Hancock Agricultural Investment Group Farmland Investor · 2015-07-30 · production...
Transcript of Hancock Agricultural Investment Group Farmland Investor · 2015-07-30 · production...
Over the past 18 months, members of
HAIG have spent, on a combined basis,
almost 12 months in Australia, looking at
properties, meeting with leading agricul-
tural experts, talking with local property
managers and becoming fully immersed
in Australian agricultural markets.This
on-site due diligence has confirmed the
decision to invest in Australia.
Australia’s Farm Economy
Australia has one of the largest
farm economies in the world.
Agriculture plays an important
role in the overall Australian
economy, accounting for approxi-
mately 4 percent of the country’s
gross national product, according
to the Australian Bureau of Agriculture
and Resource Economics (ABARE).
Approximately 4 percent of the
Australian population is involved in
agriculture in some manner.
According to ABARE:•There are more than 115,000 farms
in Australia encompassing 1.1
billion acres;
•Australian farmland is valued at
close to $60 billion; and
•Farm output accounts for almost 20
percent of total Australian exports.
Australian per capita production of agricul-
tural commodities is one of the highest in the
world,and 16 percent higher than the U.S.
per capita production.* Overall,the Australian
farm economy is large and efficient.
In addition to its size and efficiency,
there are a number of features that make
Australian agriculture attractive to investors.
Climatic Diversity
Australia’s climate varies from tropical
in the far north to temperate in Tasmania.
In between there are desert and
Farmland InvestorFarmland InvestorH a n c o c k A g r i c u l t u r a l I n v e s t m e n t G r o u p
Volume 8, Number 1Summer 2000
Continued on page 2
The Case for Institutional Investmentin Australian Farmland
hase II of the Hancock Agricultural Investment Group’s
international initiative looked at a short list of countries from a
statistical standpoint to determine their attractiveness for institutional
farmland investment. On paper, Australia appeared attractive. After
detailed on-site due diligence, would the conclusion be the same?
P
The Case for Institutional Investment in
Australian Farmland . . . . . . . . . . . . . . . . . .1
Prospective Investors Tour Aussie
Properties . . . . . . . . . . . . . . . . . . . . . . . . . 2
Investing in Australian Agriculture:
HAIG’s Process . . . . . . . . . . . . . . . . . . . . . 4
New Research Associate Joins HAIG . . . . . 5
Contents
2
At the end of March, members of HAIG and
its Australian farm management firm, Rural
Funds Management (RFM), hosted a tour of
Australian farm properties. Prospective
investors from both Australia and the U.S.
toured cotton, citrus, wine grape and
macadamia nut properties located in New
South Wales and Queensland. The tour
included visits to the Suncoast Gold
macadamia nut processing plant and the
Casella Winery.
Prospective Investors Tour Aussie Properties
Mediterranean climates as well.HAIG
expects to invest most assets in the
Mediterranean climate zones in New
South Wales,Victoria and South Australia.
This climate typically has hot,dry
summers and cool,moist winters, very
favorable conditions for the production
of wine grapes, almonds and citrus fruit.
Commodities grown in this climate zone
require irrigation for consistent produc-
tion, and tend to be found along rivers in
the Murray-Darling River Basin. In the
northeastern section of New South
Wales and the southeastern section of
Queensland, the sub-tropical climate is
the native environment for macadamia
nuts. Further north, the tropical climate
in Queensland and the Northern
Territory provides good growing condi-
tions for mangoes, avocados and other
tropical fruit.
The accompanying map on page 3
illustrates the regions under
consideration for investment by HAIG.
Technology Drives YieldAdvantages*
Australian yields are typically high by
international standards. Production
technology is world-class, partly a
result of limited labor availability.
Yields in Australia average over 100
percent of the world average for all the
crops under consideratiozn for HAIG
investment, and Australia’s cotton, grape
and almond yields are about 200
percent above the average for the rest
of the world.
