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Standing Committee on Agriculture and Water Resources
13/09/2018
Superannuation investment in agriculture

GORDON, Ms Prudence, General Manager, Trade and Economics, National Farmers Federation

MAHAR, Mr Tony, Chief Executive Officer, National Farmers Federation

[13:00]

CHAIR: I welcome witnesses from the National Farmers Federation. These proceedings are public and are being recorded by Hansard. If you wish to have evidence heard in private or if you object to answering a question, please let the committee know and we'll consider the matter. Although you are not required to give evidence under oath, you should know this hearing is a formal proceeding of the parliament. Therefore, giving false or misleading evidence is a serious matter and may be regarded as a contempt of parliament. I now invite you to make an opening statement.

Mr Mahar : Thank you. I'll make it brief. We as the national body representing farmers and agriculture in Australia have a bold plan for a $100 billion industry of farm-gate value for the farm agriculture industry in Australia by 2030. We're optimistic that we can reach that aspirational goal but it will require a lot of things to go right—the current drought is one of those things that we're going to have to deal with in terms of challenges—notwithstanding that we see a bright future for agriculture. With the investment that is required, innovation in agriculture is going to be a critical part of achieving that goal. We're interested in this inquiry into superannuation fund investment in agriculture and in working with stakeholders and supply chain partners to make sure that we understand what those levers are, what those issues and challenges and opportunities are, to make sure that we do everything we can to get that investment. We are very interested in developing, encouraging and facilitating where we can, through government policy and our advocacy efforts, to make sure that we do get what is required to make agriculture a $100 billion industry.

CHAIR: Do you have anything to add, Prudence?

Ms Gordon : I think Tony's encapsulated it all. We've also provided a submission, which identifies that we don't identify specific barriers to superannuation investment in Australia but that we do see that there are things that can be done to increase agriculture's attractiveness as a target for investment.

CHAIR: I'll kick things off. A lot of what we're discussing here is between commercial parties and whether an investment is seen to be a sound investment. Where we do have some influence is over some of the information provided by government, through its various agencies. The data that ABARES collects has been mentioned many times by various witnesses. Have you got any thoughts on how that data could be provided to the public and the commercial sector in a way that has more weight and useful utility for the investment sector?

Mr Mahar : As a general comment, we absolutely subscribe to the view of accurate, relevant and appropriate data to help us make decisions. My general assessment is that there's a long delay and a long lag time with some of the data that is out there, so the relevance and applicability of at least some of that data leaves a little bit to be desired. I think that could be improved. I understand the function of government in making sure that statistics are collected and aggregated and checked, and all that sort of thing. But there is a general sense that some of the data that's available takes a long time to make it to the industry and the decision-makers.

CHAIR: So the timeliness of the information being available?

Mr Mahar : Yes, and also—it's probably outside the specific investment sector—the types of questions asked influence what sort of data you get; so constantly reviewing the questions that we're asking and where we're asking them. I've just come from a discussion about labour in the agriculture sector and the work that's going on there. As everyone knows, the way that you ask the questions has a major determination on what sort of information you get—so asking the right questions.

Ms SWANSON: I'm just thinking about your response to that, Tony. This is a bit of an aside, I suppose, but I'm wondering what role technology will play in that. I think this is pretty critical if we are going to be making a recommendation about improving delay data lags and delays. We know that there's a lot of new technology in the agricultural sector. Do you think that will improve? I know that ABARES does the kitchen table type chats. I'm not suggesting the cessation of those, but is there a way that we can perhaps use technology to enhance the collection and methodology of data collection?

Mr Mahar : Absolutely; there has to be.

Ms SWANSON: Can you expand on that a little?

Mr Mahar : There are mountains of data being collected by farmers and it ends up in tractor cabs and top drawers and all of those sorts of things. We are focusing on how we can make the most of the significant amount of data that is collected now. That can be by agronomists, by machinery sellers and by farmers themselves. So, absolutely, we have to drill down and focus on how we optimise all of that data that is being collected. But to your question: yes, we should use available technology to make the gathering of data easier, rather than just focusing on kitchen tables or phone conversations. Again, some of the feedback that we get is that farmers are willing to provide data but that there's a bit of fatigue, because it takes a long time and there's a bit of duplication and a bit of cost in those sorts of things. We have had discussions with the ABS about this. If we can streamline that process there's a lot of opportunity there.

