A ‘super’ source of capital?

The need for foreign investment into Australian agriculture is one of the hot topics covered by the country’s media at the moment. Each week there seems to be another agri professional calling for capital; this week it was Cargill Australia’s managing director Phillippa Purser.

“We can have a nice debate about foreign investment here in Australia, but in the global context it isn’t a discussion about whether it is nice to have; we need it, we absolutely need it,” she said at an industry conference.

Looking at various snapshots of data, it is clear why attracting foreign investment into Australia’s agriculture sector is so vital. The proportion of Australia’s national income attributed to the agriculture sector has fallen about 15 percent since 1959. Farming is also the oldest profession in Australia by far and the next generation will struggle to finance inherited farms and improve productivity.

“There is a huge need for foreign capital to increase productivity and production,” Andrew Sliper of Aquila Capital, the German real assets group, told me last week.

Aquila’s Australian pastoral fund aims to fill this gap by buying distressed farms, improving them and operating them alongside the farmers that previously owned them; just one example of how foreign capital is being put to work in Australia. SLM Partner’s regenerative farming Livestock Fund is another.

But while much focus has been on the need for foreign investment, Australia’s institutional investors could do more to support this industry at home. Until now local super fund investment into the sector has been patchy by all accounts.

Insiders say this really boils down to the way the superannuation industry is organised — assessing performance on a quarterly basis. That’s something that has caused many of them to shun alternative investments generally.

“What is the point of looking at 30-year assets on a quarterly basis? It’s ridiculous,” Mike Smith, chief executive of ANZ Group, said at a recent conference. “But they all do it so they are almost corralled into just the equity market because that’s where they will get their return [on that basis] or the bond market.”

Australian super funds by our count have more than $789 billion in assets under management. Were they to change the way they assess investments, investing in long-term illiquid assets would become more palatable.

Another solution might be initiating a public-private partnership to invest into the sector – such as Denmark has been doing (albeit overseas). Denmark’s AP Pension has a scheme that targets young farmers, buying their land and leasing it back to them over a 10-year period but with the option to build equity in the property and participate in its value during that time. The only limit for AP Pension is the availability of enough land to hold a meaningful portfolio. But this is unlikely to be a concern in Australia!

Make no mistake: foreign investment is certainly needed to help reverse the sector’s poor performance in recent years, but there ought to be more effort to direct domestic capital into Australia’s agri sectors, too. After all, if investing wisely in Australian agri can produce attractive, stable returns over long periods and strengthen local and national businesses to boot, it should be a win-win for the country’s domestic institutional investors.