Agriculture presents some appealing motives for investment—strong long-term fundamentals, attractive historical returns that are uncorrelated with other financial instruments and a strong inflation hedge, among other things. Although the global agriculture sector has faced declining commodity prices in recent years that have cast a shadow over the industry, interest and investment in the sector remain strong. One region where this is particularly true is Australia, one of the world’s leading agricultural producing countries.
GAI News invited Simon Hopkins, CEO of MILLTRUST International Group, to share his perspective on the opportunity for investment in Australian agriculture during what seems to be a low point for global agriculture.
Simon Hopkins, CEO, MILLTRUST International Group
What are the unique drivers for investment in agriculture in Australia?
Australia is not without challenges, given its temperamental weather patterns and water constraints. However, its overriding appeal is its combination of know-how, scale and investment regime. The rule of law and dependable title makes it a relatively safe place to invest institutional capital, and the professionalism of the top farmers, combined with a sophisticated value chain mean that Australian agriculture can compete globally.
What areas of Australia’s agriculture do you think present the greatest opportunity for investors?
The greatest opportunity in the long run is probably red meat. The price of this scarce commodity is only going to continue to appreciate. However, it’s expensive to produce and moving beyond the means of many consumers. Australia’s advantage is that it pursues primarily a grass fed model and can remain one of the lowest cost producers of beef for decades to come, as the inexorable demand from China continues to climb.
However, today, returns are not high enough to attract institutional capital and the in-bound investments into the beef story have been largely strategic in nature. In the short term, we see the best opportunities for our buy and lease model, which depends on a reliable income component of over 5 percent per annum in other areas including permanent crops and horticulture.
What are the greatest headwinds facing agriculture in Australia?
The greatest challenges are probably unidentifiable today, but could be weather or water related. Soft commodity prices, which appeared to shrug off the end of the mining boom, seem to now have fallen in sympathy with the general global slowdown. However, growth in China and many ASEAN markets remains pretty robust, and given that Australia is closer than most other large-scale producers, and its currency has weakened in dollar terms (the currency of international commodities) the current malaise might just be an historic entry price.
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MILLTRUST International Group is a unique regulated platform supporting a number of specialist asset management businesses. Milltrust Agricultural Investments is a specialist advisor to Milltrust’s Irish domiciled (ICAV) collective investment funds. It is backed by institutional investors including one of the largest UK local authority pension funds. The investment universe is the southern hemisphere where there is a comparative advantage in climate and water, farming expertise and availability of quality land at scale. The team is led by professionals with hands-on farming experience, supported by a global advisory panel of industry experts. Investments are diversified across different farming segments, including permanent crops such as citrus and vineyards, as well as cropping, livestock and specialist forestry. Investors can select between strategies focused on income generation (Buy and Lease) and those that emphasize capital appreciation and development opportunities.
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To read more investor insight on opportunities around the globe join Simon Hopkins at the Global AgInvesting Asia event in Tokyo on Sept 13-15 and check out the next issue of the GAI Gazette.
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Sarah Day Levesque