Ms KEAY: Investment in Australian farm businesses is very, very important. In the future, if superannuation funds decide that investing in agriculture is a good thing to get into. Do you see a decline in family operating farm businesses, because of this new sort of investment opportunity, and those farms being assumed into more corporate farms? Are we going to see maybe a loss of those farm businesses—or more so than we have seen previously?

Mr Mahar : I will make two points. I think there has been over some time a consolidation in the agriculture sector, and there's a range of reasons for that—the average age of farmers, competitive conditions, scale and all of those sorts of things. So I think that's likely to continue. How quickly or how things like drought emphasise or accentuate that remains to be seen, but I expect that to continue. There will always be a strong place for family farms—however we define that in the agriculture sector. So I don't think investment by superannuation companies or other institutional investors automatically means the demise of the family farm.

I think we need to look at packages. I'm sure you've heard this through the process to date. The packages that are attractive to large institutional investors don't necessarily lend themselves to what might be a $5 million average size farm, if there is such a thing. It doesn't exclude it, but I think we have to be innovative in the way that we look at the industry—how they're consolidated and the ownership structures—in a really innovative way. There's always going to be a level of family farm ownership, but how do we maximise and optimise that into a scale consolidation that makes it investment attractive?

Mr RAMSEY: I asked the previous witness how much money Australian agriculture could gain. What's the investment ask? I noticed in your submission that you say that there is a shortfall of investment. How short are we? A figure being bandied around was $100 billion. Is that what you think?

Mr Mahar : Our $100 billion target is for the farm-gate value, and that's what we're trying to reach. If we agree that the industry's valued currently at about $60 billion, we're looking for $40 billion growth in value. I go back to the ANZ Port Jackson report—I just can't think of the figure I was going to say, but it's a billions of dollars shortfall in investment. I'd have to go back and check that number. I'm sorry, I don't have it on me.

Mr RAMSEY: Do you think that Australian agriculture is limited in the area of growth by lack of finance, or do you think we're actually underperforming at the moment due to lack of capital investment?

Mr Mahar : It's a good question. I think we're probably achieving a satisfactory rate. I think if we're going to take the next step—extra investment and how that investment drives the growth—we have to work out exactly what that means and how that works. But there's no doubt in my mind that we could grow the industry and do more with what we've got. In fact, the equation is that we'll need to do more with less, whether that's land or water. I think we've shown over the last few decades that we can do that with technology. The technology inputs, whether they're data, ag-tech, new machinery or new processes, will allow us, in our mind, to get that extra $40 billion growth, but it will require that circular investment to deliver.

Mr RAMSEY: Do you reckon when we get to $100 billion there will be more jobs in agriculture than there are now, or less?

Mr Mahar : I think that there'll be more jobs—there'll be different jobs, and that's happening already. I think there will be a whole lot more technology driven jobs and a whole lot more value-adding and processing jobs, but not necessarily in your traditional processing, value-adding. There will be a whole lot more services in agriculture to make sense of all the data that's being collated and collected.

Mrs MARINO: Thank you both for being here. We've heard that 90 per cent of farm financing is basically bank debt. One of the issues I've always been concerned about, particularly being a dairy farmer, is the avenues for new young farmers who aren't part of a family farm, how they are able to finance getting into the game. That is a real issue, and has been for a lot of years. How are they able to finance that? That's one question. The second question is: of those that are investing into Australian farming, what proportion of young farmers are employed now by those who are simply in an investment vehicle, be it a defined benefit fund or something else? What proportion of the farmers working on those properties are younger farmers, as opposed to working on a property that's being managed by the business next door or the farmer next door? What proportion of those are new young farmers having a red-hot go?

Mr Mahar : The first question is around how we finance getting young people or new people, if it's not just young people—

Mrs MARINO: It's new young farmers who don't come from a farming family, who don't have a stake. How do they get their first go, because this is constantly an issue?

Mr Mahar : We use an example of a guy by the name of Cam Parker. He was working in Woolworths as a manager, and he decided he didn't like that so much. He always had some sort of affiliation with agriculture, and he went and worked on a grain-cropping farm. He got himself some machinery and started working and has his own harvest contracting and spraying—so he's slowly getting into it. He doesn't necessarily own a farm, but he's working in the industry.

Mrs MARINO: A bit like the share farming that New Zealand get a lot of. We see a bit of that on our patch, but not a lot.

