Farmland yields strong returns, exporters diversifying

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AUSTRALIAN farmland has performed strongly over the past year and the recent trade bans imposed by China will not have long term impacts or negative sentiment towards agriculture investments, as exporters diversify to other markets in Asia and the Middle East, according to ANREV.

According to ANREV’s inaugural Australian Farmland Index, annual returns totalled 12.35% in Q3 2020, down slightly from 12.81% in the previous quarter. Income return totalled 7.07%, which represented a small decline compared with 8.79% in Q2 2020, but capital growth posted return of 4.96%, after six months of steady decline.

ANREV director of research and professional standards Amélie Delaunay was delighted to launch the index and said it will provide quality information to professional investors on institutional grade agriculture assets, allowing them to fully asset the sector from both an income and capital return basis compared with other investment classes.

“The index will raise the importance of agriculture as an investable asset class and deliver essential transparency to institutional investors on Australian farmland performance.

“Over the past year, investments in Australian farmland have performed strongly, reflecting robust investment appetite in the asset class – which has a low correlation to traditional investment markets and is supported by low interest rates,” she added.

2020 Q3 2020 Q2 2019 Q3
Quarterly Returns
Total Return 2.04% 2.83% 2.46%
Income Return 0.48% 1.46% 2.09%
Capital Growth 1.56% 1.37% 0.37%
Annualised Returns – Past 12 months
Total Return 12.35% 12.81% 14.37%
Income Return 7.07% 8.79% 6.01%
Capital Growth 4.96% 3.37% 8.00%
Annualised Returns – Since Inception (Dec 2015)
Total Return 13.70% 13.94% 13.98%
Income Return 6.30% 6.51% 6.14%
Capital Growth 7.09% 7.12% 7.54%

Argyle Capital Partners said the 6.3% risk return profile reflected compares very favourably to Australian equity market investments.

“The index suggests patient investors are well compensated for the relative illiquidity of farmland investments.

“The majority of south-eastern Australia experienced average rainfalls in the calendar year to 30 September 2020 breaking down a prolonged drought since 2017. However, farming regions in Western Australia and southern Queensland continue to suffer from sustained rainfall deficiencies. In general, winter cereal crops and livestock pastures benefitted tremendously from timely rainfall in 2020 to date which will translate to greater income generation over the coming months as those annual crops are harvested.

“Rainfall also benefitted irrigation catchments across south-eastern Australia resulting in much improved water allocation volumes for the 2020/21 Water Year. Consequently, water input costs for permanent horticultural enterprises in the region have reverted towards long-term average levels after extremely high-water prices negatively impacted profitability through the peak drought period,”

Meanwhile Argyle said the trade tensions with China will not have a long-term impact on investments in Australian farmland, because the agricultural sector has shown resilience and ingenuity in previous decades and will diversify their export to other markets.

“Depending on specific food and fibre enterprise, the Australian agricultural sector has recently been impacted by arbitrary, punitive tariffs and other trade bans imposed by China on Australian export trade despite a bilateral free-trade agreement in place since 2015.

“To varying degrees this has temporarily impacted barley, wine, beef, lamb, cotton, fresh seafood and fresh produce exports to that destination.

“Australian agricultural exporters have proven their resilience and ingenuity in previous decades and will increasingly shift focus to other markets across Asia and the Middle East.

“In the short-term we anticipate the China trade imbroglio will impact farm-gate commodity prices in some sectors and may marginally dampen farmland enterprise revenues in the year ahead. However, we do not expect any long-term impacts or negative sentiment towards Australian farmland investments.”

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