The total annualized return for Australian farmland stood at 13.14 percent at December 31, 2021, according to the latest edition of the ANREV Australian Index, with strong commodity prices, good seasonal conditions and low interest rates continuing to support growth.
The index, compiled by the Asian Association for Investors in Non-Listed Real Estate Vehicles, saw returns from income overtake capital gains, returning to a general trend that has been seen since Q1 2021.
For Q4 2021, income returns contributed 7.22 percent on an annualized basis, with the appreciation return at 5.62 percent. Overall, the total return was slightly down from the previous quarter (15.07 percent), but was higher than the same quarter in 2020 when it stood at 11.69 percent.
The quarterly return for Q4 2021 stood at 2.83 percent, comprising an income return of 2.17 percent and capital growth of 0.65 percent.
Annual farmland also continues to outperform permanent farmland, with the total annualized return for the former at 40.91 percent, comprising capital growth of 22.67 percent and an income return of 15.69 percent. In contrast, permanent farmland returns remained relatively steady at 6.02 percent on an annualized basis, comprising capital growth of 4.46 percent and an income return of 1.51 percent.
In commentary on the index, participant Riparian Capital Partners said Australian farmland had performed “strongly” in the quarter, with record winter crops, historically high commodity prices and full water storages supporting earnings.
The firm said that it expects current earnings to be strong enough to outweigh increases in cost pressures that are beginning to be felt as a result of inflation.
Riparian Capital Partners said foreign ownership of land and water entitlements has remained relatively steady over the course of 2020-21: “Indications are that well-established family farmers are taking the lead in farmland acquisitions, a shift from previous corporate lead activity. This is unsurprising considering the re-building of family farm balance sheets over the last 12 months and a positive seasonal outlook.”
The fund manager cautioned that there are more risks to growth for the coming year, though.
“Risks are increasing across the sector with considerable uncertainty over global growth in the short term and continued disruptions to supply chains resulting in significantly higher input costs on key inputs such as fuel, freight, fertilizer and chemicals. Inflationary pressures are expected to shift the interest rate cycle more rapidly,” the firm said.
“ABARES notes that over the medium-term commodity prices are anticipated to ease and production fall. The wine sector highlighted a cautionary note as trade disruptions impacted wine exports to China, slumping from A$1 billion ($740 million; €670 million) to A$29 million in the year ending December 31, 2021.”
The Australian Farmland Index compiled data from 65 properties in Q4 2021 with a market value of more than A$1.86 billion, with annual cropping properties representing 48 percent of the index and permanent cropping land representing 52 percent. The split by value in annual versus permanent farmland is 39 percent and 61 percent, respectively.
The contributors to the index are Argyle Capital Partners, Aware Super, goFARM Australia, Growth Farms Australia, Gunn Agri Partners, Hancock Agricultural Investment Group, Riparian Capital Partners and Rural Funds Management.
ANREV took over management of the compilation of the index in 2020 from the US-based National Council of Real Estate Investment Fiduciaries.