The government has set a goal of doubling primary industry exports to NZ$64 billion by 2025, so how can investors get a piece of the rural action? Sally Jones investigates.
Farming has always been a star of New Zealand’s economy, yet few Kiwis have been able to invest in it. That’s because there have only been two main ways to invest in the rural sector: owning a farm, or the share market.
Owning a farm is out of reach financially for most Kiwis. And the New Zealand Stock Exchange (NZX) has offered relatively few rural company listings for the size of our big agricultural industry.
Many of these companies have underperformed, and rural services provider PGG Wrightson is the only long-term player left.
But there have are changes in the rural sector, says Mark Lister, Head of Private Wealth Research for Craigs Investment Partners.
“The New Zealand economy is not just a dairy story any more; the broader agriculture sector and rural sectors have hugely caught up.”
Livestock, horticulture and innovative agri-businesses are all helping New Zealand remain a world leader in farming and innovation. There’s a need for more investment in all areas, which is opening up new opportunities, he says.
Over the past decade, farm ownership has shifted away from the traditional family-farm model towards multiple owners, syndications, and equity managers. This makes buying into a farm more affordable, but Lister says it’s still easier for the wealthy.
Investors with $750,000 or more can buy into equity partnerships of between two and five partners investing in a whole farm operation – both land and business. People usually invest for at least five years, so they can ride out both the good and bad cycles of farming. You find equity partnerships mainly in dairy, sheep, and beef farms, and in viticulture (grape growing). Some banks now offer a service where they match farm owners with investors.
Returns vary depending on how much debt the farm has, how much it produces, and its cost structures, says Brett Irving, National Farm Ownership Options Manager at Rabobank.
“A moderately geared, well-run, low-cost dairy farm should be able to do a 4 to 5 per cent return.
“Sheep and beef returns are more moderate, at 2 to 3 per cent, but you have to factor in capital growth and capital gain, and it starts to accumulate.”
Irving says investors typically have a real interest in farming and want to be directly involved in their investment. Often they’ll be on the board.
Around 20 per cent of Rabobank investors are urban, which Irving likes, because he says there can be risks from having too many farmers sitting on a board.
As an investor in a sheep, beef, and deer farm equity partnership himself, he says most shareholders are not just in it for the return, but the experience.
“My daughter and I can go there and tail the lambs, muster, or do the weaning.”
Some properties have a house where shareholders can stay. “It’s about feeling like you’ve got a piece of land that you can call yours, and somewhere you can go.”
However, Verry says the priority is to see the farm as an investment: “Our investors expect evidence of good governance and information to support an investment decision based around value, growth, returns and liquidity.”
An alternative to owning a farm outright is syndication, where a company such as MyFarm, FarmRight, or Craigmore divides a farm into units.
The minimum investment can be anywhere between NZ$100,000 to upwards of NZ$250,0000. Investors have to meet criteria prescribed by the Financial Markets Conduct Act, as wholesale investors.
Many non-traditional syndicates are being formed.MyFarm has recently offered kiwi fruit, pipfruit, Marlborough sauvignon blanc, and aquaculture units.
MyFarm CEO Andrew Watters says he sees investors diversifying across more investments.
The company has a new investment model, buying properties and leasing them back to experienced operators. Investors get rent and, in some cases, a profit share.
Liquidity risk and the secondary market
In proportionate ownership investments, getting money out at short notice can be complicated.
New online trading platform Syndex is solving this problem by enabling investors to trade online in proportionally owned assets, in both the primary (new) and secondary (resale) markets.
Syndex Managing Director Ross Verry says it offers liquidity by providing a secondary market where investors can offer their units for sale.
However, buying shares is still the easiest way for everyday investors to get a slice of the rural sector, and they can get in and out quickly for low cost. Says Lister: “If you have shares in the Fonterra Shareholders Fund (FSF) and you want to sell some or all of those shares, you can do that in a couple of days.”
When Fonterra listed the fund on the share market, it was “a huge step forward”, he says, allowing KiwiSaver funds and investors to get a piece of the dairy giant.
The fund is a replica of the shares in the co-operative and gives investors access to the co-op’s dividend flow, but without voting rights.
Many people mistakenly think that with the FSF they’re investing in dairy farms. “Fonterra is a processor middle-man. If the milk price goes up, Fonterra’s not benefiting from that – it’s actually a cost of production to them.”
Other rural options on the NZX include star performers A2 Milk; dairy-processing company Synlait; Scales, a grower, packer, and marketer of apples; Blenheim winemakers Delegat; and NZ King Salmon.
Agri-tech co-op Livestock Improvement and kiwi fruit marketer Zespri are also listed, but you have to be a farmer or grower to invest.
Lister hopes rural options keep growing. “That’s what New Zealand does very well, and it will always be one of our core competencies that we can do better than the rest of the world.”
First published Autumn 2018
Story by Sally Jones
The editorial above 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.