Offshore interest in Australian agribusiness on the rise

Market conditions, FTAs point to increased investment.

Australia’s proximity to Asian markets, infrastructure quality and level of agricultural production are drawing an increasing number of global investors to its agribusiness sector – with WA assets high on the wish list, according to Colliers International.

Guests at an InvestWest Agribusiness Alliance event hosted by Colliers International last week were told by the agency’s National Rural and Agribusiness Director of Valuations, Alex Thamm that Australian assets were firmly on the radar of offshore investors – including fund managers, sovereign wealth funds, high net worth individuals and international corporates – with the historic Free Trade Agreement with China late last year and a lower Australian dollar delivering extra impetus.

“Our proximity to those key Asian markets is a major attraction for investors in the sector, and the falling dollar adds to that by improving affordability for offshore players and making us more competitive in export markets,” he said.

“The recent Free Trade Agreements, including the China FTA, are widely seen as a positive for Australian agribusiness and are expected to further boost confidence and demand for our produce.

“We have already seen a steady increase in the scale of foreign investment in our agribusiness sector, and we’d anticipate that will continue to grow.”

However, Mr Thamm said the view that foreign entities were taking over Australian farming and agri assets was not an accurate one.

“A recent study indicated there are around 160,000 farms in Australia today, and about 98 per cent of those are family owned,” he said.

“We haven’t been hearing a lot about those owners in recent years as many of them have been capital constrained or demonstrating caution around buying decisions, but they’re there.

“The investment of foreign capital is nothing new to our rural property markets, and history tends to tell us that we have little to be fearful of – our farms get modernised, productive capacity improves and at the end of the day these properties aren’t going anywhere.

Large scale offshore investment tends to happen in waves and Australia should be heartened that it is a favoured destination at the moment.”

A whitepaper released by Colliers International and Grant Thornton on Monday (16 February) found low interest rates and the weaker Australian dollar were creating perfect market conditions for rural owner-operators to take advantage of sale and leaseback opportunities, freeing up capital to invest in their core business.

“In a market where the cash rate is easing and there’s a question mark over the performance of equity markets, a solid rural and agribusiness property with strong covenants and steady long-term yields make this type of investment very appealing,” said Mr Thamm.

In WA, 2014 saw a number of agribusiness transactions, with the acquisition of Jameson Farm at Wongan Hills by the Macquarie Bank Group’s Lawson Grains for in excess of $30 million one of the biggest.

While transactions in WA to date have generally been straightforward sales, Colliers International’s WA agribusiness specialist Greg O’Meara said 2015 may see the sale and leaseback option become more popular.

“These sort of deal structures suit pension fund and similar investors who are looking for a passive investment in rural land without the operational risk,” he said.

“These investors are typically prepared to accept lower annual returns, but enjoy exposure to capital uplift in land values over time.”

Mr O’Meara said while rural land lacked the liquidity of other investments, it did not tend to display high levels of volatility either and this appealed to longer term, patient investors.

“Our proximity to Asia and our reputation in WA as the gateway to Australia for those markets puts us in a very good position to capture that investor interest and translate it into sales,” he said.

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