The Future of Corporate Agriculture

David SackettGrowth Farms Australia

14th Sep 2012

Growth Farms Business

$320M under management– 190,000 sheep– 15,000 cattle– 17,000 ha winter crop– 10,500 ha summer crop

Farm Locations

Properties

Staff

Office

• GF works with agents and clients to– Develop strategy for Australian ag.– Search for & evaluate opportunities

• Business plans• Financials

– Negotiate acquisition of land, plant , stock, water

• Two factors drive investment performance:– Purchase price– Management

Acquisitions

• Run as an incorporated entity?• What isn’t it?

– Everything other than small-medium scale family farms

• Large scale family farms (>$10-20M invested?)• Institutions eg super funds• Foreign/city investors.

What is Corporate Agriculture?

• Great Southern• AACo• Stanbroke• Prime Ag• Tandou• Consolidated Pastoral

Track record of “Corporates”

1500

• Medium to high net worth incl Family offices• Australian and overseas• $3-$30M, some >$50M investment • Long term view• Australia low risk (laws, economy, politics)• Usually need help with acquisitions and management

Individuals - Corporates

• Long term view (but act short term)• Australian institutions have little interest

– Fragmented– Unprofessional– “Gloom and doom”– Low operating yield– Volatility

Institutions – (super funds etc)

Is Big Better?

0.0

0.5

1.0

1.5

2.0

2.5

Smallest 20% 300 hd

20 to 40% 1000 hd

40 to 60% 1900 hd

60 to 80% 3300 hd

Largest 20% 7500 hd

Op

era

tin

g R

etu

rn (

%)

Source: ABARE

Is Big Better?

“Family Farm” “Corporate”

Flexible “Outside” constraintsPatient capital Specific targets (inflexible?)Nimble Can be poorly responsiveConstrained by scale Scale often not a constraintLifestyle and business Business approachSkill level? Access to expertiseOften capital constrained Capital availableGovernance? Governance?

Pros and Cons

Own land and Lease to Operator Own land and Operate

Lower yield – 2-4% Higher yield – 4-6%Consistent return More variable returnEffect on land value/growth? More complexNo direct exposure to prices Provides price exposureNo working capital Need 20-30% working capital

Maximises capital growth

Investment Options

Australian v US Land Values

US

“Any measure that puts further barriers in place….. and reduces the flow of foreign capital into Australian agriculture will adversely affect the performance of the agricultural sector. “

ABARES 2011

Foreign Investment

• 1% of entities

• 11% of land

• 9% water

• Largest in 09-10 was US, then Malaysia, then UK

Foreign Investment In Agriculture

• 50% milk processing

• 60% sugar refining

• 40% meat processing

• 50% of wheat exporters

Foreign Investment In Agribusiness

• Introduces capital– AACo– Vestey

• Introduces technology– Chaffey Bro’s– Us Cotton farmers

• Foreign investment +15% GDP

+

Good or bad?

• Open, dynamic, competitive helped by foreign capital

OR

• Less productive, lower land values, less dynamic?

Choice

• Well informed– High level– Detail

• Straight• Value v Price• Responsive

A good agent (a buyers perspective!)

• Agriculture will become more “corporate”• Life style and off farm income will underpin

many small farms.• There is much more foreign investment in

agribusiness than in agriculture• Foreign capital helps underpin new technology

and improved productivity.

In summary