This year's Global AgInvesting conference highlighted the strong prospects ahead for Australia's agribusiness sector, making it a prime opportunity for investment.
Global AgInvest is the world’s largest agricultural investment conference. For the last seven years, it has served as a prime opportunity for investors, farmers, fund managers and other industry leaders to converge and share their insights on the state of the sector. This year's event, which was held from April 27 to 30 in New York, was no different.
At the conference, Margaux Beauchamp, Executive Director, BDO Corporate Finance, heard investors and managers give their take on the opportunities and challenges for investors in agriculture around the world. This year in particular, Australian agribusiness received significant attention as analysts noted a number of characteristics that make investing in the country's farming and food sector particularly attractive.
Australia: A prime location for a booming market
A number of investors at the event expressed positive sentiment towards investment in Australian agriculture. Why?
First, Australia's in a great location to benefit from world population growth and the estimated 3 billion increase in the global middle class.. Our agribusinesses can take advantage of existing ports, trade agreements and business relationships with partners abroad particularly in a number of key countries throughout the Asia-Pacific region.
Already, Australian farmers export about two-thirds of their products, with overseas markets worth over $38 billion in FY2013, according to data from the Department of Foreign Affairs and Trade. As the absolute number of people increase and there is a rise in the middle class, there's opportunity to boost productivity and export more higher valued quality product to these hungry markets. Given Australia's strategic location, it's no wonder agricultural investment fund managers are taking an interest in the country's products. Westchester Group Investment Management, a TIAA-CREF company, is a great example. US-based TIAA-CREF has invested around 1 billion dollars in Australian farmland and assets, including part of the PrimeAg's portfolio.
At Global AgInvest, Margaux Beauchamp, asked Westchester's CEO, Randall Pope, why he selected Australia as the first country outside the United States for agricultural investments. He pointed to our export surplus, which gives exposure to global markets, as well as the security our legal system provides. He also quipped that he 'almost' spoke the language. - The fact that we're an English-speaking nation certainly is an asset for both global agribusiness and investor relations.
Encouraged by strong results in the US
Adding to Australia's attractive position within the global economy, Global AgInvesting speakers highlighted the positive results investors have historically seen in agriculture, taking a look at US figures in particular.
Annual returns to US agriculture in the period from 1970 to 2014 were 11.57 per cent. Compare that to the results of Dow Jones (6.9 per cent) and Gold (7.86 per cent), and we start to see the potential in the sector.
At last year's Global AgInvesting, Morgan Creek Capital Management outlined that agricultural investments would perform better than bonds and equities in the US by as much as 8 per cent over the next decade. This year, presenters provided more positive data showcasing the industry's bright outlook for investors:
US agricultural land market values in recent years have experienced a period of strong growth - 10 to 14 per cent per annum.. The sentiment at Global AgInvest was that there was not expected to be a major correction in the US rural land market. This is despite the fact that agricultural businesses were currently providing a cash yield on asset values slightly below the long term trend of 4% cash yield.
Australian agribusiness: Poised for development
Bringing it back to Australia, we haven't seen a great deal of capital growth in the agricultural landscape since the Global Financial Crisis. However, given the positive outlook for the performance of agribusiness investments, this is all the more reason for investors to take Australian agricultural investment very seriously.
Global AgInvest presenters observed that several factors which could be seen as drawbacks for the sector actually lead to high-potential opportunities. For instance, because agricultural investment markets in Australia were generally inefficient, there's a remarkable possibility for attractive investment returns for individuals who have the right knowledge, networks, integrity and respect from peers. Furthermore, the devaluation of the AUD lowers the entry cost for offshore investors whilst the Australian returns from exports are expected to be higher.
If they're ready to embrace the complexity in transactions, have the patience to deploy capital wiselyand have the management to deliver performance, investors can capitalise on the bright future ahead for Australian agriculture. And by attracting funding from agricultural institution investment portfolios, our businesses can increase scale, fuel innovation, and strengthen their competitive advantage. Investment markets over time have shown to be fickle and as a result the current high level of investment interest in agriculture can’t be expected to last forever.