Food and Agribusiness
As one of the world’s leading agricultural producers, Australia offers excellent opportunities for investors in the food and agribusiness sector. It has an international reputation for producing safe, healthy and high quality food, has a diverse and secure supply of raw ingredients, and is located close to fast-growing Asian markets.
Why Australian agribusiness?
Australia has a comparative advantage in extensive broadacre agriculture due to the relatively large amount of land available, compared to other countries.
Benefits and opportunities
Investing in Australian agribusiness can potentially provide strategic benefits and opportunities for investors. With demand for food and other agricultural products expected to grow substantially, Australia is ideally placed to capitalise on these trends due to its:
- close proximity to growth markets in Asia;
- robust biosecurity system;
- record of innovation and reputation for producing high quality and safe products; and
- skilled workforce.
The sector has already seen active interest from foreign pension funds and some local super funds and further interest is expected given:
- the sector is in need of additional capital (estimated at A$109 billion by 2025);
- it provides long term returns of 10-12% per annum (6-8% per annum in capital appreciation);
- it presents a great option as a portfolio diversification tool as investments in the sector provide a hedge against inflation, offer low correlation to traditional asset classes and are less impacted by economic slowdowns; and
- it provides an opportunity to pursue aggregation play due to the fragmented nature of agricultural land holdings.
A diverse range of food and fibre products are produced in Australia. The top four commodities are beef and dairy cattle farming, grain growing and sheep farming. This is followed by vegetables, fruits and nuts, lamb meat and wool.
Australia’s farm exports were worth A$44.6 billion in 2015-16. By contrast, Australia imported only A$17.2 billion in agricultural products over the same period.
Potential for expansion
Given strong demand for agricultural commodities, driven largely by the Asian region where current demand is predicted to double, there may be further expansion into new areas for agricultural production, including northern Australia.
Despite the above, Australia’s food and agribusiness sector is impacted by a range of diverse factors including climate-related events and weather conditions, animal diseases, changes in agricultural commodity prices, changes in macroeconomic conditions and changes in policy and regulatory risks.
The type and size of the risk and its potential impacts are obviously different for different industries, however all parts of the sector can benefit from understanding ways and means of managing the risks – both legal and non-legal.
For example, the variability of Australian weather and climate is one of the most difficult risks to manage. Geographic diversification, local knowhow on managing weather patterns and irrigation management are prudent methods of managing climate risks.
KWM’s food and agribusiness insights: www.kwm.com/agrithinking