The changing face of agricultural business

"A stand-alone company wouldn't want to invest in a farming enterprise in Africa, but if we mix up the bag and tell them they'd also be investing a little into Europe and a little into South America they would be more swayed to do it," Mr Abraham said.

Farm Weekly | 30 Dec, 2010


INSTITUTIONAL agriculture has been given a fair bit of attention in recent years according to Anthony Abraham.

As the man in charge of Macquarie's Retail Agribusiness operations, Mr Abraham sees globalised agricultural production as one of the solutions to the shortage of global food security.

Institutional agriculture revolves around capital, the capacity to operate on a broad scale, the implementation of cross-technology from other areas of agriculture and a competative edge to encourage innovation.

Speaking recently at the International Grains Forum, Mr Abraham said the concept of institutional agriculture wasn't a new one.

"People want to know where it has come from," he said. "Very simply, it's where the guy who runs the farm doesn't own the farm.

"And it always has traditional growers wanting to know how employees involved in institutional agriculture keep up their motivation."

Historically institutional agriculture had its roots in the Australia Agricultural Company (AACo) which in 1824 established itself and opened up the industry to a position where it could access broader pools of capital for farming ventures.

According to Mr Abraham, the operations of institutional agriculture had often been categorised by larger-scaled farms and infrastructure which enabled broader leverage for a range of different people with exceptional skills to work together for a common goal - to produce more food.

"Institutional agriculture involves a high level of professional farm management," he said. "And I have to be careful here because I'm not saying that traditional growers aren't professional.

"In this line of business there are incredible CVs in business management and sustainable agriculture for example, of which applicants and employees can incorporate different kinds of business knowledge within the one farming enterprise."

An institutional enterprise had to rely very heavily on the business of professionals with wide backgrounds, which stretched further than "on the ground" farming experience.

Institutional agriculture operates on a global scale without one particular farm or investment structure.

"It can be a company, a listed company an unlisted company and it can operate within a trust or within partnerships," Mr Abraham said.

"Retail investors from Australia and Europe are a big area we like to target.

"Another target area is pension and superannuation funds, with the latter totalling more than one trillion dollars in Australia."

Mr Abraham said institutional agriculture wouldn't gain access to all of those funds but perhaps two to three per cent of it.

"There's $20 to $30b alone that might be made available for investment which has the potential to make a huge difference," he said.

"These kind of investors look at agriculture because they look for long term assets for fulfil their long term commitments."

Many growers couldn't see what would motivate these kind of investors who have no "connection" to the land.

"The answer is the difference between supply and demand for agricultural products," Mr Abraham said.

"The same global issues discussed at the International Grains Forum are at the front of these investors' minds - global food security."

He said that five years ago Macquarie Agribusiness couldn't get any "traction" at all with big investors.

Suddenly the 2007-08 season happened with drought in the Eastern States and Macquarie Agribusiness had a huge rise in interest from business institutions.

"Those fundamentals between supply and demand must ultimately result in a pricing impact," he said. "As food scarcity becomes an issue it effects the prices that can be earned and the value of the asset in itself.

"All of those things go up in value and that's a key interest for investors."

Mr Abraham described farming properties and infrastructure as real assets and said unlike stocks, they usually maintained their real value over time.

"Today's investors are filled with inflationary concerns and big businesses are looking for assets that maintain their value in correlation to other assets," he said.

"All assets can be volatile but the prices of grain usually has no major correlation to the stock market, for example."

Mr Abraham saw institutional agriculture as a major source of capital to achieve the ultimate goal of increasing production.

He said global investors were more interested than ever before and they were all motivated by the same reason.

"Talking about food security issues, if the world's population is to increase to nine billion people by 2050 we have to produce between 70 and 100pc more food than we already do," he said.

"Our land has to work harder for us and the reduction in governmental research money is reflected in production.

"Decreasing levels of land available to plant crops is also another huge constraint."

More efficient and effective farming techniques were needed around the world and one way to increase efficiency was to increase the size of operations and enterprises.

"One way to do this is with scale," Mr Abraham said.

"An increased level of scale allows us to produce significantly more and with greater-scaled technology and machinery it's possible to achieve better efficiency, but it requires capital."

Mr Abraham also said there were areas in the global agricultural supply chain which could be better used.

A number of areas such as processing, marketing and retail outlets had the potential to be "organisations across borders."

"It's a global approach which brings best levels of technology and logistics and applies it across all areas," he said.

"Institutional agriculture can operate across borders and can inject the most productive practices into other countries to be adapted to suit local environments.

"For example, there are Australian practices currently being used in South America.

"There are things being done in other agricultural areas which can be used in cropping, for example using technology used in horticulture to make the most of water use in cropping rotations.

"But these higher levels of production and the latest use of technology requires capital."

Greater capital flows also had the tendency to make investors nervous.

"A stand-alone company wouldn't want to invest in a farming enterprise in Africa, but if we mix up the bag and tell them they'd also be investing a little into Europe and a little into South America they would be more swayed to do it," Mr Abraham said.

"It's about creating a risk platform and diversifying.

"We want to create a global career platform and make agriculture sexy and it's about getting the best and brightest to work in the industry."

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