Recently, Australian Bankers Association head Anna Bligh gave a speech to the National Farmers' Federation.
In my view it was very insightful, and very relevant.
One of her key messages was that banks can only provide a certain amount of funding for agriculture, and the shortfall may have to come from elsewhere.
The NFF aims to grow agriculture from a $60-billion industry to a $100b industry by 2030 - a $40b difference.
Banks presently provide 96 per cent of funding to agriculture. This source of funding has worked for more than 100 years, and will no doubt continue to work well into the future. But the agriculture sector cannot just assume the level of funding will keep pace with demand.
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Capital is a finite resource for the banks, and there is a limited supply of funding for agriculture. All the banks have much larger residential loan books than they have for business, and I assume this trend will not change anytime soon.
There are second tier lenders in the marketplace, but normally this type of lending is suited to those agribusinesses that don't quite fit the profile required for a mainstream lender. The rates tend to be a bit higher, and the loan terms are shorter.
If banks provide 96pc of funding, by doing the numbers, it is easy to work out that 4pc is coming from somewhere else. In addition to second tier lenders, it is probably coming from a combination of sources such as private investment.
I read another report this week about the returns obtained by corporate agribusiness operations. The numbers were above 10pc inclusive of capital gains.
There are fund managers who are openly admitting that they are finding it difficult to source investments with an adequate return. I suggest they look inland at the agricultural sector.
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Some potential other sources of long-term capital looking for a home in agriculture include superannuation funds.
Another source could be issuing of bonds for agricultural investment. Hedge funds and private equity could also be in the mix. Maybe a hybrid funding model? Some of this is done now, but not on a large scale.
Whether it be superannuation funds, private investors or other non-traditional lenders, they will undoubtedly want clear supply chain accountability. Their investors will demand to know where the produce is coming from, and how it is getting to the end users. They will also require information about production and, of course, profitability.
This will entail a change in reporting mechanisms, and more real time reporting. Production data will need to be linked with financial data.
Agribusinesses will more than likely need to share a lot more information. This is possible without losing independence.
A long-term outlook is paramount to grow agriculture to the levels that NFF aspires to. It can be done, but it will need very long-term, strategic thinking.
- Details: bagshawagriconsulting.com.au
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