TEN years ago, Michael Whitehead and his ANZ agri market intelligence team released a major report predicting investment patterns in Australian agriculture over the next decade.
“We made a series of predictions and we got them all wrong,” he said in a refreshingly candid assessment at the Rural Press Club of Queensland last week, drawing ripples of appreciative laughter from the crowd.
“Now the media here, you have just heard a banker say we got everything wrong, you might want to take that, please don’t edit it into something else,” he said.
Despite Mr Whitehead’s comically simplistic take on the success of their predictions 10 years ago, the Greener Pastures report indeed got the key prediction right, accurately forecasting a positive 10 years ahead for Australian agriculture.
What it failed to predict, along with just everyone else in Australian agriculture at the time, was just how strong the next 10 years would actually prove to be.
‘Things raced up much faster’
At the time of ANZ’s Greener Pastures report in 2012, Australian agriculture wasn’t exactly riding waves of optimism. Farmers were working hard to manage high costs versus minimal returns, media headlines about agriculture tended to focus only on the bad news stories of droughts or floods, and many farming families weren’t actively encouraging their children to pursue careers in agriculture.
The ANZ team correctly identified that Australian agriculture would benefit from huge export demand from Asia, and particularly from growth in China.
That underpinned its prediction that Australia’s gross value of production over the period 2010-2020 would increase from annual gross production values in the $40 billion range at the start of the decade to the $50 billion range by 2020.
As we now know, things raced up much faster:
“Agriculture in a nutshell did better over 2010 to 2020 than we or just about anybody in the industry had forecast,” Mr Whitehead noted, pointing to the above slide, which shows that the gross annual value of production of Aus agriculture grew to the mid $80 billion range in just 10 years.
“A lot of this was driven by the growth in Chinese demand, the demand for beef, the demand for grain, the demand for dairy products and growth in other markets in Asia particularly as well,” he said.
‘Agriculture in a nutshell did better over 2010 to 2020 than we or just about anybody in the industry had forecast’
In a new report released late last year – Greener Pastures 2 – the ANZ team documents lessons learned from the past 10 years and identifies what Australia needs to focus on to optimise opportunities over the next 10 years.
Foreign investors return to Aus ag
A principal message is the need to improve the process of capital flows into agriculture post-Covid.
Already there are signs of that happening with foreign investors again returning to Australian agriculture.
Investors from the Middle East and China were travelling back to Australia looking across food supply chains from production to processing and were again making investments, Mr Whitehead said.
“We’re also seeing a lot of pension funds around the world saying we see increased positive potential in ag, just because more and more countries are worried about securing food.”
ANZ’s analysis of Foreign Investment Review Board approvals over the past decade highlighted the surge of foreign investment from Canada, America and China:
“There is every likelihood we will see this continue to grow, and there is a reasonable amount being reported arguably in the pipeline or doing due diligence at the moment.
“It will be interesting to see the approach of the new Government and the new treasurer through FIRB as to what the attitude will be on this investment back into Australian agriculture.”
Trends highlighted in the most recent Greener Pastures report include the consolidation of Australian farms:
Medium to large enterprises now account for 70 percent of farms in the broadacre cropping sector, and 40 percent in the mixed livestock sector.
The pattern has also occurred in beef and sheep, but in those sectors medium and small farms still account for less than 20pc of total farms.
The consolidation trend is expected to continue to grow in coming years, Mr Whitehead said.
Looking at farm ownership trends ahead, the Greener Pastures 2 report forecasts that around 40pc of farms will remain in the same ownership, another 15pc will stay in the same family but passed down to the next generation, 30pc purchased by a neighbour or someone locally and 15 percent purchased by people from outside the area.
Turning to how agriculture is equipped to handle an economic downturn, Mr Whitehead said countries are looking to diversify where their food is coming from and are investing in domestic production, which includes large developments in indoor horticulture in China.
Food safety remains a priority, while investments in robotic technology are also increasing as a solution to labour shortages.
While it was possible an economic downturn could cause investors to rein in their risk appetite and capital outflows, agriculture is still seen as a well-known inflation hedge, which could in fact spur more investment into agriculture and food supply chains.
Rising unemployment in cities could also steer more people towards jobs in agriculture and regional towns, helping to ease labour shortages.
Agricultural land price trends
Looking at growth in agricultural land prices, the below chart shows that as the gross value off agricultural production has risen in the past 30 years, the value of agricultural land has risen accordingly.
How recent falls in commodity prices will affect the land price trend, and whether some of the exuberance charted above comes out of the market, remains to be seen.
The ANZ team has also matched agricultural land price growth with GDP growth in the graph below, which shows for most of the past 25 years, annual land price growth outpaced GDP growth.
“What do we read out of that? Confidence is there, whether from farmers, whether from investors or buyers as well, and it is continuing to be there, and it has grown and grown as commodity prices went up.
“There is no reason why we are not likely to see it stay well above GDP growth.”