Want a good investment return? Buy north Australian ag land

Why foreign buyers like North Australian ag's track record


Agribusiness
Consolidated Pastoral Company's Troy Setter says northern Australian pastoral land generates better long-term returns than the ASX 200 and represents an undeveloped bargain at about $US77 a hectare.

Consolidated Pastoral Company's Troy Setter says northern Australian pastoral land generates better long-term returns than the ASX 200 and represents an undeveloped bargain at about $US77 a hectare.

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Northern Australia represents good value and good long-term capital gains for local or overseas investors says Troy Setter

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Despite the criticism and fears about foreign investment in farmland, overseas buyers in our farm sector represent a tiny proportion of what international investors buy in Australia.

Our farms also remain remarkably cheap compared to the rest of the world.

In fact, northern Australia - a popular target for overseas investors - still provides particularly good buying value and good long-term capital gains for local and overseas buyers alike, says Consolidated Pastoral Company chief executive officer, Troy Setter.

"It's no surprise overseas investors have been looking, and buying, here," Mr Setter told a recent Sydney agribusiness forum.

"While Australian land prices grew quite a bit in the past decade, when compared with global trends our average farmland values are pretty cheap."

Australia's average farmland price had leapt from just $US355 a hectare at the turn of the century to about $US3000 by 2016, yet was still well below average North American values of $US5000 to $US10,100, or $US25,400 in Britain, or even Hungary's $US3660.

In northern Australia, pastoral land was still a relative bargain at between $90/ha and $110/ha ($US63-$US77).

It's not been perfect sailing in the past 10 years thanks to drought and export market disruption, but overall CPC has proven to be a pretty good investment - Troy Setter, Consolidated Pastoral Company

However, he said northern property values could really blossom if the land was developed with livestock watering points, or for irrigated horticulture or grain crops.

Around Katherine in the Northern Territory, livestock country re-developed for farming in the past decade was now selling for up to $30,000/ha.

While development costs had to be included in the equation, they were much less than $10,000/ha - well below the land's improved value.

Water infrastructure investment also significantly lifted productivity returns.

Just add water

At Newcastle Waters Station on the western Barkly Tablelands, British-owned CPC had boosted its beef carrying capacity and land values by establishing a network of livestock watering points which increased its herd grazing capabilities.

After spending the equivalent of $500 a head on water installations, pastoral land at Newcastle Waters had gone from having negligible value to being worth $1500/ha.

"We've got another 700,000ha on Newcastle Waters which remains undeveloped," Mr Setter told the Farm Writers Association of NSW.

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CPC is one of Australia's more notable foreign-owned farmland assets, although its parent, Terra Firma Capital Partners, is now selling off the big beef business having bought the 5.6 million hectare pastoral estate from James Packer and partners a decade ago for $425m.

"It's not been perfect sailing in the past 10 years thanks to drought and export market disruption, but overall CPC has proven to be a pretty good investment since Terra Firma bought in to balance its global portfolio with food production assets," Mr Setter said.

"Australia's seen as a pretty safe haven for farming investment in the southern hemisphere."

The private equity firm would now be recycling its gains from the CPC sale into its diverse food, healthcare, energy and entertainment portfolio.

Mr Setter said a rising global population, less land available for food production and a shrinking global beef herd made Australian agriculture an attractive "defensive investment" for overseas buyers.

Foreign investors are few

However, while foreign investment attracted a lot of attention and commentary, agriculture actually represented just 0.2pc of the total direct spend by overseas investors in Australia.

Most overseas investment (46pc) was in the mining sector, while 10pc went into the financial services sector.

"There's been a lot of criticism of the amount of foreign investment in agriculture, but actually it's surprising there's not been a lot more activity, especially in the beef sector, which is Australia's sixth biggest export industry," he said.

Indeed, total returns from northern Australian beef properties in the past 20 years had strongly outperformed long-term fixed investment returns from gold, the ASX 200 companies, 10-year US Treasury bonds, or the Standard and Poor's 500.

Compound annual growth from northern beef assets between 1996 and 2016 was 13.5pc, compared to 4.5pc from ASX 200 companies and 8pc from the S&P 500.

The exciting thing is we should be able to make big increases in our production returns - Troy Setter

"Despite some challenges, including pretty low herd productivity figures, northern beef cattle investment capital appreciation has been pretty good," he said.

"The exciting thing is we should be able to make big increases in our production returns."

Productivity progress

CPC was now monitoring cows via GPS tracking technology to identify calving stresses and successes as they happened, and help pinpoint reasons for paddock deaths.

"We've discovered higher Vitamin A deficiencies than we anticipated, some vaccine failures and wild dogs appear to be a bigger problem than we thought."

He said GPS collars were now used on breeders to move stock to different grazing locations without direct human intervention.

Improved genetic traits also promised to lift herd productivity.

Hybrid vigour was already generating 25pc better calf branding results from Wagyu-Brahman cross cows crossed with Angus-Brahman bulls.

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The story Want a good investment return? Buy north Australian ag land first appeared on Farm Online.

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