Australia’s sweeping plains are being overrun by rural raiders from overseas. Leonie Lamont and Paddy Manning explain how the humble back block has become global hot property.
It’s not news that legendary global investor Jim Rogers likes agriculture and just about every bushel or belly that springs from it.
‘‘We don’t have enough farmers. We have to do something or we will have no food at any price at times in the next few years,’’ Rogers said after recent deliberations on world food security at meetings of the G20 and the United Nations Food and Agriculture Organisation.
While the organisation states the good harvest over the next few months should reduce commodity prices from the ‘‘extreme levels’’ seen earlier this year, the next decade is another matter. Real prices for cereals will, on average, be 20 per cent higher, and meats 30 per cent higher compared with the past decade. To put it in perspective, these increased prices do not mean a return to the peak commodity spike of 2007-08 and the associated food riots.
Cue Rogers, and his message that agriculture is one of the few bull markets he can see in coming years. So prescient that Time magazine lately took up his pearls of wisdom, headlining: ‘‘Want to earn more than a banker: become a farmer.’’ Barely a nanosecond passed before banking brains asked why pull on the RM Williams when you can buy a farm, install a farm manager and have two income streams.
The Herald’s review reveals that bankers, superannuation funds and agribusiness are buying rural land in NSW at the same time that foreign private and sovereign wealth funds with specific food security briefs are securing land holdings. Among them, they spent $330 million, buying half a million hectares in the past year.
Citi analyst Tim Mitchell recently studied these ‘‘rural raiders’‘, identifying more than $12 billion worth of direct overseas investment in agricultural businesses and land in the past four years. It spanned the breadth of the country and agricultural sectors, from the Packer cattle properties ($425 million by US private equity firm Terra Firma) to the $1.74 billion sale of Sucrogen to Singapore’s Wilmar and the $20 million worth Murray-Darling basin water licences sold to California’s Summit Global Management.
He said Australia offered these investors ‘‘high quality production assets, relaxed government regulations, significant export surplus, favourable fundamentals and proximity to growing Asian demand’‘.
Foreign demand has helped support asset prices, with transaction multiples at attractive premiums to trading multiples. Citi estimates the average purchase price is nine times the companies’ earnings. Its figures show the average land value per hectare has risen from $120 in 1994 to about $510 in 2010 - a compound annual growth rate of about 12 per cent.
For the same period, Mercer reports that Australian shares returned 10.2 per cent; fixed interest 7.5 per cent and unlisted commercial property assets 9.2 per cent.
On Tasmanian Times: Left to Die