Export Growth Continues
Exports are very important to the
Australian agricultural industry,with
over 50 percent of production exported
each year.The primary markets are in
Asia,North America and the European
Union.Cotton exports typically go to
Southeast Asian nations,while wine and
macadamia nuts are exported to the
United States and Europe. Almond and
corn production is usually consumed
“The favorable climate, high
yields, improving export
markets, potential additional
appreciation from water owner-
ship and limited government
involvement are all positive
factors that influenced HAIG’s
decision to invest in Australia.”
Wine grape nursery in Victoria, Australia.
Continued from front page
3
domestically,with only a minor portion
exported.These export patterns are
showing indications of gradual change as
production increases.Exports are
becoming increasingly important to citrus
growers,with an increasing percentage
exported to the U.S. and Southeast Asia.
Australia’s export destination markets
are changing over time, with a growing
emphasis on new markets in Southeast
Asia and the Middle East (see chart on
page 4).
Water Critical to Success
Given the arid nature of Australia and its
position as the driest continent on earth,
irrigation water assumes tremendous
importance to agriculture.With the
possible exception of macadamia nuts,
which grow in high rainfall tropical
conditions and do not usually require
irrigation, HAIG intends to invest only in
irrigated properties. Governments are
currently looking at proposals that would
increase the ability to trade water rights
separately from the underlying land.
Water rights should increase in value
over time, adding appreciation potential
to HAIG-owned properties.
Limited Government Intervention
The role of government in Australian
agriculture is limited.There are few
regulatory constraints on production or
prices, and few barriers to international
trade.Australia is usually regarded as one
of the most open agricultural sectors
in the world. The government does,
however, provide matching funds to
various agricultural industries for
research and market creation.This free-
market approach eliminates certain
inefficiencies and rewards high-quality,
well-managed farmland.
The Decision
The favorable climate, high yields,
improving export markets, potential
additional appreciation from water
ownership and limited government
involvement are all positive factors
that influenced HAIG’s decision to
invest in Australia.
Targeted Commodities
Based on HAIG’s analysis of Australian
agriculture, the group has identified
a core list of attractive commodities
for acquisition.
•Almonds: Although the almond industry
in Australia is relatively young,the proven
yields and the growth in world exports
seem to create a favorable environment
for investing in Australian almonds. That
said, it is unlikely that Australia will come
to rival Californian dominance of the
industry and,as a result,will likely remain
a niche producer. HAIG’s long-term
commitment and large holdings in
California provide a valuable knowledge
base to draw on in this small,but growing
segment of Australian agriculture.
•Citrus: Australia has an “off-season”
advantage in the export of navel
oranges to the northern hemisphere,
as witnessed by the rapid increase in
exports over the past decade. Given
the relatively high yields and quality
achieved, Australia has the potential to
NorthernTerritory
Queensland
South Australia
Western Australia
Brisbane
Sydney
Canberra
Tasmania
VictoriaMelbourne
Adelaide
Darwin
New South Wales
Mangos, Avocados
Apples
Apples, Wine Grapes
Macadamia Nuts
Cotton, Corn
Almonds, Citrus, Table Grapes, Wine Grapes
Perth
Hobart
Cairns
Australian Agricultural Regions and Targeted Commodities
Source: Hancock Agricultural Investment Group
develop a long-term competitive
advantage in navel orange production.
•Corn: Australia is an efficient producer
of corn on irrigated farms, although not
a large one. As long as Australian
producers can grow corn for the same
or lower price than the cost of shipped
competing corn, there should be a
reasonable market for Australian corn.
The major market for Australian corn is
likely to remain the domestic market,
with only minor exports.
•Cotton: Australian yields and increased
exports demonstrate the efficiency of
Australian cotton production. Global
demand has trended upward over the
past twenty years, which benefits
Australian cotton producers with a
long-term competitive advantage in
irrigated cotton.
A key attraction of cotton is the ability
to forward sell at set prices significant
portions of production.This, coupled
with the relative stability of yields in
irrigated cotton due to best manage-
ment practices, helps to dampen
income variation.
•Macadamia nuts: Macadamia
nut trees are native to Australia.
Australia is the world’s largest
producer of macadamia nuts.
Australian macadamia farms are
typically larger and more efficient
than their counterparts elsewhere.
Yields are some of the highest in the
world, and the industry maintains a
strong commitment to improving
quality and marketing.
