JUNO INVESTING ©

AGRIBUSINESS: GRASS-ROOTS INVESTING

JUNO INVESTING ©
AGRIBUSINESS: GRASS-ROOTS INVESTING

 

The editorial below reflects the views of the editorial contributor only and content may be out of date. This article is sourced from a previous JUNO issue. JUNO’s content comes from sources that it considers accurate, but we do not guarantee that the content is accurate. Charts are visually indicative only. JUNO does not contain financial advice as defined by the Financial Advisers Act 2008. Consult a suitably qualified financial adviser before making investment decisions.

SPRING 2017

By Jeremy Keating, CBRE Agribusiness

Agribusiness in New Zealand is in a pretty good space right now. 

The worst of the downturn in dairy is behind us, and sentiment is improving as forecast payouts increase. Farmers have shown resilience and bankers have been patient, trading through the rough patches in a fairly orderly manner. 

As dairy payouts translate into actual cash circulating in provincial communities, the flow-on effect willbe positive. It will shore up balance sheets as well as being beneficial for those communities that were heavily reliant on dairy and really had to tighten their belts for a couple of seasons. 

Red-meat prices remained robust when dairy was languishing, which shows the importance of New Zealand not being too reliant on only one sector.

Fruitful sectors

However, at the same time, horticulture, led by kiwifruit and wine, has been the standout. 

Kiwifruit growers have done an amazing job of coming back from the first Psa-V (Pseudomonas syringae pv. actinidiae disease) outbreak in 2010. So much so that orchards are now selling for record prices. Significant expansion is in the pipeline, underpinned by the release of further gold kiwifruit licences by Zespri. Kiwifruit achieved an impressive NZ$1.67 billion in export earnings in 2016. 

Meanwhile, the maturing viticulture sector exceeded NZ$1.55 billion last year, and is already this country’s sixth-largest export earner.  

After passing the NZ$1 billion mark in 2010, the New Zealand wine industry set itself a new goal of reaching NZ$2 billion by 2020. The focus will continue to be on wine quality, given the relative constraints of suitable land and irrigation to keep expanding the area under vines.

Snags in wool

It’s the producers of cross-bred wool who appear to face the most challenges – with few obvious solutions on the horizon. 

Much of our fine merino wool has ready markets and it is turned it into high-end garments and activewear. But cross-bred wool producers are struggling to escape being price-takers. Stories in the press have revealed how farmers are stockpiling wool in their woolsheds and at the wool scourers, rather than accepting the low prices on offer.

Fresh growth

In the day-to-day buying, selling, and valuing of agricultural real estate, we don’t see many ‘bargains’ out there, with a fairly good balance between buyers and sellers, and an informed marketplace. 

One area where we do see opportunity for future upside is in cutover forestry land – where the trees have been removed and the land needs a new owner to invest in establishing the next planting rotation. Many of these parcels of land are being sold by small-scale private investors who planted in the boom times of the early 1990s, and who are now cashing in for their retirement and don’t have the time or inclination to wait for another 27-year cycle.

Kiwi value proposition

New Zealand will always face the challenge of being an exporting nation that is distant from our customers. Yet our agricultural products have and will continue to be highly sought after for increasingly sophisticated global consumers. We need to keep investing to produce branded, higher-value products that come from an environmentally sustainable production process, mixing this expertise with Kiwi know-how and resilience – and telling this story as part of the process.  

We can also keep trying to weave together our tourism, food and beverage production, and hospitality offerings to ensure a world-class visitor experience. This gives producers the chance to engage directly with their customers and forge closer and more direct ties.

Investment pathways

Options for investing in agriculture range from direct farm ownership through to small-scale syndicates organised through accountants and solicitors, to structured and fully managed syndicates. Among these is MyFarm, which has grown to have more than NZ$500 million of rural assets under management. 

Investors need to understand that a number of variables can affect agribusiness returns. Factors such as weather, commodity prices, and exchange rates mean it’s important to take a long-term view, and to recognise the cyclical nature of the investment and limit gearing. 

If you’re prepared for these things, significant satisfaction as well as good financial returns can be gained from being a part of New Zealand’s enduring agricultural success story. 

The views expressed are those of the author and not CBRE.

 

DEFINITIONS

AGRIBUSINESS: A commercial business that earns most of its revenue from agriculture.

CUTOVER LAND: Forestry land where the timber has been felled and removed.

GEARING: Taking on debt to fund growth.

PRICE-TAKER: A supplier that is forced to take prevailing (low) prices for its products.

WOOL SCOURING: Washing greasy (shorn) wool to remove contaminants, prior to processing.

ZESPRI: The world’s largest marketer of kiwifruit, working with growers and distribution partners to source and supply kiwifruit.