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Ag investments' image problem

26 Apr, 2013 04:00 AM
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9
 
Colin Bell.
Colin Bell.

PROMINENT stockbroking boss and head of one of Australia's big broadacre farming operations Colin Bell fears agriculture's investment image has been badly tarnished by some of the sector's most enthusiastic corporate promoters.

In an industry which often struggles to get the big end of town to understand its long-term wealth potential, Mr Bell says many local investors had been burnt by bad management, over-priced "trophy property" acquisitions and unrealistic expectations in the farm investment arena.

"I'm sure there are agricultural investment vehicles that have been okay performers, but often those that attracted the most attention or made the most noise have been totally disappointing," he said.

Buoyed by agriculture's global market growth in the past decade, institutional groups were drawn into parking funds with promising projects led by seemingly capable industry specialists, then left disillusioned as their investment target struggled with tough seasonal conditions and insufficient scale.

In other cases, notably tax-driven managed investment schemes, the bad performances were caused by "ridiculous mis-allocation of resources".

High management cost structures incorporating unsustainable fees had also been "a regular feature" of agricultural investment vehicles leaving the operators paying limited or negative returns to shareholders.

The founder and group executive chairman of big independent stockbroking firm Bell Financial Group told the Farm Writers Association of NSW that while agriculture's demand prospects looked genuinely positive due to the developing world's rising population and incomes, several frustrating challenges faced the sector.

Although the rural sector had generated "significant wealth" for big private and corporate Australian farming operations in the past, cashed up local funds now shied away from becoming significant backers of farm sector assets.

Ironically, however, foreign investors regarded agriculture as a "very good diversification risk".

Mr Bell is also chairman of Australian Food and Agriculture Company based on the big southern NSW "Burrabogie" and FS Falkiner and Sons pastoral and cropping aggregations.

Along with properties at Coonamble, the family business has amassed an area of 215,000 hectares in 20 years, running 120,000 Merinos, about 7500 grown cattle and cropping about 2500ha of irrigated land and 25,000ha of dryland country.

"It's extraordinary that at a time when big global investors are busily inspecting Australian and overseas agricultural assets, Australian institutions no longer seem interested as either sole investors or as partners with existing operators," he said.

Offshore investors saw farmland as producing excellent long term returns uncorrelated with all other asset classes.

Mr Bell believed part of the local agricultural investment image problem also rested with the investment sector's asset consultants or "gatekeeper" advisors to investment company boards.

They had little understanding of the agribusiness sector and therefore tended to misunderstand most investment approaches - good and bad.

Despite the Australian superannuation industry now holding about $1.3 trillion in assets, most of the serious investment in our farm sector land was coming from overseas, Mr Bell said.

European, Middle Eastern and American investors dominated last year's $2 billion in agricultural property purchases last year.

Irrespective of the offshore enthusiasm for our farmland he suspected agriculture's patchy investment track record of late may even deter Australia's $80 billion national Future Fund from putting money into projects like its earlier-planned $125 million commitment to the PrimeAg farm management fund.

"I'm sure the Future Fund was very keen on the idea originally, but I doubt if its directors are grinding their teeth in search of something similar today," Mr Bell said.

"They'd have invested a lot of time and money analysing the PrimeAg Fund's potential and its ended up a huge waste."

After struggling to generate dividends or enough share market interest to reflect the company's true asset value, five-year-old PrimeAg has ditched plans for its unlisted fund and is selling its listed business assets.

High profile chairman Roger Corbett has described the current share market environment as too tough for PrimeAg to perform as a listed entity.

According to Mr Bell, PrimeAg's initial $150m investment funding base was also probably too small.

Like many ag investment projects it ideally needed $500m to $2b to give it real investment clout in the market and a lot of geographic diversity to spread its income risk.

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READER COMMENTS

Y
26/04/2013 7:59:51 AM

The real issue in profitably , as impacted by seasonal variability and declining terms of trade. I believe some significant corporate farming investors in WA have not carried out the correct level of due diligence and their lack the management will to drive a negitive outcome. Basically investing with unrealistic expectations
Inverell
26/04/2013 2:34:28 PM

Biggest problem is city people both in business and otherwise, don't understand agriculture or rural areas. They are easily fooled by sprookers and spin doctors. Maybe if they cared to actually learn the facts about agricuture or visit rural areas we all would be better off.
Ian Luyt
26/04/2013 9:41:37 PM

An excellent report and Colin Bell's comments address the key issues in this asset class very well. While harm has been done to perceptions by unrealistic expectations (often manipulated to suit an investment pitch), in many instances attractive profitability has yet to be achieved on a consistent year to year basis.
Bushie Bill
27/04/2013 7:30:46 AM

If, as would seem logical to conclude, you are relating you comments to Colin Bell, Inverell, you are out of your little mind and way out of your depth.
Yaamba
30/04/2013 3:16:29 PM

It appears Bushie Bill you have no added value with your comments other than to be little people and push your pig headedness onto others. You obviously have a very big chip on your shoulder and see the need to scorn everyone around you if they do not share the same opinion. Seems you are the little minded in most of your comments.
Inverell
30/04/2013 4:09:16 PM

Thanks Yaamba, I agree. I actually have a degree in business at Sydney University and have family members that work in the finance sector managing tens of millions of dollars of people's super. Both these people earn over 500K pa and like most in Sydney have no idea about the risks in agriculture or even what’s over the range. If the typical super fund manager is as ignorant as them, no wonder some people are being burnt investing in Ag.
FFS
30/04/2013 6:27:40 PM

Do you have a degree in business Bushie Bill?
FFS
2/05/2013 5:52:07 PM

I thought not.

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Sorry Chops, but the reality is already here, we have been relegated to a nation of price takers
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I am in Dubai at the moment staggered by the price for Australian beef at any one of hundreds
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Rob an underpinning principle of a spot market that needs to be embedded is that the producers