Industry Super: ‘We are doing agri so poorly’

Industry Super Australia’s chief economist Stephen Anthony speaks to Agri Investor about its latest discussion paper, ‘Driving Super Fund Investment in Agriculture’.

Industry Super Australia, a research and advocacy body for industry super funds, recently published Driving Super Fund Investment in Agriculture, which responds to calls for the A$2 trillion superannuation sector to invest in the country’s agricultural sector.

Agri Investor sat down with the report’s author, Industry Super chief economist Stephen Anthony, to learn more about the barriers to domestic fund investment, the emergence of global players, as well as his recommendations for Australia’s maturing superannuation system.

What do you hope to achieve with your recent paper?

The paper is intended to fill a gap in the market’s understanding of agricultural investment drivers in Australia. The paper provides a platform for greater discussion to bring people together. It may not yet contain all the right answers, but hopefully asks the right questions.

Agriculture is an important part of Australia’s comparative advantage, of its national story and we are doing it so poorly. We are not providing the necessary data to market participants particularly well; we are not doing foreign investment and infrastructure well. We are certainly not setting up the farmers with some advisory assistance that’s long-term tailored to their specific business needs.

We have an incredibly productive, vibrant agricultural sector yet our institutions don’t invest strongly in it. It’s not that they don’t do anything; for example, industry superannuation funds have invested around A$1.6 billion and that’s about 0.3 percent of their overall funds under management, worth around A$500 billion.

Now, we think best-practice asset allocation to agriculture is around 0.5 percent domestically and another 0.5 percent internationally, at least as a starting point. So, we’re someway away from that. But it seems that the rest of the super sector is allocating very little to agriculture – there’s about A$1.8 trillion that we don’t manage – virtually none of that is allocated to agriculture. Most of what is invested in agriculture in Australia is done by not-for-profit superannuation funds or foreigners.

What’s the greatest barrier to Australian superannuation funds investing in agriculture?

The biggest impediment is this data question. The Australian Bureau of Agricultural and Resource Economics and Sciences provides voluntary survey data which is indicative only for certain commodities. We would argue that this data needs to be audit-quality and more comprehensive to allow our trustees to assess agricultural investments in the same way they would listed equities. We need the ABARES survey to provide risk-return data across the equivalent of the periodic table for agriculture because there’s just so much variety there.

It’s not to criticise what’s already being done – because what’s being done is improving and it’s excellent – but for trustees who are legally obligated to go to that next step, they cannot rely on this data, they need something better. Get the data to them and watch them start allocating into the sector – that would be my argument.

Is this specific to Australia or does it apply to the agricultural sector in general?

It’s specific to Australia. We know, for example, that in North America there is essentially a periodic table of agricultural data by commodity that can be obtained and usually it goes back for significant periods of time. For example, I’ve seen data series back to the 1920s.

Now this data suggest a risk-return profile in the double digits with volatility that is comparable to infrastructure and other unlisted assets, property and so on. On the face of it, the information from overseas is quite positive to the asset class.

Could you tell us more about your policy suggestions?

Another point is this idea of supply chains. Most producers are Australian-owned and even when they are not, they are disadvantaged where processors are foreign-owned and there’s no link to the processor. It’s very unlikely that the Foreign Investment Review Board will allow these processors to buy large swathes of farmland and obviously very unlikely that the agri processors will sell out to the Australian farmers. However, we do need some way a partnership can be formed strategically to generate large supply chains within commodities, so that they can capture distribution networks in other economies. Certainly this must be one focus of Australia’s industry and trade policy, especially the recently signed free-trade-agreement with China. It is the specifics of these deals and the partnerships they encourage which requires a lot of focus and sustained effort from governments on each side.


Global pension funds are allocating over 1 percent of total assets to agriculture. Why are they making a go at accumulating strategic stakes in Australian assets?

What [the US, Canadian and European pensions funds] have in place is a global diversification strategy by commodity, by region. They do that on an opportunistic basis – they look at the properties that become available and they buy at the right price.

Our view is foreign investment is great. But what has been really noticeable, from our perspective, is that our government does not really have a strong understanding of the sector itself. For example, it doesn’t have a register of holdings of agricultural land or agricultural activities. So, in a strategic sense, it cannot assess, in an overarching way, what impact foreign investment is having and whether a given property is really a crown jewel asset or not. How can the Australian government assess the merits of any proposed sales of farm property to foreigners if they do not understand agricultural supply chains?

Our point there is that Australian governments should have this information before they make determinations on the sale of properties. They should understand the role of that property in the agricultural supply mix, especially if we are talking large-scale agribusiness assets.

We desperately need to partner with our neighbors in Asia in agricultural ventures so we don’t want to frighten that capital away. The message we need to send is about forming partnerships to build distribution networks. We need to be saying: ‘We will develop these assets with you whether on a lease-back basis or on terms that are favorable for everyone’.

Kalliope Gourntis also contributed to this story.