Farming for funds: How do we pay for Australian agriculture?

The industry needs an additional $A160 billion to fill the capital gap looming if it is to maintain its position on a high growth case. There are no easy answers as to where that capital may come from – but there are plenty of possibilities.

"[Agri] should consider more innovative ways to receive and attract new capital investment."
Mark Bennett, ANZ Head of Agribusiness, Australia

ANZ’s latest agricultural InFocus research paper ‘Funding our Future’ finds if Australia is just to maintain its current share of exports by 2025, our country will need an additional $A109 billion of capital. And even moderate growth in Australia’s market share could cause this figure to increase substantially to $A133 billion.

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Failure to attract sufficient capital will reduce the industry’s productivity gains through lower investment in on-farm infrastructure, new technologies and innovation and undermine our ability to take advantage of economies of scale. Lack of capital could also have implications along the supply chain, leading to lost opportunities for efficiencies in processing and distribution, impacting our international competitiveness.

This is a fundamental issue first addressed by ANZ’s Greener Pastures insight report which also focussed on the similar challenge in New Zealand to fund growth.

Sourcing capital is one of the most critical areas for our farmers to drive efficiency gains to increase scale and productivity. However, farm debt levels are relatively high and in some cases external sources of equity capital have not found a clear path or matched the right farming enterprises.

Capital needs to come from multiple sources beyond debt. And we should consider more innovative ways to receive and attract new capital investment.

Generally, farmers tend to reinvest retained earnings and often look to banks for further support. Clearly the more profitable farmers are, the more reinvestment becomes available. 

Banks play a key part, but equity and capital in the form of foreign, corporate and fund investment, and newer forms like peer and crowd funding in wholesale and retail structures, will all have a bearing on the longer term.

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Money is not just money though. Many considerations at play. Technology and digital progress will also influence capital markets including how banks might adjust to meet market demands.

In ‘Funding our Future’ we have tried not just to highlight the investment gap but suggest practical ways our farmers can make themselves investment ready and find pathways to future success and growth.

Some of the immediate and next steps to be taken are ones designed to generate greater production volumes and returns for our farmers.

BEST PRACTICE

Best practice models – including the adoption of innovative and new structures for owning and operating farms – can improve business performance and output. Moving towards best practice also aids in attracting investment and increasing farm productivity. Business health and performance is a logical attraction for any form of capital.

Australian agriculture is typified as a family farm, handed down through generations. It’s not surprising therefore to learn nine out of 10 farms are owned by families. And generally speaking, there is the notion the farm must be solely owned by that family.

However, in reality a number of models exist for farming and could be brought into the mix – with many generating efficiencies, profitability, and up-skilling. There is a matter of mindset at play here around complete farm ownership and operational control.

Alternative farming structures include joint ventures, shared farming arrangements, equity partnerships, offtake structures, or even fund managers, corporate sector funding or cooperatives.

These structures also require a greater level of sophistication when it comes to managing the farm, leading to greater professionalism, increased financial reporting, greater accountability and long-term business planning.

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Work is already underway to meet this challenge and we’re seeing good momentum and investment starting to come into our sector, which has helped us reach $A630 billion of capital already invested in the sector.

As one of our most vital industries, our agricultural sector must commit to addressing some of the key issues currently hindering performance and holding back future growth. This means showing leadership and adopting best practice business models that focus on capital and innovative structures for improved performance and financial success.

Agriculture has always played an important role in the Australian economy and it is one of the key sectors underpinning our nation’s economic prosperity. In regional Australia, profitable farming creates a significant local economic multiplier effect that benefits and sustains regional performance, population and sustainability.

The global food story centred on our country’s position to become a valuable supplier of food and fibre to Asia is there for our taking if we can explore these investment and structural considerations to ensure we remain a global agricultural leader.

A copy of Australian Agriculture: Funding Our Future is available here.

Mark Bennett is Head of Australian Agrisbusiness at ANZ.