After visiting Australia, our editor notes the challenges that will face the country’s agri market, how to cope with them and some of the top strategies to seek out new opportunities down under.
Last week’s Agri Investor Forum in Melbourne was a fantastic chance to engage with leading LPs, GPs and farmland operators looking to attract capital and put their own money into Australian agriculture. Here are my top takeaways from the forum.
Most small agribusinesses are not “investor ready”, but more are getting there
Speakers agreed many agribusinesses, particularly family-owned farms, lack the record-keeping needed to attract larger investors or those new to the agricultural space.
“We bought a family farm last year and … had to put in extra time and extra effort. For foreign capital or local capital that is not ag-savvy, that means a lot of work,” said Troy Setter, chief executive at Terra Firma’s Consolidated Pastoral Company. Vic Super chief executive Michael Dundon told me that legal and auditing fees make aggregation a huge challenge.
That’s an issue when 99 percent of farm businesses in Australia are family-owned. With most farmers 12 years older than the national working average, succession for those without relatives in agriculture is complex.
But I also saw evidence this attitude to the books is changing. On a visit to KyValley Dairy in Victoria, owned by the Mulcahy family, I noted that the vertically integrated business was having its accounts audited by Ernst & Young, as it prepares to look for an investor. PPB Advisory’s Ben Craw also said awareness is increasing, mostly among those seeking growth equity.
Your supply chain is the key to unlocking funding
Detlef Schoen, principal at DS Green Assets, said that knowing your supply chain is key. He said that in poultry, even if you have the best genetics, farm set-up and links to the best processor, it means nothing if you’re not thinking about the consumer. If you are selling to a market that needs more chicken breast meat, you need to plan for that from the word “genetics”.
That’s not being done across the board in primary agriculture, speakers agreed, presenting an opportunity to improve competitiveness and margins for producers considering final sales. Dougal McOmish, associate director at KKR-backed Sundrop Farms, said creating a supply agreement with Coles, Australia’s largest supermarket, “was key in convincing KKR to invest in Sundrop …You need something very practical like supply chains to open [private equity’s] chequebooks.”
“Doesn’t matter how you call it, the Chinese economy is slowing down”
So said China Investment Corporation’s chief strategic officer Johannes Zhou, but he added that the country has invested a great deal in Australia, which suggests demand from Asia is here to stay. He said there were great opportunities for investors to target the consumer in China, but warned the domestic demand patterns for food are difficult to predict, even when it comes to baby milk powder.
This rang true for me, having seen not only how China can stockpile milk powder and is producing some of its own high-value milk, but also how it is investing in such a wide range of geographies, including its own. For example, China has put money into large-scale pig farming at home, and has new trade agreements with neighbours like Kazakhstan, which is working on a major beef genetics project. Chinese company Banner Dairy has just invested in what is set to become Russia’s largest vertically integrated dairy producer. Keeping an eye on Asian market developments, once you have an investment, is important.
As one consultant put it to me: “I’m looking at wagyu, not for China but for the growing Indonesian middle class, but a lot of people aren’t looking at these opportunities. There is a big challenge coming from Brazil in the Chinese market. You can manoeuvre around that. [Don’t] put your head in the sand.”