Ag needs new equity streams

To date most of the investment in agriculture has been funded by farmers' existing equity, or debt.

The model typically has farmers as owning the assets and all the equity in the business.

Additional growth is funded by borrowings and they earn all the income and pay all the expenses associated with the business.

"The issue going forward is our reliance on debt isn't going to be the same," said Peter Anderson of Rabobank, Dubbo.

From 2002 to 2008 the industry has seen a steady increase in its reliance on debt, but that reliance has begun to steady.

"Basically what we saw was farm debt doubled," he said.

He said a lot of this was drought related and it wasn't uncommon for a farm to have increased its debt by 50pc as it funded its operations through drought.

From 2008 the debt level began to level off at about $60 billion for agriculture .

"What we're seeing now is a more balanced recovery of farm incomes that is supporting those higher debt levels," Mr Anderson said.

"However, in saying that, what other options have we got other than relying on debt?"

An increasingly common model is one where the farmer brings the skills and another party brings the capital.

"In New Zealand I think there's over 1000 equity partnerships," he said.

"The real benefit is farmers might not have the ability to make that step themselves, but together with one or two partners there is that ability.

"I think the landscape in five or 10 years might be a little different. It might be a high net worth individual, like we've seen with Gina Rinehart, Twiggy Forrest and these types who are looking at investing in ag."

The large majority of the money, as much as 90pc, might come from these avenues. The existing farmer who his the operator might own five or 10 per cent.

These partnerships separate land ownership from the farming business, which allows each business partner to gear their operations separately.

"The thing about this model as opposed to maybe the traditional corporate investment, say investment funds, is we haven't kicked too many goals on that front yet. I think the expectations of companies like PrimeAg we're never realised, so the beauty about this (different model) is that we're trying to marry the capital with the best producers... and as a result the investors get the benefit of the returns on the top 25pc that ag might generate."

He said typically the top 25pc of farm businesses were achieving about 7pc returns.

The investment allows access to the knowledge and ability behind those returns these companies otherwise might not have access to.