Asian market opportunities, the depreciating Australian dollar and expected lower tariffs due to Free Trade Agreements are assisting the revival of many Australian agribusiness sectors, according to the latest Rural and Agribusiness Research and Forecast Report by Colliers International.
The report outlines improved conditions across a range of rural and agribusiness sectors including horticulture, wine, water, fisheries and aquaculture, while the beef sector is due to experience a stellar 2015. The outlook for New Zealand agribusiness market also remains robust with purchasing demand expected to continue.
Rawdon Briggs, Director of Rural and Agribusiness Transaction Services at Colliers International said the northern beef market is experiencing a revival due to surging commodity prices and increasing capital flows.
“The fourth quarter of 2014 produced positive results for the beef sector across a range of indicators. Live export statistics for the 2013-14 financial year exceeded expectations, with total cattle numbers reaching 1.13 million head, up 79 per cent on the previous year.
“Indonesia again stamped itself as Australia’s largest market by more than doubling imports from last year. Live export prices rose to $2.75 per kilogram for feeder steers, which is the highest price reached since the last peak in 2009 when they were fetching $2.35 per kilogram.
“Vietnam live export market has rapidly become the second largest import nation behind Indonesia with imports increasing significantly in recent years to be almost 132,000 head in 2013-14 from less than 1,500 in 2011-12.
“With increased competition from various high net worth individuals, corporates, family pastoral houses and private equity, beef cattle enterprises and the beef industry is becoming an investment grade asset class again,” said Mr Briggs.
Nerida Conisbee, National Director of Research at Colliers International said the lower dollar is creating more competition and driving the domestic investment market forward with Australian dollar recently falling to $US0.76, the lowest value since 2009.
“In conjunction with a lower Australian dollar, free trade agreements will also facilitate Asian market opportunities. Over time tariffs will be reduced or eliminated on our dairy products, beef, live animal exports, sheepmeat, wine, horticulture products, barley, seafood, a range of processed foods, hides, skins and leather and there will be a duty free quota for wool.”
According to Ms Conisbee, the story certainly doesn’t end with beef. “The latest industry figures indicate that the almond industry in Australia is now in a period of strong growth with increases in production, prices, consumption and exports.
“This is occurring as the Australian wine industry continues to show resilience retaining its global rank within the top five largest exporters of wine by volume.
“And the water market continues to mature as participant numbers grow. The growing sophistication of water trading markets for both water entitlements and water allocations, particularly within the Murray Darling basin has resulted in an increased number of market participants as both users and investors compete for a scarce resource. Some participants’ water portfolio balance sheets have seen improvements in excess of 20 per cent in the past year.
“Meanwhile, Australia‘s fishing and aquaculture sector is forecast to be worth $2.5 billion by the end of 2014-15. It is now Australia’s fifth most valuable food industry. Australia has a range of factors supporting its competitiveness including the high quality product reputation, “Clean and green” status, our close proximity to Asian trading partners, a skilled workforce and the new Free Trade Agreement with China.”
Ms Conisbee said the increase of sale and leaseback transactions is another notable trend due to the Australian agribusiness market experiencing significant international interest from institutional investors.
“Sale and leaseback transactions have typically occurred within the capital intensive sectors such as horticulture, viticulture and intensive livestock. These transactions are also occurring within the forestry, cotton and grain grower sectors.
“In some instances, investors are looking for returns of between eight per cent and 10 per cent of total funds invested. This kind of capital injection is then mostly limited to vertically integrated businesses where the agricultural commodity or access to global markets can add value.
Lower returns and high levels of financial leverage are market defining features of the Australian agricultural sector. A sale and leaseback provides a capital injection to the business to ensure a viable operating future and retention of good farm management,” said Ms Conisbee.