Western Australian farms achieved 12.3% returns in 2018

Western Australia broadacre farmers experienced “one of the most successful years in recent memory” in 2018, claims a report from fund manager and consultant Planfarm.

The firm’s annual Benchmarks report found the average return on capital across all farms in 2018 was 12.3 percent, significantly higher than the 2017 figure of 5.2 percent and the highest recorded at the state level for more than 20 years. Planfarm surveyed more than 450 individual farm businesses for the report.

For the top 25 percent of businesses, return on capital was measured at 20.4 percent, down on last year’s figure of 25.2 percent.

Planfarm split out returns for farms with a turnover of more than A$5 million ($3.4 million; €3.0 million), which it dubbed “investment-grade size”. This category achieved a return of 22 percent in 2018, with a 10-year average of 11 percent.

Farm income statewide stood at A$711 per hectare with an average operating profit of A$324 per hectare, also among the highest figures Planfarm has ever recorded. The 10-year return on capital for all farms rose slightly year-on-year, from 5.2 percent to 5.8 percent.

“Things are rather buoyant now in the majority of the state, apart from some of the south-eastern section. It was very close to the best on record,” Planfarm director Eric Hall told Agri Investor.

“That has certainly led to a lot of confidence in the sector. We’ve been lagging the rest of the country in land value increases, but you’re starting to see it go to the next level after a series of good years.”

Hall said that persistent dry conditions on Australia’s east coast had contributed to strong returns for WA growers. “It was a benefit for our growers, particularly in barley and wheat,” Hall said.

“Those extended dry conditions, which are probably going to maintain into this year as well, meant that not only could we fulfill some of the markets that might have [been supplied by] the east coast, but we actually fed grain into the east coast in fairly significant quantities. That adds to our returns, not that we wish our eastern states partners ill,” he said.

Planfarm is still in the process of raising its Western Australia Farmland Investment Fund, which it relaunched last year to secure commitments from investors. The firm is aiming to raise A$250 million for the fund, which is targeting a cash EBITDA return of 10 percent and an IRR of 13.5 percent net of fees and expenses.

Hall said there “seems to be more appetite” from Australian superannuation funds to look at the sector, after saying in 2018 that the response from domestic investors had been disappointing.

Fundraising was “not without its challenges” though, he added, with some international investors having been put off by changes to taxation rules around managed investment trusts and others, like SALIC, increasingly favouring direct investments over commingled funds.

Understanding WA opportunities

Some international investors also needed to be convinced that WA presented a different opportunity set to Australia’s eastern states.

“To convince them there are two sides to the country, and they are very different from each other, is a challenge. The perception of Australia is what people read about the east coast, and that’s it. We don’t suffer the same volatility that they do on the east coast. Also, because of the widespread Mediterranean-type climate, even if there is an area, like the south-east this year, which is in negative territory, it doesn’t necessarily mean the whole state is,” he said.

Hall also confirmed Planfarm is one of two Australian partners working with Stafford Capital Partners to deploy a A$150 million buy-and-lease fund.

Stafford’s head of agriculture and food Jos Boeren told Agri Investor in February 2019 that Stafford Australian Agricultural Real Estate Fund II will acquire and lease medium-sized row crop and grazing properties in Australia, as well as associated water rights. The fund will target an annual return of 3.5-4 percent from rental income, in addition to annual appreciation returns that have historically averaged 5-6 percent.

Commenting on Planfarm’s involvement, Hall said: “Deployments so far are achieving returns above the expected mandate level. That’s going very well and we should be deployed on that after this selling season.”

Stafford’s partner on the east coast is Sydney-headquartered Growth Farms.