Upside Down Under

During the first half of January, many French people eat a cake called galette des rois. The treat, to celebrate Epiphany, is made of puff pastry and a serious helping of dense, almond-based filling. Whether the tradition leads to a short-lived jump in almond imports around Christmas – or whether purchases are spread over a longer period – is not easy to ascertain. But it’s not far-fetched to think a larger portion of incoming nuts will soon come from Australia.

California dominates the almond trade – by far. But Australia has an advantage: its nut harvest is “counter-cyclical” to harvests in the Northern Hemisphere, says Rob Appleby, founder and CIO of ADM Capital. This week, his firm acquired a mature almond orchard totaling more than 1,000 acres in planted area, with ambitious plans to expand it. Others have done it before. In August 2015, OTPP paid A$115 million ($90 million; €75 million) for a 99 percent stake in Aroona Farms, an Australian almond producer.

These deals hint at strong investor appetite for permanent crops Down Under. Indeed, OTPP followed suit last month with the purchase of an avocado producer valued in the nine digits. The sector seems to have so much momentum that the $141 billion Canadian pension does not intend to change much to its latest acquisition. “You’re better off not fixing what’s not broken,” OTPP managing director Stephen McLennan told us then.

OTPP may be a trailblazer, but other institutions are waking up to the opportunity. “We are seeing demand for these types of assets from both domestic and foreign buyers. These include incumbent market participants, global strategics, sovereign funds and, increasingly, buyers from other traditional asset classes attracted by the combination of consistent cashflow and tangible asset backing,” Appleby told us.

What’s true of permanent crops is true of Australian ag at large. Last year alone saw more than A$1 billion in large-scale cattle deals, many of which involved institutional money. Dairy is on a path to recovery; firms previously focused on more traditional sectors, like AgCAP, are plotting moves to take advantage of its improving economics. In 2018, institutional capital will also move toward high-value protein production like wagyu beef, says Rawdon Briggs, Colliers International’s rural and agribusiness chief.

Yet this foreshadows an important caveat to Australia’s institutional success story. As we reported before, some North American pensions could well see their local portfolio swell to more than $1 billion in the coming years. But that assumes dealflow is readily available. Investors’ move into higher-value propositions suggests relative scarcity of assets – and rising pricing – elsewhere. Despite willing buyers, dealflow contracted slightly last year, Briggs said. Not in a hurry to sell, some sellers are starting to think they can earn more tomorrow.

Whether transactions can pick up again will depend, in part, on monetary policy. The earlier Australia raises interest rates, the sooner the deal pipeline fills up again, Briggs reckons, though he doesn’t expect this to happen before 2019. But much will also be determined by events in other countries: Brexit in the UK; ownership rule changes in New Zealand; and a potential bottoming of the US farmland market. In good or bad times, Australia can only claim but a slice of the cake.

Write to the editor at matthieu.f@peimedia.com