anson-advisory-cairns

How do Australian agricultural property values compare globally?

Understanding values is important to everyone in agribusiness.

Taking a long-term view of the performance of Australian farmland values is appropriate given the cyclical and often volatile weather and market conditions that characterise Australian farming. Farmland prices are a function of many variables including, but not limited to: rainfall, location, agricultural industry, productivity, land quality, sentiment, interest rates, commodity prices and the performance of the wider economy.

The total value of Australian rural land assets in 2011 was AU$265 billion, up from AU$57 billion in 1992 – equivalent to a 367% rise over 20 years (this includes developing new farmland & infrastructure during this period). Over this period total land value appreciation was almost six times higher than the total rate of inflation of 64%. In 2020–21 the value of Australian farm exports is projected to be around $45.3 billion (in 2015–16 dollars), 11% higher than the five year average to 2014–15 of $40.7 billion.

Australian farmland capital growth was (average annual median price growth);

2015 5.3% increase
2014 6.8% increase
2013 2.2% decrease                       
(Rural Bank & GRDC)

Looking at Australia as a whole, average rural land values have risen year on year in the majority of the last 25 years. Notwithstanding a notable fall in 2011, driven primarily by the extreme flooding of 2010-11 which negatively impacted land prices in some areas (in particular in Queensland where the cost to the agriculture sector was estimated at AU$1.6 billion). The Global Financial Crisis of 2008 also had a lasting negative impact on land values.

The analysis draws on more than 220,000 transactions over 20 years, accounting for 264 million hectares of land with a combined value of $124 billion. (Australian farmland values 2015 report – GRDC)

The performance of farmland prices in different states was mixed in 2015. The median farmland price increased in Tasmania (+12.8%), Queensland (+3.3%), New South Wales (+10.2%) and Western Australia (+10.6%), but fell in Victoria (-2.3%), South Australia (-1.9%) and the Northern Territory (-6.4%) compared to the previous year.

 2015 Queensland Summary

The median price of Queensland farmland increased by 3.3% in 2015 compared to a 5.0% increase in 2014. This follows a few years of stagnant growth between 2009 and 2013. Average annual growth over the past 20 years has been 5.7%. A period of strong positive growth between 2001 and 2008, averaging 18.7% per year.

Western Queensland performed best in 2015 with a 14.7% annual increase and has had three consecutive positive growth years. North Queensland achieved 10.1% growth and Eastern Queensland 0.6% in 2015.

Queensland land values over the last 20 years have been influenced by a number of key factors.

  • Commodity price, in particular the price for beef, determines the profitability and confidence levels of many of the state’s farmers.
  • Technology advancement has undoubtedly improved land values, making marginal country more profitable and introducing new industries to areas which have traditionally been single industry farms.
  • Non-agricultural industries such as mining have had an impact on land values in certain areas of Qld, both through acquisition of land and the introduction of a new workforce within rural communities who are also looking to own and run small farming operations.

Capital Returns

Australia poses good opportunities for agricultural investment because:

  • Timber production investors are likely to convert to another system
  • Close proximity to Asia
  • Diversified portfolios with a competitive advantage
  • Low sovereign risk
  • Agriculture is a professional industry
  • Large scale beef production (north of Tropic of Capricorn. Fattening occurs better south of this line).

Australian farm assets remain comparatively inexpensive compared to other international markets. The average Australian rural land price (based on a unit of production), is US$950 per tonne of annual wheat produced.

This is less than half that of major export competing nations such as:

  • United Kingdom US$2,575 / tonne annual wheat
  • New Zealand US$2,500 / tonne annual wheat
  • United States US$2,400 / tonne annual wheat
  • Brazil US$2,400 / tonne annual wheat.

Global farmland prices US$ per tonne of wheat produced. Source: Land Commodities – Australian Agriculture

 

To compare this to your own profitability and capacity to purchase land, you need to know your crop Gross Margin to calculate your average profit (per hectare & per tonne) and therefore the expected timeframe to recover the purchase price.

