CowBank Dairy Farmland Fund

CowBank Pty. Ltd.

Rod Banks – Managing Director Suite 1103, 9 Yarra Street PO Box 343 South Yarra, VIC 3141

Australia P: +61408131706 E: rodbanks@cowbank.com.au www.cowbank.com.au

CowBank: a 12 year track record

CowBank is an established dairy industry financier and

asset manager.

In 1999 CowBank designed and commercialised a rent-to-

buy product that enables capable dairy farmers with

limited capital to rent and eventually buy their dairy herd.

CowBank has since funded over $60M of cow herd assets,

with proven dairy farmer credit and asset management

systems. CowBank’s client base exceeds 250 farmers,

across farmland worth more than $600M.

In 2004, CowBank conceived and developed a corporate

dairy farming investment with employee farm

management. The corporate dairy farming concept was

promoted with Warakirri Asset Management, raising

$100M from institutional investors and commencing

operations in 2006. As management advisor CowBank

played a key role in development of the farm portfolio,

management systems and processes. CowBank’s active role

concluded in 2010, with the investment well established

and stabilised.

CowBank has a diverse team with broad experience and

knowledge in farming, agribusiness, investment

management, commercial/investment banking, food

manufacturing and marketing.

CowBank’s Dairy Farmland Fund is a unique farm

management model for dairy farmland that capitalises on

CowBank’s proven capabilities. This model will create an

investment portfolio of prime farm land under scalable

“rent-to-buy” management.

A unique investment in pasture-based dairy

farmland that targets quality land and water

resources. Enabling investors to benefit from the

global population’s growing demand for quality

dairy foods.

CowBank’s Dairy Farmland Fund (DFF) presents an

opportunity to invest in premium agricultural land

generating a consistent income stream. The fund provides

investors with a scalable and cost-effective opportunity for

defensive long-term capital growth.

Fund equity will be invested in high-quality established

pasture land with well-developed dairy infrastructure.

Farms will be tenanted, with rental growth underpinned by

the global demand for dairy products.

Structure:

High calibre dairy farmers will be “rent-to-buy” tenants and

minority co-owners of each farm. This provides a safe

transitional capital structure that is currently unavailable to

farmers. The opportunity will attract quality next-

generation farmers and encourage a long-term outlook on

farm asset development and custodianship.

As asset manager, CowBank will launch this product in

Australia with approximately $A350M to be invested over 5

years. There is significant future potential to extend the

“rent-to-buy” model to New Zealand, as well as globally

and into other agricultural land uses.

Returns:

The Fund is expected to generate a total pre-tax return of

11.5% per annum, with a total operating yield from land

rental, finance and milk aggregation of 6.2% per annum.

The DFF is insulated from the volatility of seasonal and

agricultural operating risks.

The total return is influenced by the future demand for

dairy products and capital growth in land asset values,

driven by demand for the finite supply of quality

agricultural land in the developed world.

CowBank’s Dairy Farmland Fund

An Innovative Farm Portfolio Management Model

As asset manager, CowBank will draw on its extensive experience and established processes to manage the farm

portfolio.

CowBank will identify proven high-calibre dairy farmers as “rent-to-buy” tenants for individual farms. The farmer

operates the dairy farm, managing and absorbing the operational and climatic risks. Investors receive secure rent,

which is insulated from the volatility inherent in agricultural production.

Each farmer becomes a minority co-investor in the farmland they operate, aligning long-term farmer and investor

interests. This is comparable to “Fund-of-Funds” methodology, where the selection and success of individual asset

managers is fundamental to portfolio performance.

Farmers have the opportunity to increase their investment share over time and eventually buy-out the fund at market

value. This enables investors to realize equity growth in land assets, increasing liquidity within the portfolio and

providing an additional exit pathway.

A unique investment in pasture-based dairy farmland

The Dairy Farmland Fund is underpinned by Australia’s global

competitive advantages in dairy production.

The fund provides an opportunity to invest in a scalable real-

asset portfolio, across selected areas of Australia. The DFF will

acquire high quality, established pasture farmland with well-

developed dairy infrastructure and water resources.

Diverse low-volatility income streams are derived from land-

rental, land-finance and milk aggregation; plus equity growth

in dairy farmland ownership.

The DFF will control an aggregation of milk that is valuable for

both domestic and export processors, at a time when there is

tight supply and growing demand for milk products.

Investor and farmer interests are aligned by creating future-

focused relationships with skilled and motivated farmers.

Dairy Farmland Fund

Investors

Shared ownership of many Individual Farms

Assets

Dairy

farm

asset

Dairy

farm

asset

Dairy

farm

asset

Dairy

farm

asset

Dairy

farm

asset

Dairy

farm

asset

Dairy

farm

asset

Asset

Manager

The DFF addresses the most significant difficulties with farmland investing;

specialist management, insulation from operating risks and higher asset liquidity.

Dairy Australia 2011

Capital cities

Suitable investment regions

Next-gen Aussie dairy farmers

Investment capital to drive wealth & prosperity in

rural communities

The DFF facilitates the retention and growth of wealth

within farming communities. This stable and long-term

co-investment structure promotes rural development

and prosperity.

