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Monday 28 July, 2009
A few of my readers have been writing to me to ask for further details about the farm land investment companies mentioned in this weekend’s article. Both the funds mentioned have pretty impressive websites but if you are after some additional research materials I’d offer two tips. The first is that Geoff Burke’s fund agro Ecological has just released their latest Farmland Investment Handbook .
I also thought it might be worth quoting an mail exchange I had with Geoff a few weeks back that explored the New Zealand farm land investment space in greater detail – a few of the quotes were used in my article and I’ve abridged the session for the sake of brevity but I think you’ll get the drift.
David: Have you noticed any key trends in the NZ and Aus farm land markets in the last six months - are foreigners still buying and if so what are they buying ?
Geoff: Key events of the last six months are the global events. Drops in land prices where commodities connected to land use have come off e.g. dairy and cereals in Australia. Otherwise a reduction in the number of properties available publicly is the main feature. Terra Firma have bought some large properties for around $400m in the North of Australia. Macquarie are making some locals in Aus happy as they have apparently been paying top dollar for land. Their big investor is apparently a Dutch pension fund.
Foreigners still buying but in reduced amounts and in no materially significant way and certainly reduced since the financial carnage.
David: In NZ esp where’s the particular focus on land and what types of land are getting the most interest.
The local interest has been the big driver even pre Lehman, and dairy the major focus. This has included converting formerly cropping, beef and sheep type properties to dairy most notably in Canterbury and Southland.
Geoff: NZ corporates and investors have in recent times been big in dairy but as you would expect that has eased somewhat at the moment.
Prior to the carnage dairy had also been attracting interest from Ireland/UK particularly but offshore in general.
Foreign interest has been strong in amenity i.e. big high country runs that are impossibly beautiful and also impossibly priced to make money from farming. For instance we looked at a property that was on the market at twice what we considered the highest possible value that it could be on a per stock unit basis. Trophy properties.
The Rausing family are big landowners in the Gisborne/Wairoa area in what is almost exclusively beef and sheep country. We understand they are looking to convert to organic production as well.
Wine country has also been popular but as with dairy got a bit toppy and has come off. Foreign investment in Marlborough in particular has been very significant.
It is fair to say that dairy has been king.
David: In particular diary and fruit - any regions stand out and what are foreigners focussing their attention on.
Geoff: The traditional dairy regions are in the North Island eg Waikato and Taranaki but it has been the South Island regions such as Southland and particularly Canterbury with its irrigation systems that have been a big focus for investors. Organic milk is currently not collected in the SI but we expect the Canterbury region to be given the go ahead within the next twelve months. The great thing about the Canterbury region is the fantastic diversity of enterprise that is available particularly from an organic perspective, on the high quality fertile soils.
Fruit traditionally attracts investment from corporates and the local professional classes.
Grapes/Wine attract major foreign interest particularly Marlborough as mentioned above but Central Otago and Hawkes Bay have seen significant investment. A region we really like for wine is North Canterbury. It is slightly below the radar but the wine and particularly pinot noir experts we speak to get very very excited about Nth Canty. There are a lot of talented wine makers in Central Otago who would like to apply their skills to Nth Canty grapes.
Other fruit such as apples and kiwifruit which are both very strong organically generally attract more local interest but are fantastic cash generating businesses and we believe will attract more offshore interest. We notice investors get very interested when we starting talking to them about the types of return that are being generated. We consider perennial crops a key part of any balanced farmland portfolio. If you look at professional farmland investors around the world, particularly in the U.S you will notice that perennial crops make up a significant part of their portfolio. Hawkes Bay and Bay of Plenty are our big focus but there are other regions and more specialised perennial crops although risk is more of factor when compared with other farming investments.
David: Do you think the prospects for NZ land is better than other anglo Saxon markets in the future
Geoff: We think there are a number of key factors that favour NZ from the investment point of view. The first one is the lack of subsidy distortion which creates a much ’cleaner/purer’ investment play. It has also generated a globally competitive industry. There are also fewer restrictions on land purchase relative to some regions such as parts of Canada for example.
The second is water. We have seen certain investment houses in the UK and elsewhere trumpeting their water rights in Australia. That all sounds lovely but the allocation of water rights in Australia was 38% last year which was actually a fantastic result given that it had been 7% the two years before that. We have great connections in Aus and it is fair to say that water is an enormous issue for them. NZ is much much better off in terms of water. NZ also has a global climate change impact forecast that is at the lower end of the scale.
The third is pastoral (which is connected to 2).As cereals become more expensive so too does protein production ie beef etc however in NZ to produce 1 pound of beef requires 0 pounds of cereal because it is produced from grass as is dairy and lamb etc. Essentially as cereal become more expensive NZ pastoral production becomes increasingly competitively advantaged. This also strongly favours organic production ie low input, low cost but good yield and high value output.
In general NZs diversity of climate and enterprise combined with excellent infrastructure, stable government, land tenure security and a successful export focus mark it out in our view as a very attractive destination for farmland investment.
David Stevenson is also one of the Four Wise Monkeys at the online TV investment programme www.4wm.co.uk
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