SPECIAL REPORT: Institutional investor interest is continuing to grow in WA’s agricultural sector, unaffected by the global uncertainty of the novel coronavirus crisis.
Institutional investor interest is continuing to grow in WA’s agricultural sector, unaffected by the global uncertainty of the novel coronavirus crisis.
Fear of COVID-19 and the unprecedented upheaval this has generated across all sectors of the economy have solidified the importance of Western Australia’s agricultural operations, making them perhaps the most essential of all industries.
Agribusinesses’ collective ability to withstand a short burst of panic-buying and maintain normal stock levels in shops across the state thankfully pushed food security far down the list of concerns arising due to the global health crisis.
WA Farmers Federation president Rhys Turton said while it was fortunate that WA produced more food than its citizens could consume, the state’s supply chains had avoided significant disruption in large part thanks to the establishment last year of the WA Food Alliance.
The alliance was originally designed to help the industry gain credibility in its social licence, but Mr Turton said it was particularly helpful to be able to bring together the state’s major players during the COVID-19 crisis.
“It was quite advantageous that the group existed when the coronavirus hit, because we were able to pull together pretty well and say to the community: ‘We have a great range of food, it is safe and we can get it to you, there is no need to hoard, we can supply what you need when you need it,” Mr Turton told Business News.
“We were also able to pull together a job site for jobseekers and try and match them to prospective employers in agriculture.
“Because agriculture is always so seasonal, it is inevitably looking for a workforce at certain times of the year. At the moment, with the broadacre grain farmers kicking off their planting programs and the usual horticulture and fishing demand, Food Alliance was able to match jobseekers with some employers.
“Primary production as a whole has pulled together really well through this pandemic and we are reassuring the community that we are here, it is business as usual, we are doing what we do best.”
Mr Turton said the performance of agribusinesses under considerable pressure also highlighted the sector’s strength of investment potential.
He said bulk commodity exports such as wheat and barley were largely continuing as normal, while high-end branded products such as meat and seafood (see page 22) were taking the most damage.
Prior to the COVID-19 crisis, WA farmers were collectively confident, displaying a bigger appetite for investment than their eastern states counterparts, according to a Rabobank Rural Confidence Survey released late last year.
At the time, Rabobank said 26 per cent of WA farmers surveyed were keen on investing in their farm business in 2020, a higher percentage than any other Australian state.
The market analyst’s first survey for 2020, released in March, displayed similar confidence, with a third of farmers expecting conditions to improve on the prior year.
Australian farm fundamentals have attracted significant investor interest in the past half-decade, highlighted by Gina Rinehart’s estimated $1 billion-plus expansion into agriculture across the country, including the acquisition of five cattle stations in the north of the state.
Fellow iron ore magnate Andrew Forrest has also been spending tens of millions on WA agricultural assets, with his Harvest Road Group evolving into a premium cattle, horticulture and aquaculture operation.
More recently, ASX-listed property syndicator Primewest announced its intentions to broaden its asset base into the agricultural sector, acquiring a vineyard in the South West and an irrigation property near the NSW-Victoria border.
Mr Turton said national and international institutional investors were making major plays as well, with the Saudi Agricultural and Livestock Investment Company’s $60 million purchase last year of grain farmer John Nicolletti’s Baladjie aggregation a prominent example.
“Farmland as a short- and long-term investment has been tracking pretty well,” he said.
“What’s happening is you are seeing an aggregation of farmland, neighbours are buying neighbours out and are getting bigger, and it’s got to the point where some of those aggregations are becoming attractive to the corporates.
“They can do more aggregation and get more economies of scale and extract better value from the land.
“So you’re seeing a rise in farmland from big family farmers buying neighbours and the corporates then combining them further.”
Mr Turton said it remained difficult to buy into WA agricultural assets, which historically had increased in value by around 5 per cent to 7 per cent per year.
“Just in the last couple of years that return has increased quite significantly,” he said.
“I think it’s probably due to higher commodity prices generally, higher grain prices and higher meat prices.
“In terms of smaller and medium farmers trying to expand, that has become more difficult, and I think that’s where you’re seeing a decline in smaller farms and the growth of bigger aggregations.
“Institutions can get great economies of scale and good returns, and I think it’s attractive in turn for their investors to invest in their funds to put into agriculture.
“Agriculture is still subject to seasonal variations and the massive drought on the east coast has had a huge impact for a few years, so it still carries a degree of risk in terms of investment, but it is a calculated risk and sitting behind that is usually a pretty good asset base.”
The managing director of investment company Alterra, Oliver Barnes, shared the view that demand for good agricultural assets in WA was likely to grow in coming years, continuing the long-running theme of increasing quantities of institutional capital looking to participate in the asset class.
Mr Barnes said investors sought land or water-backed assets with stable, long-term income streams, but in contrast to the growing demand there was a shortage of buying opportunities.
“In times of crisis like these, people retreat to real assets with strong fundamentals,” Mr Barnes told Business News.
“There may be a short-term disruption now, but institutional investors generally take a long term outlook – up to 75 years – and there has been a surge of additional activity from sophisticated investors looking to construct a wide and varied portfolio.
“They consider it to be a great asset class; if it’s a good asset in a great location with great management, investors will pay a premium for it.”
Mr Barnes said institutional capital provided a great boost for rural economies as agriculture continued to evolve as an asset class.
“There’s a real economic and social uplift from this sort of investment, and it also generates a significant amount of export dollars,” he said.
ASX-listed Alterra’s latest venture is to create a 300-hectare avocado orchard in partnership with local farming venture Casotti Group and avocado growing, packing and exporting firm French’s Group.
Known as the Carpenter’s Project, Alterra’s ambition is to create an operation that will ultimately represent about 10 per cent of the total planted hectares of avocado orchards in the state.
“What we do is acquire and grow assets to a level where institutions can operate; we are building assets for the next generation,” he said.
“Provenance helps, and environmental impact is something investors are looking for.
“We can generate property-like returns with a strong environmental, social and governance impact.
“WA is similar to what California was 30 to 40 years ago, and we can pull in all the learnings and developments from California over that time.”