The total annualized return on investment in Australian farmland fell below 10 percent in the first quarter of 2021, its lowest level since 2016, according to figures from the latest edition of the ANREV Australian Farmland Index.
The index, compiled by the Asian Association for Investors in Non-Listed Real Estate Vehicles, recorded a total return of 8.46 percent for the year ending March 2021. This comprised income returns of 5.15 percent and capital appreciation of 3.17 percent.
The last time the annualized return dipped below 10 percent was in Q1 2016, when it stood at 8.06 percent. It is also the lowest capital appreciation figure recorded since the same quarter, when that stood at 0.94 percent.
The annualized figure has fallen significantly in the last 12 months, down from 14.47 percent in Q1 2020.
On a quarterly basis, the total return was 0.88 percent, an income return of 2.03 percent and capital appreciation of -1.16 percent. This was down from a total return of 3.86 percent in the same quarter in 2020.
The fall can be attributed to a heavy weighting within the index to permanent farmland, which has seen returns fall heavily in the past 12 months or so. Around 77 percent of the properties covered by the Australian Farmland Index are permanent farmland assets.
Returns for annual cropping farmland remained very strong, at 25.34 percent, exceeding the 17.56 percent achieved in Q1 2020 and well above the return since inception (the index was launched in 2015) of 18.87 percent. This was mostly driven by strong capital growth of 15.26 percent, with income returns contributing 8.88 percent.
In contrast, permanent farmland saw an annualized return in Q1 2021 of 3.08 percent, comprising income returns of 4.32 percent and capital appreciation of -1.20 percent. This was also well below the return since inception for permanent farmland in the index, which stands at 12.00 percent, and the annualized return in Q1 2020, which stood at 13.00 percent.
In commentary on the index, contributor Rural Funds Management said the strong returns in annual farmland were a result of above-average rainfall in most major crop regions alongside high farm gate prices for livestock producers.
RFM chief operating officer Tim Sheridan said: “Near-record rainfalls at the end of last year, above average rainfall for the majority of Q1 2021 across most of Australia, and a good outlook for rain in 2021 has kept confidence in the agriculture sector high. Australian agriculture has continued to perform relatively well despite the ongoing disruption of the pandemic, the higher Australian dollar and the trade issues with China. This is reflected in the ongoing uplift in annualized farmland values, as the demand for agricultural property remains high.”
On why permanent farmland has seen returns dip, index co-ordinator Frank Delahunty told Agri Investor that labor shortages had contributed to challenges at harvest time, and that trade disruption following Chinese tariffs had affected products grown on permanent farmland more than annual farmland.
Delahunty also issued a call for more investors to begin contributing data to the index to balance the weighting between annual and permanent farmland.
“The aim is to get to A$2 billion ($1.5 billion; €1.3 billion) of assets covered by the index and to get more annual farmland in there,” he said.
The index compiled data from 39 properties in Q1 2021 with a market value of A$1.06 billion.