•Wine grapes: Australia has seen
remarkable growth in wine exports
over the past decade, driven by
reliable quality and price.The
Australian industry appears
committed to increasing wine
quality and growing markets,
“Australia is usually
regarded as one of the
most open agricultural
sectors in the world.”
Other28%
MiddleEast5%
SE Asia11% Japan
23%
Americas14%
Europe15%
China4%
Other30%
MiddleEast8%
SE Asia16%
Japan18%
Americas11%
Europe12%
China5%
Source: Australian Bureau of Agriculture and Resource Economics, Balance of Payment Method
Australian Agricultural Export Destinations
4
Dr. Shaffer has conducted a number of research studies for the Hancock Agricultural Investment Group, coveringeverything from the effects of El Niño on HAIG propertyperformance to the international investment opportunitiesdescribed in this and the previous issue of Farmland Investor.This international initiative has been his primary responsibilityfor the last 18 months, culminating in HAIG’s decision to begininvesting in Australian agriculture. In order to see this project to its completion,Dr. Shaffer was recently promoted to Director of International Operations and hasrelocated to Melbourne, Victoria to oversee HAIG’s Australian operations.
For details on HAIG’s new Research Associate, please refer to Jean P. Zwickert’sbiography on the back page.
Continued on page 5
1 9 9 1 / 9 2 1 9 9 8 / 9 9
5
important attributes in an environ-
ment of increasing production. Given
the rapid increase in Australian wine
production, however, potential
oversupply is a concern. HAIG intends
to grow grapes under contracts with
established wineries and does not
plan to develop or buy vineyards
based on speculative markets.Winery
delivery contracts typically have floor
prices and quality guidelines,
mitigating grower price risk.
ConclusionAgriculture is an important compo-
nent of the Australian economy,
accounting for almost 20 percent
of Australian exports.With global
growth rebounding and Australia’s
proximity to rapidly growing
Asian economies, Australian
farmers should be well positioned
to benefit from their technological
innovations, their water use
efficiency and their commitment
to improving quality and yields
through research.These unique
advantages, combined with the
scale and efficiency of Australian
agriculture, suggest that Australian
farmland is an appropriate invest-
ment option for institutional
investors.
* Source: Food and Agricultural Organization
of the United Nations (FAO)
Continued from page 4
Step 1) Analyze broad economic,political and agricul-
tural criteria to generate a “short list”of potential
international investment opportunities.
Step 2) Study more detailed statistics for each country
on this list so the countries could be ranked by
their attractiveness for potential investment.
The final ranking was as follows:
• Australia • New Zealand
• Spain • Chile
• Argentina
Step 3) Conduct on-site due diligence to reach a final
decision on the investment potential of the
leading countries.
The article in the previous issue of Farmland Investor,
available on the HAIG website www.haig.jhancock.com,
described the first two steps in the process.The article
beginning on page one of this issue describes HAIG’s
findings and conclusions after a detailed study of the
potential opportunities in Australian agriculture.
Investing in Australian Agriculture:HAIG’s Process
n the last Farmland Investor, Dr. Matt Shaffer,
Hancock Agricultural Investment Group Research
Director, described the study HAIG conducted to review
global agricultural investment opportunities. The study
followed a three-step process:
I
Jean P. Zwickert, CFA
joined the Hancock Agricultural
Investment Group in May as a
Research Associate. He has
assumed the research responsi-
bilities of Dr. Matt Shaffer, Ph.D.,
who is now Director
of International Operations
based in Melbourne, Victoria,
Australia. In this role, Jean is
responsible for commodity-
specific and global agricultural
market research and analysis,
as well as price forecast devel-
opment and reporting. Prior
to joining HAIG, Jean was
a business consultant in
John Hancock’s Investment
Accounting Group. He holds
a B.S. in Agri-business from
l’Ecole Supérieure d’Agriculture
in Angers, France and an
M.S. in Agri-
business
from Illinois
State University in Bloomington,
Illinois. He is a CFA charter-
holder and a member of the
Association for Investment
Management and Research
and the Boston Security
Analysts Society.
New Research Associate Joins HAIG
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