New global ag index welcomed but Australian figures questioned

Investors believe the Duxton Global Agricultural Property Index could help improve agriculture's credibility as an asset class, but doubt has been cast over its low recorded returns for Australia.

Investors have welcomed the publication of a new index that presents a positive case for agricultural investment, but have questioned its findings on returns in the Australian market.

The Duxton Global Agricultural Property Index was produced by Atchison Consultants in conjunction with Duxton Asset Management and published for the first time in March 2018. The index assesses the income, capital and total return performance of global agricultural property investment over 25 years to 31 December 2015, taking in data from 10 countries including Australia, Canada, the UK and the US.

The index found that agricultural property generated an aggregate total return of 11.0 percent per year, with a volatility of return of 2.2 percent. This included a yearly income return of 6.3 percent and a capital return of 4.7 percent.

This total return figure was recognized by asset managers and consultants Agri Investor spoke to as consistent with returns they had seen over similar periods.

The Duxton GAPI, though, shows total returns from Australian agriculture were just 6.0 percent per year, including a capital return of 4.7 percent. This left income returns at just 1.3 percent per year.

“I find that figure inconsistent with our own numbers, as it’s much lower than we’ve seen,” said one fund manager.

Data doubts

Another consultant source questioned the data used to provide that figure, and said if Australian fund managers quoted investors an income return of 1.4 percent when raising capital they would be “laughed out of the room.”

Market sources welcomed the publication of the index, though, with one saying: “The more information we have, the better, as we’re still trying to establish ag as a credible place for institutional investors to put their money.”

Ken Atchison, managing director of Atchison Consultants, said Australia’s underperformance relative to other countries was due to the “massive drought” that  occurred from 1995 to 2010. “There’s no other reason that it shouldn’t have performed well,” he said. “So Australia should perform relatively better in future, as long as there are no fundamental changes in climate.”

Atchison said the data for Australian agriculture came from ABARES.

“Part of the reason we did it is the view that Australian institutional investors are not investing in this space – and part of the reason for that is a lack of data”
Ken Atchison

The analysis showed that adding agriculture to a diversified portfolio would modestly increase portfolio returns while significantly reducing portfolio volatility. The index forecasts total returns of 9.6 per year going forwards.

It also showed that global agricultural property had provided better annual returns in the past 25 years than global direct property (5 percent), hedge funds (8.1 percent in the 22 years to 31 December 2015), Australian shares (10.3 percent) and overseas shares (7.3 percent).

It was also not far behind Australian unlisted infrastructure, which showed yearly returns of 11.9 in the 21 years to 31 December 2015.

Atchison said the index took six months to build and the firm intends to continue compiling it in future to provide better information for investors.

“Part of the reason we did it is the view that Australian institutional investors are not investing in this space – and part of the reason for that is a lack of data,” he added.