UK company defends wheat project claims
The Land | 22 April 2013
Capital Alternatives, which offers investments ranging from holdings in African agriculture to pop memorabilia, claims it can generate returns of more than 20% over five years on West Australian wheat farms.
A UNITED Kingdom-based alternative investment company has defended claims it can generate returns of more than 20 per cent over five years on small holdings of West Australian wheat farms.
Capital Alternatives, which also offers investments ranging from holdings in African agriculture to pop memorabilia, claimed the returns were generated from a combination of rising land values and crop output.
Financial advisers are being offered "generous commissions" to act as "agents" for the product that is being marketed as suitable for self-managed super funds.
It declined to disclose the commissions, which are likely to be a percentage of total investment.
The prospectus states that it is not a financial product, which excludes it from statutory compensation for fraud or negligence, and exempts itself from any responsibility for the projections, which are nine times the rate of inflation and four times the top fixed-rate savings returns for a 12-month term.
Capital Alternatives sales director Geoff Woodcock said: "Yes, we are confident that the project will achieve the numbers in the brochure."
Projects would be managed by Agri Investment Services, offering investors a minimum three-hectare plot at a minimum of $3500 per hectare, or $10,500, for a 20-year leasehold interest.
Agri said it has 2500 hectares of arable land in Chapman Valley, in mid-west Western Australia, about 485 kilometres from Perth.
"It is an existing wheat farm and run by a very experienced team that specialises in the agricultural sector," Mr Woodcock said.
Investors "are anticipated" to be paid a minimum of 9 per cent per year and receive capital returns of up to 30 per cent when the farm is sold in five to eight years.
The brochure adds that land values across Western Australia's wheatbelt have in many regions "doubled and in some cases trebled".
It also states that investors should "seek to rely solely" upon their own research before investing.
Independent agribusiness consultants said it would require a combination of factors, many beyond the control of individual farmers, to generate 20 per cent returns, even with generous tax breaks.
For example, in addition to the quality of the farm there are issues such as weather, commodity prices, and currency values.
Other products quote operational returns of between 4 per cent and 6 per cent and land appreciation of about 7 per cent, typically over 30 years. That would generate low double-digit returns.
They did not claim Capital Alternatives' projected returns could not be generated but that it might require a combination of exceptional circumstances.
Other issues to consider are the high concentration in one geographic area, which increases risks, such as the impact of drought.
Severe droughts and frosts have hit other parts of the wheatbelt hard, resulting in several properties being put up for sale in a band stretching from Merredin, 250 kilometres east of Perth, to Salmon Gums, 110 kilometres north of Esperance.
Wheat farm prices have been volatile, with rises of 10 per cent one year followed by 15 per cent falls, according to analysts.
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