Investing in agriculture
Investors seeking opportunities in the agricultural sector should pay attention to regions with robust production. However, given the forces of nature, predicting the next high-yield crop is challenging even for the most experienced farmer or analyst.
Investors wishing to learn more about the state of Australia’s agriculture sector might begin with the annual gross values of agriculture in each state. The Australian Bureau of Statistics (ABS) reported the gross value of agriculture increased by 61% in New South Wales to $18 billion in 2021. Notably, the cereal crop season in NSW that year drove the value up for the entire state. In the same period, Victoria experienced a drop in the value of agricultural products, in part due to graziers replenishing their livestock following several poor grazing seasons. Their decision contributed to the region’s drop in animal disposal and livestock products that went to market. By tracking these state agricultural trends, it might be possible to gain a better understanding of where investment opportunities may exist.
Investing in farmland also requires an awareness of the drivers affecting profits
- Weather
- Water supply
- Foreign trade relations
- Population growth
- Inflation
- Foreign investors and access to capital
- Innovations in related agri businesses.
For those willing and able to keep close tabs on environmental, international and governmental macroeconomic indicators, the ABS offers data downloads to peruse. However, it’s understandable that the average investor might seek professional management for an investment in agriculture.
Agriculture investment opportunity for non-farmers
Some investors choose agriculture to spread out their exposure to the business cycle, meet their investment strategy criteria or simply to pursue the chance of additional income. Compared to farming the land, an investor does not need deep knowledge of farmland, the agriculture commodities market or a specific crop to reap financial benefits.
As the Australian agriculture sector seeks to take advantage of key trade and global market trends, investors may achieve two goals: financial diversification and the potential for optimisation of a portfolio by investing at pivotal points in the development of Australian agriculture production.
What are the options for non-farmers to invest in the growth of the agricultural sector? For people interested in the potential for investment in Australian agriculture, there are alternatives to direct investment (buying farmland) and crop production to realise gains.
Directly buying and leasing farmland may understandably be too complex for most individual investors interested in a valuable asset class. Buying farmland also requires large sums of cash, knowledge of assessing land value, business relationships with high-value tenant farmers and experience managing issues that may arise.
Investment in agriculture commodities like wheat, fruits and nuts, vegetables, barley, canola, hay and cotton are available. Other mainstay commodities include the production of beef, sheep and lamb, poultry, pigs, wool, milk and eggs. Commodity investing relies more upon the supply and demand for Australian agriculture products at home and abroad.
The vehicles for commodity investing include exchange traded funds (ETFs), agricultural mutual funds and futures. Each type of commodity investment strategy carries different risks and rewards to investigate and review with a financial adviser.
Another option for non-farmers is investing in farmland or agricultural real estate via a fund manager. Investing in agriculture real estate funds may be within reach of many investors keen on indirectly owning a share of Australian agriculture.