The dairy industry generates comparatively high

economic revenue for the rural economy. Providing an

achievable pathway to farm ownership encourages the

next generation of dairy farmers, sustaining the

prosperity of dairy farming communities.

The DFF supports and enhances the future of the family

farm management model, which is inherently efficient

and resilient.

The DFF provides a unique opportunity to support the next-generation of Australian dairy farmers.

It creates an innovative pathway for young farmers to progress to farm ownership

and in doing so, sustains our future farming communities.

Inter-generational transition with long-term

outlook

The DFF extends the dairy career pathway to create a

safe and transparent mechanism for next-generation

farmers to advance to farm ownership.

The fund offers an innovative capital structure for

investors to attain competitive returns from the

structural adjustment of inter-generational transition.

Thus, facilitating divestment by older-generation

farmers, with a new-generation able to access capital to

"buy-in".

The long-term nature of the fund encourages farmers to

farm for the future, as they directly benefit from the

farm's sustainable productivity and environmental

management.

Farmland: A Real Asset

Globally, farmland is an attractive real-asset

investment with stable yield and fundamentally

strong growth prospects.

Historically, investments in farmland assets deliver

attractive risk adjusted returns compared to traditional

investment assets. This is demonstrated in the

comparison of Sharpe Ratios for US Investments since

1992.

Farmland investments across the period (1992-2010)

average 11.1% annual return, as reported by the US

National Council of Real Estate Investment Fiduciaries.

The stability of investment portfolios can benefit from

the inclusion of farmland, with farm returns exhibiting

low or negative correlations with traditional investment

assets and positive correlation with inflation.

World Agri-Land area has been stable since 1960, while

population has more than doubled in this period.

Looking forward, the United Nations Population Division

forecasts a global population of over 9 billion by 2050.

Australian Dairy Land has achieved 6-7% p.a. average

capital gain over the past 25 years. The positive outlook

for dairy and the finite availability of farmland are

expected to continue the rising trend.

$-

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

$16,000

1984 1989 1994 1999 2004 2009

$A

U/H

ect

are

Source: Victorian Valuer General - Annual Guide to Property Values 1984 - 2009

Southern Victorian Dairy Land Values

This population growth, combined with increasing bio-

fuel demand, creates price and productivity pressure on

farmland output. Environmental, social and political

barriers limit the creation of new farmland and

urbanisation is forcing contraction of existing farmland.

Together, these elements create an opportunity for

attractive returns for those who are invested in the finite

supply of farmland.

USA Farmland Investment Index & USA Commercial Property Index 1992-2010;

Barclays Capital US Aggregate Total Return 2000-2010 & Lehman Aggregate Bond

Index 1992-1999; Standard & Poors Index Services, 2011; Federal Reserve Bank of

St Louis Database (FRED), 2011.

-

0.20

0.40

0.60

0.80

1.00

1.20

US

Investment

Farmland

US Bond

Aggregate

US

Commercial

Property

S&P 500

Total

Return

Sha

rpe

Ra

tio

s

Sharpe Ratios (Excess Return / Risk) 1992-2010

0.5

1.0

1.5

2.0

2.5

3.0

1960 1970 1980 1990 2000 2010 2020 2030

Population Index Agricultural Land Area Index Indices = 1.0 in 1960/61

Index Comparison of World Population and

Agricultural Land Area

UN Population Division, 2011; UN Food & Agriculture Organisation, 2011

Australia’s temperate climate and year-round pasture

feeding systems place them amongst the lowest cost

dairy farmers in the world.

Combining this low cost of production with an efficient

and competitive processing sector, has made Australia a

trusted international supplier of quality dairy products.

With no reliance on government subsidies, Australia is

ideally situated to capitalize on the growing dairy food

demand in the developing world.

0

10

20

30

40

50

60

70

80

Pro

du

ctio

n C

ost

US

c/L

Dairy cost of production

Future Bright for Aussie Dairy

Australian dairy farming is set to benefit from

growing demand for dairy products.

Demand for dairy products is growing most rapidly in

developing countries, driven by greater ability to pay for

food protein as income per capita increases.

Based on the current world supply and demand

outlooks, Dairy Australia predicts future unmet demand

of 4.0–5.0 billion litres in 2020. This indicates there will

be an ongoing upward trend in dairy prices to stimulate

future supply.

0

100

200

300

400

500

600

700

800

1980 1990 2002 2015 2030

Mill

ion

To

nn

es

pe

r Ye

ar

Developed Countries Developing Countries

Global Milk Supply & Demand Growth

Dairy Australia Situation & Outlook 2011, Dairy Australia.

(UNFA

Global Dairy Consumption – History & Forecast

(UNFAO, 2006)

IFCN Global Dairy Report, 2009; Dairy Australia, 2010.

0

100

200

300

400

500

600

700

800

1980 1990 2002 2015 2030

Mill

ion

Ton

nes

pe

r Ye

ar

Developed Countries Developing Countries

UNFAO, 2006