Investors hungry for agriculture

The Australian | 27 April 2013
Desmond Cheung speaks at the Global Food Forum at the Grand Hyatt in Melbourne. Picture: Stuart McEvoy Source: The Australian
by: Andrew Main

GLOBAL investors are circling to get involved in Australian agricultural assets, whether or not local institutions are there, says Desmond Cheung.

Mr Cheung should know: he and his colleague Richard Davis are the portfolio managers for BlackRock's London-based World Agriculture Fund, which is part of the BlackRock global natural resources fund, founded in 2007.

And it's worth noting a memorable quote from BlackRock founder Larry Fink, from a visit to Australia in 2011. He said agricultural and water investments would be the best performers over the next 10 years: "Go long agriculture and water and go to the beach," said Mr Fink, whose overall operation has more than $3.5 trillion under management.

Even with a mere $330 million to play with, the World Agriculture Fund is one of the biggest such investors in the world and Mr Cheung concluded it was worth coming to Melbourne last week to express his views at the Global Food Forum.

Mr Cheung made it clear that there are many options available to international investors to get set in Australia, besides buying farm freeholds outright, and that the prospect of global food inflation would see them all examined in the coming years.

"Over the last few years, what we have experienced from 2007, despite the financial crisis in between, is that there is no sign of interest in investing in agriculture globally subsiding," he said.

"The investors that we have encountered will be coming from the likes of sovereign wealth funds and very, very big-ticket investors, all the way down to a lot of individual investors."

He said they would be "not necessarily high net worth individuals, but also retail investors wanting to get exposure to agriculture".

Mr Cheung said there were two reasons for the scramble.

"First of all, they look at agricultural investment as a way to hedge against inflation and it is particularly important in a world when they see food price inflation as a key component in the debate about why inflation is something that they would worry about in the future," he said.

The second reason was what he and others call "a wall of money" looking for a home in agricultural investments worldwide. "People are generally understanding the fact that the world is under a lot of challenge in order to meet the growing demand for food around the world," he said. "So that's why there needs to be investment in the supply side in the agriculture sector."

His central point is that there must be a wide variety of ways for big-league capital to invest. "I've started to see more and more business models emerging in the agriculture sector, from very, very traditional businesses running a farm from the freehold title, all the way to giving exposure to the crop produce itself, to very innovative structures," he said.

"For example, now we have real estate investment trusts in the US that give investor exposure to a stream of rental income on the farm, and so on.

"So what we have witnessed over the last couple of years is that if the farming sector is willing to take a step forward and come up with innovative business models, there will be different investors looking at whether they want to have exposure to rental income, land price appreciation, the technology improvements in the farming sector, and so on.

"And the capital market is there to fund these developments.

"So I'm actually quite positive in the fact that a growing need for capital is going to be met as long as we have the right corporate sector to cope with it."

Mr Cheung said there was a strong counter-cyclical benefit to be had from investing in Australia. "What North American companies actually want or like about Australia is that, in terms of seasonality, it is counter-cyclical to what they have in their part of the world," he told a panel discussion at the food forum.

"And one very important component is the fact that Australia's proximity to the end market, which has growing demand, is something of very, very high attraction to a lot of the global companies. So I would say that, in terms of that advantage, Australia's definitely in the right place."

His fund has a benchmark of 1.1 per cent for Australasia, compared with 59.5 per cent for the US and Canada, and is currently significantly below its Australasian benchmark at 0.4 per cent.

In other words, it could almost triple its exposure to Australasia and not be overweight.
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