GMG believes Australia has natural strategic advantages in the agriculture sector because it has a reputation of producing clean, healthy produce and is in close proximity to the growing Asia. There are a number of factors that are attractive to investors to choose Australian agriculture, ranging from the stable returns of the asset class and the country’s low sovereign risk, including;
- High credit rating – Australia has a AAA credit rating making it one of the safest economies in the world in which to invest.
- Low sovereign risk – Australia ranks as a country with a very low sovereign risk.
- Proximity to end markets – Australia is positioned well on a global sense in terms of its location to meet the growing population expansions of Asia and the Middle East.
- Competitiveness of Australian Farmland – Australian farmland average returns are higher than both the US and Canada for similar amounts of volatility. In countries which are deemed, to be of low investment risk Australia is best placed in terms of Returns versus Volatility.
- Under-owned Asset – When compared with land prices elsewhere in the world in terms of value for production, Australian holdings rank as the second most affordable in the world with Hungary first for cropping land. This has become apparent as investment in Australian agriculture shows it is one of the last places in the world where land values reflect the profitability of the land
- Correlations to Other Asset Classes – Historically Australian agriculture has had a weak correlation to other asset classes both in the Australian economy and international share market. Furthermore, it can be seen to be negatively correlated to Australian bonds over the last 30 years.
- Inflation Hedge – This weak correlation, combined with the comparison of returns from the top 25% of agricultural enterprises, proves that it is a stable asset class which provides crucial diversification into an investment portfolio. Essentially, when added to a portfolio, it provides protection from potential financial change/crisis of other asset classes of shares, bonds, and cash.
- Stability – The majority of an agricultural investment goes into the purchase of the land, which is an established asset that has shown an average growth of 4% from 1970 onward. This stable growth, year on year assures that agriculture has a lower volatility to other asset classes.
- Terms of Trade / Strong Fundamentals – Australian Terms of Trade (TOT) have been declining historically, however recent years have seen TOT turning and now increasing prompting augmented potential for Australian agriculture.
These strengthening Terms of Trade can be due to the change in economics which Australian agriculture will harness into the future. With close proximity to Asia and the Middle East, Australia is primed for an agricultural boom due to a high demand for premium proteins. Due to Australia’s clean and safe status, our products are being sought after actively worldwide.
