Faming UK | 9 March 2009
Could the Middle East become a significant new source of offshore investment in Australia’s extensive northern cattle industry?
It’s a prospect that has aroused interest in rural property and investment circles in the past fortnight, following the announcement that Futuris has sold two parcels of shares totalling about 20 percent of the Australian Agricultural Co for almost $90 million to United Arab Emirates-based IFFCO Group.
IFFCO is a privately owned manufacturer and marketer of a range of food and consumer items.
Veteran property agent Dick Allpass suggests that this is the first significant investment - albeit indirectly through share ownership rather than outright land purchase - by Arab region interests in Australia’s northern cattle industry.
Speaking at a recent agribusiness function hosted by his consultancy firm, Rural Management Partners, managing director Chris Evans suggested it may be too early to predict an immediate influx of further investment from the Middle East region in Australian agriculture.
However, globally, the food and agriculture sector was becoming a stronger focus for institutional and fund investment. This activity was coming from two main sources - sovereign wealth funds from nations with poor agricultural resources, which were seeking to shore-up food supply, and private equity and hedge funds seeking investment returns.
"What is interesting is that despite the financial turmoil being seen around the world, this agricultural investment interest is being sustained," Mr Evans said.
Much of the sovereign wealth investment was coming from Arabian Gulf states with limited natural resources, where food shortages had in some cases led to riots and social unrest. These type of investors took a long-term view, with less emphasis on return on investment.
The Qatar Investment Authority, for example, had $1 billion to invest in food and agriculture projects around the world, primarily to reinforce food supply to the gulf state. Some of this would be targeted at North Africa and South America, and some could be invested in Australia.
Qatar was far from the only Gulf state looking to invest in this way, Mr Evans said. Others included the United Arab Emirates, Kuwait and Saudi Arabia. Sudan had been one major investment target for these countries, because of its relative proximity, cultural similarity and relatively stable government.
Private equity and hedge fund activity was the second major source of recent investment in food and agriculture, he said. These groups tended to have different investment criteria, fundamentally seeking return on investment. The hedge funds could be divided into three groups: commodity, equity, and farmland-based. The last of these tended to focus on land-value appreciation, rather than income.
So far the major investment targets (mostly from the UK and the Middle East) included countries like Mozambique, where only 10 percent of the nation’s 37 million hectares of arable land was currently farmed, Russia and Brazil.
In Australia, some of the funds that had been active recently included UK-based Terra Firma and Primary Holdings, and Macquarie Pastoral, Mr Evans said.
Another major player not yet on the radar in Australia is the Insight Global Farmland Fund, which focuses on investment returns through increased agricultural commodity prices, improved productivity and appreciation of land value. It already controls diversified investments in Australasia, Latin America and elsewhere, across a range of commodities. The fund’s strategy is both direct ownership and shares in listed companies.
Speculating on where future food and agriculture investment was most likely to be directed, Mr Evans said RMP last year undertook an analysis of 28 countries, looking at their competitive advantages for potential investors. This covered a wide range of considerations, from foreign investment restrictions to disease risk, export access, development potential, labour, investment climate, financial/currency risk, ’scalability’ and political risk."There was only one country that achieved a tick on all the relevant criteria we examined, and that was Australia," he said.