Agri Investor is standing in a green field in rural Victoria, on the Growth Farms-operated Warrabkook property.
“I’d describe this as luxurious,” says George Whitehead, Victoria portfolio manager for Growth Farms, as he inspects the pasture below our feet.
This is in stark contrast to the conditions being experienced by farmers a few hundred kilometers to the north, where drought conditions have devastated pastures and stretched the ability of producers to their limits.
Here, in south-western Victoria, things are quite different, with much more reliable rainfall leading to the green grass we have underfoot. In this region, Growth Farms runs several farms on behalf of investors – and Agri Investor is touring three of them in a single day.
The farms all operate in slightly different ways but have one thing in common: lean operations which allows Growth Farms to capitalize on opportunities that arise to generate additional returns for investors.
At Warrabkook, we get a glimpse of this in action beside the property’s shearing shed, where two opportunity feedlots are full of sheep. Here, despite Whitehead’s description of the pasture’s current state as “luxurious,” around 1,000 sheep are in opportunity feedlots receiving additional feed.
“From December  to April, we had about 50 percent of the average rainfall for the period, so we didn’t grow enough grass,” Whitehead says. “Using grain like this is the most expensive way to get lambs up to market specification, certainly compared to growing them on grass.”
Doing so is out of the ordinary, then, but it is a calculated decision. At the time of our visit, the price of a lamb carcass was around A$6.20-A$6.90 ($4.55-$5.10; €3.93-€4.37) per kilogram.
The sheep had entered the feedlots at 40kg-45kg each, with the aim of finishing them up to 50kg each three weeks after our departure. The team at Growth Farms had calculated this would cost roughly A$30 per animal in grain to do so.
A 50kg lamb would result in a carcass weighing approximately 22kg, adding enough weight to generate more than A$35-A$40 extra per sheep. Even at the lower end of the spectrum, multiply that by the 1,000 sheep and you get a significant increase in the return.
“We’ll get real production uplifts here by developing these flexible systems,” Whitehead says.
The second property we visit, Goodwood, is another mixed farm, running sheep as well as growing wheat and canola on rotation.
Before Growth Farms’ involvement, Goodwood was entirely cropped, with a wheat yield of 3.5 tons. But through careful paddock selection, and better timing and crop rotation, the wheat yield has increased to about 5 tons per year.
The system used at Goodwood is raised-bed cropping, which has been deployed because this part of Australia experiences periods of relatively heavy rainfall – and too much rain at once can be just as bad as no rain at all. Hence, with the crops grown in raised beds, excess water can run off into channels and into a dam.
The cost of converting from normal row cropping to raised-bed cropping is around A$100 per hectare. This, combined with the changed use of a number of paddocks to become pasture for livestock, has helped improve the risk profile of the farm as a whole, too.
“With a mixed system [like this], it’s a question of how to allocate your resources best, and how to do that is a farm-by-farm decision,” Sackett says. “We do lots of due diligence before making those decisions, as we wouldn’t want to rip up good pasture, for example to sow a wheat crop, if the gross margins were similar over the long term.”
When assessed properly and targeted in the correct areas, then, the example at Goodwood shows that careful investment decisions can have positive long-term effects on a farm’s outlook and value.
“This is a sale-and-leaseback property, with about 12 months left to run on the lease,” Sackett says. “Investors are set to get around 20-25 percent IRR here on a relatively small amount of capital, as we’ve made significant productivity gains.
“And it’s over seven years, so if we have one or two bad years it doesn’t kill us – our approach means that we can recover.”
The final property we visit is Cascaes, an asset purchased by Growth Farms in March 2017.
The farm had “pretty good infrastructure” at the time, Sackett says, meaning that it didn’t require a large injection of capital to improve that side of the operation. Most of the pasture was in reasonable condition, too, and with some care and attention has come on so well that there is now a surplus of feed, creating another opportunity for the operator.
“As we’ve got extra feed, and because cattle prices are relatively low, we’ve taken the chance to purchase 600 head, over and above the normal 800 head of cattle, and run them on the property,” Sackett says. “We had to work out how much that would cost upfront – the question then was, do we have the cashflow required? We did, so we went ahead we expect good returns on that extra capital.”
Growth Farms will then be able to flip the cattle for a higher price once they’ve put on weight through the surplus feed available at Cascaed, generating extra income for the farm that otherwise would not have existed. This opportunity came with a significant unexpected upfront cost, but investors able to accommodate this can generate those extra returns, Sackett says.
“We aim to get the cost of production per unit down all the time. Our view is to be low-cost first and foremost, as you can control that – you can’t control the weather and commodity prices,” he says.
“To get our cost of production down, we focus on both the quantity we produce and the costs of running the business – it is not just about squeezing everything out of the costs. We then know where our baseline is and if we get a premium, that’s great.
“But premiums are nice to get, not essential for long-term profits.”