Australian Super Funds Missing Out on Farming Boom

As large overseas pension funds are investing in Australian agriculture based on the positive global macro conditions and outlook for food and agriculture, the vast majority of domestic private and public superfunds are seemingly reluctant to move into the space.

The list of non-Australian funds recently buying into Australian agriculture is impressive, with the amount of declared investments in the sector over the past five years exceeding $2 billion. Some of the most notable transactions include:

· Canada’s Public Sector Pension Investment Board (PSPIB) forged a partnership with Queensland-based Hewitt Cattle Co. in March with the intention of investing $250 million in regional agriculture. The venture has announced its first investment of $13 million to acquire the Oakleigh and Stoodleigh cattle stations owned by Sir Graham McCamley.

· Strichting Pensioenfonds ABP representing 2.8 million public employees, owns a major stake in Macquarie Group’s Paraway Pastoral which owns 30 cattle stations and 3.6 million hectares.

· U.S.-based Municipal Employees Retirement System of Michigan joined with the Danish Danica Pension Fund and the Swiss Adveq Real Assets Fund to acquire 18,000 hectares of Australian almond orchards for $211 million.

· Swedish pension fund, Forsta AP-fonden acquired 15 Australian farming properties for $100 million.

· TIAA-CREF invested $125 million in grain, cotton, sheep, and irrigated agricultural properties through its agricultural management arm, Westchester.

One exception is VicSuper, the Victorian government’s public service fund headed by Michael Dundon, which owns $40 million in farms and land and $110 million in water rights.

“The business model was sound at the start and is more so today in terms of the predicted world shortage of food, the growing demand for quality food in Asia and the declining amount of arable land globally,” Mr. Dundon, who believes that the investment sector is maturing, tells The Australian.

Australia’s Agriculture Secretary, Barnaby Joyce recently addressed the lack of investment in the sector by the country’s biggest funds at the Global Food Forum in Melbourne stating, “The biggest problem is trying to get asset managers to understand the fundamentals of agriculture. They understand how to wear RM Williams boots and like photos of horses, but actually understanding the delivery of what agriculture can do is probably not as precise as it should be (in the finance industry),”

There is however, an understanding of the reticence by superfunds considering the 4% to 6% annual return on capital invested on agricultural production, but investors must also take into account the historic doubling of Australian land values approximately every decade, growth in world population leading to increased food demand, and the limited availability of arable land. Considering land appreciation and capital returns combined, VicSuper is targeting an after tax return of 9%.