Crowd-funder DomaCom opens up agri investment to the retail market

From

The on-again, off-again sale of one of Australia’s pastoral icons, Kidman Station, has stirred enormous public interest for two key reasons – mounting opposition to the sale of farming land to overseas interests and a growing awareness that agricultural assets have been a neglected asset class.

When the proposed sale was announced early last year, it was widely assumed that the sprawling family interests who have a stake in Kidman would sell to a Chinese company for an estimated $370 million. For this price tag the Chinese would have acquired a pastoral estate encompassing 16 properties and three supporting properties in breeding, feedlot and cropping that is spread across Queensland, South Australia, the Northern Territory and Western Australia, and is home to 185,000 cattle.

But politics intervened. Treasurer Scott Morrison has twice rejected bids by two Chinese-related companies, Dakang Australia Holdings and the Shanghai Penxing Group, the last time being on 29 April. Although the Treasurer’s language was necessarily politic, there can be little doubt he had read the tea leaves – Kidman’s sale to overseas was on the nose in the electorate. Opinion poll after opinion poll show ordinary Australians want to keep our agricultural land, as well as the businesses that flow from them, in local hands.

But if Australians want to retain their agricultural heritage, they have been reluctant to dip into their wallets and purses to invest their “hard-earned” in this asset. Although part of the reason has been the family ownership nature of much of Australia’s agricultural land, even the vast pastoral holdings that suit outside investment (particularly institutional) have not attracted interest. The superannuation industry (including SMSFs) only has a paltry 0.3% of its $2.1 trillion in FUM invested in the agricultural sector.

The reasons are many and varied. Agricultural is subject to the vagaries of mother nature (drought, flood, etc), and commodity prices and the Australian dollar can fluctuate widely. The sector has also known its investment failures, particularly agricultural-based managed investment schemes (MIS), which have left investors shorn like sheep.

But, many MISs were driven by tax and gearing – not agricultural fundamentals. Now there is a realisation that our agricultural industries such as cattle, sheep and cropping do offer sound investment fundamentals. The crowd-funder DomaCom, which is offering retail investors the opportunity to acquire a slice of Kidman, has estimated a return on the land (yield plus capital gain) of about 8-9% and for the operating businesses anywhere north of 10% is possible.

This estimate of the return on the land accords with a recent Rural Bank report that showsthe national average annual median growth rate in farmland prices was 5.8% a year over the past 20 years. It was 5.3% in 2015 and 6.8% in 2014. When coupled with a yield of 3.9%, it would seem the ideal defensive asset for superannuation funds with long-term investment horizons.

Add to this equation the burgeoning overseas demand for our agricultural produce (especially in Asia), the absence of the many of the diseases that plague our northern hemisphere competitors, and the industry’s growing productivity on the back of new ideas and technology, and it’s easy to see why our primary industries have an exciting future.

Certainly the rest of the world has recognised this phenomenon; overseas fund managers, superannuation and pension funds, companies, and government-backed entities are queuing up to buy our farm land. It’s time we recognised what they know – it’s an excellent investment opportunity whose time has come.

You must be logged in to post or view comments.