How to invest in agriculture

The demand for quality Australian food products has never been greater than it is today: Australia has been called Asia’s “food bowl”, as it’s a major contributor to food security in the region. Overall, Australia exports 72% of its agricultural production, according to the Department of Agriculture, Fisheries and Forestry (DAFF). Curious potential investors in agriculture might be delighted to learn that there are several factors underpinning the sector’s financial future. These include an influx of foreign and institutional investment and burgeoning demand from developing countries for Australian food and crop production.

Australia’s agricultural sector

The National Farmers Federation (NFF) anticipates that Australia’s agricultural sector could be worth $100 billion by 2030. With capital investment in agricultural land, adoption of new farming practices and continued funding of agtech and novel technologies (IoT) to bolster sustainable agriculture, Australia is anticipated to contribute to meeting the growing demand for food and agricultural products in Asia and other emerging markets. Currently, Australia’s top Asian markets include China, Japan, India, Indonesia, Singapore, Hong Kong, Vietnam and the Republic of Korea. The demand for Australian agriculture, fisheries and forestry from those markets rose 27% between 2001 and 2021 and is expected to continue rising as their populations increase, their tastes evolve and their incomes rise. 

The major factors impacting this projected growth are:

• Global health, economic and environmental impacts
• Population growth
• Trade agreements
• Investment in the Australian agricultural sector.

The signs of growth in the sector might mean opportunities for individuals to benefit from investment in  farmland and agricultural commodities. What makes Australia’s agricultural sector competitive?

Strengths of Australian farming

The largest and most productive farms in Australia represent 60% of the total agricultural output for the nation. Over the last two decades, small farms have given way to larger operations that can take advantage of modern farm management practices, labour management and better use of technology. Despite variations in rainfall, certain broadacre crops have been able to increase productivity by 0.7% per year. 

With the continued participation of the government, agricultural sciences and institutional investors, there is an expectation that Australia’s agricultural industry should benefit from favourable trade agreements, tariff structures, ag tech and an influx of capital.

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.

Agriculture investment property fund opportunities

If you’re considering buying units in an agriculture fund you should know the basic investment strategies of each type of fund. 

A-REIT

The Australian Real Estate Investment Trust or A-REIT is a unitised portfolio traded on the ASX. An investor buys units of a portfolio and the portfolio owns the agriculture asset. Your financial adviser can help you with due diligence on any farmland REIT of interest to you. 

Individuals may like that investing in a portfolio makes it possible to hold a variety of real estate assets and have these professionally managed. Another potential benefit for investors may be that an A-REIT can be traded on the ASX on a daily basis meaning that the investment has liquidity.

Unlisted funds

Unlike an A-REIT, unlisted funds are not traded on the ASX. Instead, investors buy units in real estate managed by professional property managers without the responsibility of leasing or maintaining the asset. The two main structures of unlisted funds include the open-ended and closed-ended types. 

At the commencement of a closed ended fund, investors buy units to be held until the property is sold, proceeds are distributed and the fund is wound up. Closed-ended funds are generally centred on a single property that is typically inaccessible to individual investors. Alternatively, an open-ended unlisted fund may continue to acquire additional agricultural properties. If an investor needs liquidity, the open-ended option may allow them to redeem units for cash at certain intervals or time frames during the life of the fund. However, such redemption rights may have restrictions due to the nature of property as an investment class and the fund may not be able to offer the liquidity opportunities it intends to offer in all circumstances.

Those who invest in unlisted funds have access to agricultural real estate at an entry point of tens of thousands — rather than hundreds of thousands.

Whichever investment vehicle you choose, be sure to consult with a financial adviser and request a property disclosure statement for any unlisted agriculture fund before investing.

You can find more information on agricultural real estate investment options with Centuria.

Disclaimer: All investment strategies and investments involve risk of loss. This content should not be construed as investment advice and does not constitute any offer or solicitation to offer or recommend any investment product. Centuria recommends you seek independent financial advice from a financial adviser which takes into account your personal financial goals and circumstances.

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