Rural property market update (20.03.18)
David Hassum recently attended the annual Rural Property Market update presented by Herron Todd White (HTW). Below are some of our key take-outs from Mick’s presentation, with David’s added spin on them.
Productivity gains can do it
World-wide agricultural productivity has been increasing at about 2% pa. If that trend continues, productivity gains alone should go a long way to meeting the world’s increasing food demand. There was a school of thought that productivity gains were on the decline, but that does not seem to be the case (although productivity gains in Australia have stagnated).
In the absence of the development of substantial new land and water assets, we will need to rely on AgriTech/FoodTech, in all its forms, to meet global food demand. This reliance on productivity gains highlights the importance of R&D and the potential for investments in the AgriTech sector. Good examples include:
a) Sundrop in South Australia who have combined state of the art hot-house technology with concentrated solar power and desalination to deliver a game changer in tomato production; and
b) the use of DEXA technology to help deliver fully automated lamb boning.
According to the recently released AgFunder “AgriFood Tech Investment Report”, investments in FarmTech reached a record USD 2.6bn in 2017, up 32% from 2016. Investment in the AgriFood Tech sector overall was USD 10.1bn, up 29% over 2016.
Surprise Surprise – we have competition!
We have long been frustrated by the complacency of some government and industry players who seem to think that because our agri-products are made in Australia, we have an exalted place in the global market and it will take what we give it. Yes – our clean, green image gives us an advantage, which we must protect and leverage – but we have competition. Interestingly Australia has NOT been the major beneficiary of increased Chinese demand for food and fibre. The major beneficiaries in relative terms have been Brazil and the USA.
This global competitive landscape highlights several things:
a) we have competition;
b) we must develop access to markets and be market led;
c) we can never be the “food bowl” of China (but maybe we can be the delicatessen);
d) bio-security is crucial to protect what competitive advantage we have; and
e) the need to increase our productivity and reduce production volatility.
Australian agricultural revenue volatility
Australia ranks among the highest in the world in terms of volatility in agricultural production and revenues, second only to Uruguay in a few categories. No wonder it has been difficult to attract large institutional investment into the sector. The high level of production volatility highlights two things; the importance of risk management (such as water security) in traditional agriculture and the need for innovation and the adoption of non-traditional food production, such as the Sundrop example.
Hort is hot!
The hot sector in agricultural land recently has been horticulture, particularly properties of scale and suitable for permanent planted horticulture – such as tree nuts (macadamias, almonds) and avocados. Seemingly ridiculous prices have been paid for existing farms or land with development potential (such as cane land in the Bundaberg region). Scale and water security have been crucial in determining these values. In other areas, such as northern cattle, property prices seem to have peaked and are likely to come down in the mid-term, although it will be interesting to see the effect of the recent rains in the north on transaction volumes and prices.
What have we learnt?
InterFinancial is a specialist corporate finance advisory firm, with particular expertise in the Food & Agribusiness sector. We have advised on a number of buy side and sell side engagements in the sector, typically for post farm gate food processing and services businesses. If you would like to discuss how we can help you to capture value in your business, please contact the team on 07 3218 9100.