Why won’t super funds invest in our ag sector?

Why won’t super funds invest in our ag sector?


Business
Returns from large farms are "respectable" but past failures of institutional investors haunt super funds, according to Stephen Anthony. Data from ABARES, Frontier Capital.

Returns from large farms are "respectable" but past failures of institutional investors haunt super funds, according to Stephen Anthony. Data from ABARES, Frontier Capital.

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Aussie super funds need a heck of a lot more information if they’re going to make a real commitment to invest in agriculture.

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AUSTRALIAN superannuation funds need a heck of a lot more information if they’re going to make a real commitment to invest in agriculture – that’s the key message from Industry Super Australia’s chief economist Stephen Anthony. 

“Australian fund trustees have formed a view about ag – that it’s too hard, too accident prone. But returns from larger farms are very respectable (in excess of five per cent and up to 10pc through time) it’s just very hard to find this information in a form that trustees can actually access,” Mr Anthony said.

“Faced with the scarcity of data, superannuation fund trustees find it difficult to justify investing member savings in agriculture, especially when it is so much easier to benchmark more conventional investment options in terms of their risk/return characteristics.”

Mr Anthony this week launched a discussion paper titled ‘Driving super fund investment in agriculture’ – it’s a rare publication which frames the barriers and opportunities of agriculture as an asset class.

In it Mr Anthony calls for a revamp of the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) farm survey.

“ABARES has been collecting the sort of data that investors need for a long time but there are issues with the breadth of the survey; sample size, quality and the way the data is presented.

“It makes sense for ABARES to be empowered to take the farm survey to the next level with the assistance of the Australian Bureau of Statistics. [Improving it] won’t cost an arm and a leg to get information out to the market in a clear and strategic way.” 

He also recommended the government task the Productivity Commission with a review into the major agricultural commodity supply chains to ensure their current and future infrastructure requirements are being met.

“There have been reviews into our infrastructure adequacy before but they’ve never really drilled down to where the real potholes are,” he said.

“We’re costing ourselves output here because we haven’t taken the time to ask these questions.” 

The report also recommended the introduction of a rural and regional development bank to provide advisory services to producers and arrange long term finance. It extends on the concept of a publicly owned and operated rural investment corporation, announced in the 2017-18 Budget.

“When carried out in combination with forward-looking producers, these sorts of ideas make perfect sense. We need to roll out a few case studies first – it’s got to be industry driven though.”

While Australian super funds have shied away from agriculture, big global investors have rapidly accumulated strategic stakes in our prime assets.

The major Canadian pension funds, and the United States-based Teachers Insurance and Annuity Association (and its subsidairy Westchester Group of Australia) have invested in excess of $1 billion in Australian agricultural assets since 2007-08.

Australian super funds hold only a very small portion of farm assets here, valued at around $330b. 

Mr Anthony said the fact that global investors think they can make a go of farming down under is encouraging.

"They are rolling out the business models which have worked for them in North America. They’re diversifying their risk here in the Southern Hemisphere. Australian funds though, as far as I can see, aren’t even investing in ag operations abroad – they have issues with the asset class itself.”

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