Who's Investing in Australian Agriculture?

Melbourne, Australia, March 8, 2016 (Newswire.com) - Speaking at the Australian Bureau of Agriculture and Resource Economics and Sciences (ABARES) conference held in Canberra last week, Mr. Joyce said it was baffling that local pension funds had just 0.3 percent of their total investment portfolio in the growing sector.

"We have to make sure that we create a culture where investment in the agriculture portfolio is just as logical as investment in the iron ore portfolio or coal portfolio” said Mr. Joyce.

"We have to make sure that we create a culture where investment in the agriculture portfolio is just as logical as investment in the iron ore portfolio or coal portfolio" said Mr. Joyce.

Jason Hellyer, Managing Director

However, stealing a few lines from Banjo Patterson our research indicates “there’s movement in the sector and the word is getting round” with several Australian funds and high profile Australian’s investing (or looking to invest) in agriculture right now.

In a complex deal announced last week, First State Super, a fund representing NSW nurses and teachers, indicated it would contribute $300 million in funds toward a plan to corporatise Co-operative Bulk Handling Group (CBH) in Western Australia. If voted in by members of CBH the arrangement would see First State Super become a major shareholder of the new CBH entity alongside GrainCorp which has also pledged $300 million toward the deal.

Australian owned agricultural fund manager, Rural Funds Management Limited (RFM), has now exercised an option to purchase three macadamia orchards located near Bundaberg in Queensland. The deal which should be completed this week, will see RFM acquire 259HA of orchards of which 234HA will be leased back to growers. This is RFM’s first macadamia orchard purchase and adds to RFM’s significant portfolio of agribusiness assets under management including land, water and infrastructure suitable for use within the horticulture, viticulture, cropping and poultry industries.

But has the colt already bolted?

International funds have been very active in the sector. Across recent years international funds have accumulated tens of thousands of hectares of prime Australian agricultural land and we understand more funds are queuing up for their chance to acquire a piece of the action. With little, or no FIRB compliance issues to deal with, Australian market access is relatively easy for this investor group.

Some notable examples of international fund transactions within Australia include;

Swiss fund Adveq Real Assets, US-based Municipal Employees' Retirement System of Michigan and the Danish Danica Pension Fund combining to purchase approximately 18,000ha of almond orchards on the Murray River near Robinvale through Adveq Real Assets Harvested Resources Fund in March 2015 for $211m from Olam International.

Canada’s Ontario Teachers’ Pension Plan purchase of 2878 hectares in Sunraysia for more than $115 million, including an estimated $25 million in water entitlements.

United States fund manager Teachers Insurance and Annuity Association of America (TIAA-CREF) purchase of approximately $40,000,000 in agricultural land in southern Queensland’s Darling Downs and northern NSW’s cotton country from PrimeAg through the Westchester International Agricultural Investors Fund.

Westchester is now reportedly holding more than $1,000,000,000 in Australian farm assets whilst Qatar’s Hassad group is thought to have amassed an aggregation of Australian farms worth more than $200 million.

Then there’s those pesky international SOE’s & POE’s trying to steal our land!

Our internal research, which captures published reports and statistics of mostly Chinese inbound investment, suggests FIRB’s forthcoming 2014-2015 foreign investment report will indicate a significant spike in volume and value of Chinese investment approvals in Australia’s agriculture, forestry and fishing sectors when compared to 2013-2014. However we’re also predicting implementation of the Federal Government’s new regime of foreign investment rules will see a decline in volume (not necessarily value) of FIRB applications received this year when compared to 2014-2015.

Why are we predicting 2015-2016 will show a decline in FIRB applications received?

Australia’s new inbound investment rules applies an accumulated $15 million FIRB threshold on most foreign POE’s investing in Australian agricultural land. Five countries are excluded from the $15 million threshold including Singapore and Thailand who’s FIRB threshold is set at $50 million and the United States, New Zealand and Chile’ who’s POE’s may invest up to $1.094 billion before FIRB is activated.

In addition to the lower FIRB threshold, the rules also stipulate an application fee must accompany each FIRB application. Application fees are scaled and increase as the transaction value of agricultural land increases. For example, an agricultural land transaction valued at $10 million incurs a FIRB application fee of $100,000. Add to this statutory charges including stamp duty and land tax and you can understand why many internationals now view the cost of doing business in Australia too prohibitive.

Early feedback suggests international investors (particularly out of Asia) perceive these new rules as convoluted, uncompetitive, and discriminatory and a political ‘moving target’.

According to data released by FIRB, between 2013 and 2014 their department approved $3.43 billion of inbound investment proposals across Australia’s agriculture, forestry and fishing sectors.

Of these approvals Canada led the way accounting for $602 million in proposals, with other significant international proposal contributions coming from;

2.       Hong Kong $600 million

3.       United States $584 million

4.       Thailand $350 million

5.       Singapore $197 million

6.       United Arab Emirates $150 million

7.       South Korea $65 million

8.       China $32 million

The scale, value and country of origin of inbound investment may capture national headlines however the reality is local investment continues to be the unsung hero dominating Australia’s agricultural investment landscape.

In a recent report compiled by RP Data CoreLogic and distributed by Landmark Harcourts, figures indicate more than 25,000 rural sales transactions (greater than 4HA) took place across Australia in the 12 month period to August 2015, with the collective sum of these transactions exceeding more than $14.5 billion.

Just for the exercise, if we say all of FIRB’s 2013-2014 inbound investment approvals fell in the same 12 month period to August 2015; if we assume all approvals subsequently went ahead and agricultural land was acquired (not all approvals result in transactions); then international investment would have accounted for approximately 23.67% of all Australian rural sales transactions for the year.

Is nearly 25% of all Australian rural sales transactions in a 12 month period ‘too much foreign ownership’?

Or is it OK if it’s derived mostly from international superannuation funds or western nations?

Although it is difficult to find national consensus on how much foreign investment is acceptable and from whom, what is clear is most Australian’s that work within the ag sector agree that foreign investment is required to help build and maintain Australia’s status as a leading producer and exporter of quality food and beverage.

Ends.

Jason Hellyer

Managing Director

Hellyer Consulting

JasonHellyer.com