Partnering Aussie agribiz and property
The topic of foreign investment in Australian agribusiness assets has created considerable political debate and media coverage. However, it has also highlighted the opportunities for local institutional investors to partner with successful Australian farmers to capitalise on the sector’s future growth prospects.
Mention agribusiness investment and one of the first things to spring to mind is the sale of Cubbie Station to Chinese-controlled consortium Shandong RuYi. The sale recently gained FIRB approval - an outcome that generated considerable public attention.
As the largest privately owned irrigation property in the Southern Hemisphere, Cubbie Station was always going to be a focal point for debate about offshore investment in Australia’s agribusiness sector.
It’s become a highly emotive issue given concerns in some quarters about the ownership of agricultural land and water rights.
However, what’s interesting to note is that Shandong RuYi’s partner in the Cubbie Station consortium is Lempriere - part of a group of companies that is Australian family-owned and involved in wool trading and agricultural property management. The property will be operated and managed by the Australian company using the existing workforce.
Putting aside the debate about foreign investment, the CBRE “house view” is that partnerships provide an opportunity to facilitate investment in the agribusiness sector.
Some of the key points that have been attracting institutional investors to the sector include the following: Australia’s land and water resources are finite and the world has an increasing requirement for food; agribusiness assets are generally characterised by volatile cash flows (historically low overall) contrasted with high capital appreciation; and the aforementioned low historic cash flow trend is likely to change in the short to medium term with fundamentals in the global food supply/demand equation shifting.
Many institutional investors have held the view that they are going to be successful in the agribusiness sector because they are big, when the reality is that Australia’s best farmers are big because they are successful.
However, they are typically cash poor and increasingly debt laden after a decade of drought conditions which have forced many to debt fund operational activities.
Our view is that an opportunity lies in partnering with successful farmers who may be seeking a capital injection to take the next step via either property acquisitions or on-farm development.
This hybrid model creates an alignment of interests, providing institutional investors with exposure to direct agriculture whilst ensuring the operator maintains “skin in the game”.