Good story for on-farm investment returns

Paul Deane says farming can outperform other asset classes

Sheep
Returns: Agriculture Victoria Farm Business Economist Paul Deane said that, on an individual farms basis, there were plenty of examples where investing on farm (on a marginal capital basis) provided returns of 10-15 percent.

Returns: Agriculture Victoria Farm Business Economist Paul Deane said that, on an individual farms basis, there were plenty of examples where investing on farm (on a marginal capital basis) provided returns of 10-15 percent.

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There is potentially an even greater opportunity and bigger reward now by investing in the farm as returns for other asset classes decline, delegates at the Bestwool/Bestlamb conference in Bendigo were told.

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There is potentially an even greater opportunity and bigger reward now by investing in the farm as returns for other asset classes decline, delegates at the Bestwool/Bestlamb conference in Bendigo were told.

Agriculture Victoria Farm Business Economist, Paul Deane, said history showed Australia had 30 years of declining interest rates which had given asset values a “strong tail wind”.

Under a scenario of lower returns from other asset classes, it provided increased opportunities to invest in the farm, he said.

“I’m not advocating throwing capital just anywhere in the business. Look at targeted capital in the farm where there will be greater rewards and a better way to build your wealth than investing elsewhere,” he said.

Mr Deane said, on an individual farms basis, there were plenty of examples where investing on farm (on a marginal capital basis) provided returns of 10-15 percent (not contingent on capital growth).

Figures from the Livestock Farm Monitor Project  (MFMP) showed that the longer term performance of Victorian sheep and cattle farms had an average RoA over an eight year period of three percent.

He said there was subset of farms in the study (10 percent) that had achieved more than double the average return over that period.

Mr Deane said capital growth was still the main component of total returns for the average Victorian sheep and cattle farm in the past eight years.

According to a Rural Bank report on farmland values in 2017, the average annual median price growth for 2017 was 9.5 percent (7.2 percent over five years, 3.2 percent over 10 years and 6.5 percent over 20 years).

Together they gave an average investment return of around eight percent for an average farm and 12 percent return for top performing farms.

Mr Deane that from an economics perspective, the returns from farming stacked up well against other assets classes.

It was a “really positive story” for farming which sat nicely on a risk/return basis.

He said there was a notion that the higher performing farms were taking more risks, however the figures showed that high performing farms were not taking any more risk than the average.

Mr Deane said a farm’s average returns did not reflect what could be achieved by putting additional capitol into the farming business. There were a number of options for investment depending on what the operator’s goals were - higher returns, de-risk, etc.

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