The Agricultural Story
Ausgrow believes that vast opportunities exist in the Australian agricultural industry. We expect the key drivers will contribute to a sustained long term increase in both the value of grain and the associated land values.
- Global demand for food is being driven by an increase in global population, combined with a simultaneous surge in the global middle class.
- If predicted worldwide population growth continues, there will be an additional 70 million people to feed per year
- The increased demand for food in a background of reduced arable land per head of population means that there will be an unprecedented demand for food production relative to the supply of available land for production.
- Global wheat consumption has doubled in the last 4 decades to around 650 million tonnes. The majority of world grains (circa 75%) are consumed by developing countries. The continuing economic development of these markets is set to lead to a further increase in consumption from these markets.
- The growing scarcity of water – particularly in China and India. The most efficient way for China and India to conserve water is to import grain, as it takes 1,000 tonnes of water to produce 1 tonne of grain.
AGRICULTURE – AN INVESTMENT CLASS
Agriculture is an attractive investment class because:
- Demand for land and soft commodities is being driven by several strong and real macro trends.
- Stable returns during times of uncertainty and recession.
- Agricultural assets offer an excellent natural hedge against inflation.
- Provides a means to reduce portfolio risk through diversification, as agricultural returns display a low correlation with other asset classes.
- Farmland is an under-invested asset class due to difficulty in acquiring and successfully managing assets.
- Research suggests that cropping is the industry where economies of scale are most pronounced. This is due to the mechanised nature of grain production. Therefore, it is likely that grain production will become more concentrated, through either consolidation or corporate entrants into the industry who are better equipped and backed to achieve economies of scale.
THE AUSTRALIAN GRAIN SECTOR
- Australia has a stable economy and government.
- It is an established industry with a track record of over 100 years.
- Australia is ranked in the top 5 of Wheat exporting countries by volume routinely accounting for approximately 10% of world wheat trade volumes.
- The Australian agricultural sector has a worldwide image of being “Clean & Green”.
- Australia is uniquely placed in the world grain trade market. Asian countries constitute approximately 60% of Australia’s exports. The next most significant region to Australian exports is the Middle East and North African markets, these are projected to experience some of the largest growth in import demand.
- The Western Australia grains industry is highly geared to the export market due to its efficient infrastructure, large volumes of exportable surplus approximately 95% and proximity to market.
- The difference between the top 25% and the average over the longer term comes down to small differences in production, cost control and pricing but leads to double the profit.
- The number of farm businesses has almost halved in 10 years, the average age has increased by 10 years, further consolidation is expected for the next 10 years.