Planfarm relaunches $250m agri fund amid ‘very strong’ season for WA wheat belt

Western Australian Farm Investment Fund is targeting 13.5% IRR but has received little interest from domestic superannuation funds.

Planfarm has relaunched its Western Australian Farm Investment Fund in an attempt to secure commitments from investors, following its initial launch in June 2017.

The WA-based farm manager has joined with Seabourn Capital, a Perth-based investment and venture capital firm, to target A$150 to A$250 million ($108 million to $181 million) in the fundraising but has increased the total expected IRR to 13.5 percent net of fees and expenses, with a cash EBITDA return of 10 percent.

The fund will still target grain properties across Western Australia, to be acquired on an own-and-operate basis by Planfarm.

Speaking to Agri Investor, Planfarm director Eric Hall said that interest from Australian superannuation funds had been disappointing to date, with most expressing hesitancy to get involved. “Some are involved [in agriculture], but a lot of those assets are on the East Coast mainly, as they see value in water rights and we don’t participate in that in WA – and a lot want the model where they manage the asset, and they aren’t entirely comfortable with the model of having a sub-fund manager, or even being co-invested with anybody else. That’s a bit of a challenge,” he said.

The fund has had interest from international institutional investors, though, particularly after Planfarm reworked its structure. Media coverage of the ongoing drought in New South Wales and western Queensland has also not helped fundraising, Hall said.

“We had some questions about the risk profile of it, so we wanted to show that it’s not as risky as many perceive. A lot of the media [coverage] that international investors discuss with us is all about drought – and what’s happening in NSW at the moment probably isn’t helping us. A lot of the perception is that Australia is a high-risk proposition because of drought,” he said.

Strong returns

Backing up Hall’s thesis are new data released this week by Planfarm as part of its annual Benchmark survey of more than 500 individual farm businesses in WA. The survey showed an average return on capital in the past 12 months of 5.2 percent across the state, with the top 25 percent of farms returning 25.2 percent.

These figures compared favourably with the past 10 years, which saw returns on capital of 5.5 percent across the state and 10.6 percent for the top 25 percent of farms.

“The southern part of WA had a near-perfect rainfall winter and spring in 2016-17,” Hall said. “The northern areas struggled significantly until winter with rainfall, but a strong winter and spring brought those results back and the whole average was a strong result.”

Hall said he expects to see a “very strong year” for 2017-18. “As long as it continues to rain through August, growers are almost guaranteed an above-average crop, and prices are high and going up,” he said.

On the performance of WA in comparison with other regions, Hall said that WA’s reliable rainfall meant its performance compared favourably with the eastern states of Australia, while Planfarm’s research showed that the region was on a par with crop production in the US.

A challenge to WA’s wheat belt could come from the Black Sea region, Hall added, where high yields and increasing quality could provide more competition for exports to the Asian market.