The 2019 Agri Investor Australia Forum was held in Melbourne last week, bringing together a roomful of investors, superannuation funds, fund managers, consultants and operators to discuss the biggest issues shaping investment in the country’s agriculture.
The day saw lively discussion on a range of topics, from sustainability and risk management to data harvesting and the potential impact of African swine flu. Here are some of the key takeaways:
There’s still disagreement about where ag fits
First State Super associate portfolio manager for infrastructure and real assets Brent Snow gave us some insight into how one of the country’s biggest superannuation funds invests in ag. The fund has made some significant investments in recent years, including its acquisition of the ProTen broiler chicken business and a portfolio of water entitlements, but it still sits ag within its broader infrastructure portfolio.
Snow said it would be hard for the fund to have a separate ag allocation because of how difficult it would be to deploy capital at the scale required, adding that the fund looks at deals on a “more opportunistic” basis.
Meanwhile, BUSSQ acting chief investment officer Simon Mather told us that his fund has a 3 percent allocation to agriculture, although it has yet to make many investments. BUSSQ is a much smaller fund than First State Super, so the different approaches reflect the disparate views that Australian LPs have when it comes to investing in ag.
Ag aligns well with ESG goals – and LPs are noticing
A theme throughout the conference was the importance of ESG when it comes to ag investing. Both Snow and Mather brought this up, while Nick Ping, director of institutional business, Asia-Pacific, at Hancock Natural Resources, said his firm’s LPs were bringing up ESG much more often than even just a few years ago.
Ping also pointed out that agriculture aligns neatly with the UN Sustainable Development Goals in several different ways – something investors around the world have taken note of, but that Asian LPs take particularly seriously when assessing where to deploy capital.
Size doesn’t matter (as much as you might think)
“Bigger does not always mean better,” said Simon Fritsch, founder of data consultancy Agripath, when we asked him whether any old assumptions had been debunked through the increased collection and analysis of ag data. Fritsch meant that bigger farms, owned by corporates or large fund managers, are not necessarily more profitable than well-run family farms.
David Goodfellow, chief executive of AustOn Corporation (the Australian subsidiary of Ontario Teachers’ Pension Plan), said something similar in the day’s keynote address: “The most profitable business model in Australian agriculture is a well-organized, scaled-up family farm.” Importantly, he said the second-most profitable business model was a well-run corporate farm. He did stress scale was important when growing a business, to ensure that you can afford to implement all the extra processes and systems needed without impacting the bottom line too much.
Vertical integration isn’t easy, but can be worth it
Isola Capital chief executive Anthony Chan saw vertical integration as the best way to secure a sustainable long-term future for his Ausfarm Fresh platform, which owns the largest vertically integrated apple operation in the country, producing the well-known Batlow apples brand. “Otherwise, all you’re doing is growing fruit and selling it to the major supermarkets or trying to sell it through the trade,” he added.
But David Foote, group managing director of Australian Country Choice, which bills itself as the world’s largest family owned, vertically integrated cattle and beef supply chain organization, sounded a note of caution to producers wanting to expand their capabilities downstream.
Referring to the example of a beef producer adding a meatworks to its business, he said: “Things happen on farms in one-month or one-year timeframes. Things happen in meatworks on 90-second timeframes. There’s a whole different mentality – there are very few successful integrated beef companies in Australia.”
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