any forward looking forecasts are provided as a general guide only and should not be relied upon as an indication or guarantee of future performance.
Furthermore, past performance is not a true indicator of future performance. Any past performance information in this presentation has been given for illustrative purposes only
and should not be relied upon as an indication of future performance.
An investor in agriculture is subject to various investment risks and other known and unknown risks. There is no guarantee that an investor in rural property will achieve any
particular rate of return on investment (or return at all). There is a risk that an investor will make a loss and/or suffer ongoing losses on their property investment, and may not
receive a return of all of the capital invested.
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• The Big Picture
•
23 Million Now
•
42 Million by 2050
•
7.0 Billion Now
•
8.9 Billion by 2050
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Tail Winds – The Asian Food Bowl
•In just 8 years time it is predicted that half of
the world’s population will be on Australia’s
Northern doorstep.
•4 billion people across Asia, enjoying
economic growth of around 10% pa
represents unparalleled opportunities for
Australia’s economy, especially the farm
sector.
Source: NFF Farm Facts 2012
4
Economics
•The Farm Gate contributes 3% ($48.7 billion)
to Australia’s total GDP. Including along the
Value chain the contribution is 12% ($155
billion).
•Approx 60% of what is grown and produced is
exported ($32 billion in 2010/11) – enough to
feed 60 million people.
•Australian farmers own and care for 61% of
Australia’s land mass.
•Australian farmers produce 93% of Australia’s
domestic food supply.
•Source NFF 2012
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Ownership
•
398 million hectares of Agricultural land.
•
$264.6 billion the estimated value of
Australian Agriculture.
•
11% or 45 million hectares of Agricultural
land has a degree of foreign ownership.
•
6% or 23 million hectares of Agricultural
land is owned in the majority by Foreign
entity.
Source: Unearthing Foreign Investment In
Australian Farming PPB Advisory 2013
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Return Expectations - Crosswinds
•
Are Investors return expectations
unrealistic?
•
An Investment in Agriculture requires
Patient Capital – It’s a long term
investment!!!
•
Returns dependant upon - capital
availability, capital allocation, Industry,
production, Market Position, Water, soil and
management
•
A need to be Innovative
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Management is Critical to Delivering Top Quartile Returns
•
ABARES Data from Australian Farm
Survey 2012-2013 notes the
substantial differences in
performance between top 25% of
Farmers to the average and bottom.
Land prices for broadacre farms, by zone
800
Pastoral
Wheat-Sheep
700
High Rainfall
600
500
400
Holmes & Sackett in Ag Insights Vol
15 highlighted that in their 2012
benchmarked farms the top 20%
performers delivered an average
8.5% return on assets managed.
(The range being 14.1% to 7%)
300
200
100
0
Index
100 = 1977-78
1977-78
1979-80
1981-82
1983-84
1985-86
1987-88
1989-90
1991-92
1993-94
1995-96
1997-98
1999-00
2001-02
2003-04
2005-06
2007-08
2009-10
2011-12p
•
p ABARES preliminary estimate
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Correlation
“The intention is for these agricultural
investments to produce a stable and secure
long-term return and contribute as a
complement to the rest of the
portfolio through a differing return pattern”.
Source Forsta AP-Fonda PF1 Annual report 2012
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Portfolio Diversifier
Performance of Different asset classes (end date 2008)
Top 25% Correlation of Asset Classes
30
Years
Aust Property
Aust Shares
Aust Bonds
International
Shares
Cash
15
Years
10
Years
5
Years
11.8%
8.1%
6.3%
-2.9%
Australian
Shares
12.6%
10.5%
8.4%
6.8%
Australian
Bonds
10.5%
7.4%
6.4%
6.0%
International
Shares
12.4%
5.1%
-3.3%
-0.9%
Cash
9.4%
5.7%
5.6%
5.8%
0.59
Ag top 25% by
return on
assets
10.7%
10.7%
11.8%
8.0%
0.50
Ag
Performance
Rank
4/6
1/6
1/6
1/6
0.45
0.55
0.54
(0.24)
0.21
0.32
0.73
(0.25)
0.00
(0.19)
(0.15)
0.05
(0.28)
0.08
0.00
30 years 15 Years 10 Years 5 Years
Attractive returns
to other asset classes
Australian
Property
0.06
(0.41)
•
(0.87)
Source: Cornish Consultancy – Analysis of Australian Broadacre Farming
Performance From an Investment Perspective August 2011, ABARE
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Head Winds
•
The Past
•
Perception
•
Environmental (Climatic, Degradation,
Bio-Security)
•
Access to Capital Employment
•
Employment
•
Investment Structure
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The Three Key Ingredients
•
WATER
•
SOIL
•
MANAGEMENT
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Carpe Diem!!!
•
Think Long Term
•
Do Your Research
•
Touch and Feel it
•
The current international capital flowing
into the industry cannot be wrong
•
Returns from Agriculture are
comparable to alternative asset classes
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Final Thoughts
•
•
The Medium to Long term Fundamentals for
Agriculture look very strong
Investors need to seek out the best operators and
managers
•
Innovation and Capital will be key to driving
productivity and returns
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15
Food for Thought
•
Creative risk taking is essential to success
in any goal where the stakes are high.
Thoughtless risks are destructive, of
course, but perhaps even more wasteful is
thoughtless caution which prompts inaction
and promotes failure to seize opportunity.
•
Gary Ryan Blair .
•
The pessimist sees difficulty in every
opportunity. The optimist sees the
opportunity in every difficulty.
Winston Churchill
•
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