 Land Commodities (an investor consulting firm) state “the agricultural sector is still dominated by agricultural buyers with farm assets and it’s reasonable to expect that over the coming decades the demand for (and return from) agricultural assets is likely to exceed any other period in history. As such, agriculture represents an enormous opportunity for investors, both in terms of the sheer untapped scale of the asset class and the returns agricultural investors are likely to realise in the coming years.” This confirms Australian farmland values are cheap from a world-wide perspective.

Low Australian farmland prices may be a result of low corporate/institutional investment, where land ownership is separate to the farming activity – as seen in the chart. However corporate land ownership in Australia has increased in recent years, particularly by American and Canadian superannuation funds who see the value & reliability in long-term land ownership and the value Australia represents on a global perspective.

A percentage of agricultural land leased in Australia compared to the comparative percentage of agricultural land leased in the USA and the UK. Source: Successful Land Leasing in Australia.

 

Sean Flannery, Managing Director of Australian Farm and Resource Management, who sources good farm land and agribusinesses for investors says “Agriculture is very stable” (at the Australian China Business Week in Sydney). “I showed examples of Australian agriculture’s top 25% of companies outperforming the All Ordinaries over a 17-year period. During the Global Financial Crisis Australian agriculture was rock solid, second to cash,” he said.

As a comparison, USA total returns from farmland for the period 1951 to 2010 averaged 11.52% annually with a standard deviation of 7.36% (USDA NASS returns), as compared to the S&P 500 return of 11.81% with a standard deviation of 16.83% (Institute of Chartered Financial Analysts, 2012). Australian Agricultural Land Value vs S&P/ASX 200

Land owners who have a long-term perspective, allow for the climate and commodity cycles to withstand the lows in order to reap the benefits of the highs, will accrue greater benefits than trying to chase short-term high yielding investments. Agricultural investments don’t provide an annual dividend, but for investors who are serious about taking a long- term position, there are very few asset classes that are better than agriculture.

 

Sources:

  1. https://www.ruralbank.com.au/assets/responsive/pdf/publications/farm-land-values-2015.pdf
  2. http://farminvestaustralia.com.au/figures/
  3. http://www.landcommodities.com/capital-returns-and-trends-in-australian-farmland-values/
  4. https://grdc.com.au/Research-and-Development/GRDC-Update-Papers/2016/08/Research-update
  5. http://a-farm.com.au/media/claims-agribusiness-a-safer-bet-than-most-other-investments/
  6. http://www.abs.gov.au/AUSSTATS/abs@.nsf/Lookup/4102.0Main%20Features10Dec%202012
  7. http://www.nff.org.au/publications.html – NFF Annual Review 2015-16
  8. http://farminstitute.org.au/ag-forum/the-changing-face-of-australian-agriculture
Comments : Off
About the Author
Stirling Tavener is a senior consultant with Anson Advisory, providing virtual CFO (Chief Financial Officer) type services to businesses and agribusinesses, aiming to improve the profitability and management ease of client businesses. Often a more structured and corporate-type approach is sought by clients to develop and implement strategy, efficiency, profitability and business development to promote growth. By using an experienced professional to problem solve, trouble shoot and coach, business owners can up-skill quickly and cost effectively for a fraction of the cost of a full-time CFO. The objective viewpoint an external professional can add to a business is priceless, as the lack of emotional attachment provides unbiased feedback to systematically improve operations. This external approach is great when assisting multiple owners of a business to determine fair and efficient decision making processes. Anson consultants can help setup suitable governance systems and processes to ensure the 'right approach' is taken for all owners. Other areas of specialty are; agricultural enterprises, grant writing, business development, business analysis and improved management reporting, business plans and cash flow projections to assist bank & government grant funding applications, negotiations for asset sales or purchases, land tenure and project management.