Mr Mahar : Yes. I'll get around to answering your question, but we've actually got to demonstrate that agriculture does offer careers and prospects and—

Mrs MARINO: Commercial returns is the key.

Mr Mahar : returns, dollars. Part of that is risk management strategies and risk management tools. We've got some of those at the moment, whether they're farm management deposits or something else. We know that agriculture is so volatile and that probably is a barrier to people coming into the sector. So I don't think we've done enough in terms of risk management strategy, whether that's multiperil crop insurance or income insurance or aspects like that. But I think it is innovative ways. Being a dairy farmer, you'll be familiar with leasing animals.

Mrs MARINO: Building your own herd and then milking them in someone else's dairy.

Mr Mahar : Yes—innovative ways to allow people not to just have to go and spend $3 million or $4 million buying some land.

Mrs MARINO: If you're lucky, that's all.

Mr Mahar : It's giving it a trial and replicating some of those existing schemes out there—share farming and investment in animals. It's got to be innovative. There are a few examples like that out there where people don't necessarily have to go and buy the land.

Mrs MARINO: What I'm getting at is that there's not enough to actually create the demand in the market of how young people do this enough to inspire others.

Mr Mahar : I agree with that.

Mrs MARINO: Or we're not telling those stories well enough.

Mr Mahar : I think we're telling their stories.

Mrs MARINO: We have a lot of great young people at ag school. My Harvey ag school is a classic. But they don't see the clear pathway to their own career in that space.

My second question was: do we have any idea of what proportion of young farmers are actually employed in a property that's not owned by them but is a vehicle for another investment type?

Mr Mahar : I'm sorry; I don't.

Mrs MARINO: It might be interesting.

CHAIR: Just as a bit of a follow-up comment, we've heard from the farmers, but I think we're all across the fact that in Australia we have a culture where the family farm is owned by the farmer, whereas in other countries, in Europe and North America, often that's not the case. The land is separate from the farm business, and that's the culture that they operate under. I think part of what we're talking about here is moving from that family farm model where the land is owned by the farmer to a system where people can move in and out of the industry much more freely than if they have a tie to the land.

Mr Mahar : I agree. Absolutely.

Mr KEOGH: I go to Nola's point about encouraging more new farmers in. To the extent that that's around existing landholdings—so taking over someone who's selling out or dividing up existing farms—is that actually desirable, as opposed to consolidations or expansion into new farming areas?

Mr Mahar : Can you ask the question again.

Mr KEOGH: Mrs Marino was talking about helping young farmers who are not currently in farming get into farming such that they're taking over an existing family farm, which means the options available to them are to buy out another farmer, subdivide a farm or go into a new area that's not currently farmed. Are the first two of those options actually desirable?

Mr Mahar : I think that, as the age of farmers increases, we'll continually need to get replacement through the industry. So, if an ageing farmer wants to sell his or her place or divide it up and that allows two new farmers—young or old but new—to come into the industry, I think that's probably a good thing. We could talk about whether the scale is going to drive or deliver growth, but that would be an individual business decision for them, I suspect. I think having people with new ideas and new experiences coming into the industry is generally going to be a positive, particularly as we see that there are some people that are looking for a way out because they can't continue, and drought's exacerbating that. Some people might be looking for an opportunity to move out of the industry.

Mr KEOGH: Thanks.

Dr GILLESPIE: In Australia, is there much growth in new producers through incrementally acquiring herds, as some dairy people in New Zealand seem to be able to do? They have a system whereby they're working and they get a few cut-rate loans to slowly build up a herd whilst they don't actually own any land.

Mr Mahar : Yes, agreed.

Dr GILLESPIE: Does anything like that happen here in Australia?

Mr Mahar : I think it's slowly happening. I don't have any numbers on the percentage of the dairy herd that might be involved in that sort of scheme, but I do hear more and more, because of the difficulties in increases of land values, that people are trying to be innovative and new about how they actually get into farming. So I think it is, but I think it probably needs to be expanded.

Dr GILLESPIE: Yes. Someone mentioned leasing animals. Is that taking off? I've had people talk to me about it—financial people who own a herd. They don't want to work it, but they'll buy the herd and lease them to various people. That's a way of getting capital into agriculture without actually buying a farm or sinking a lot of capital, because that seems to be a bit of a problem. A lot of big capital here in Australia is very reluctant to have a long-term hold in agriculture because of the requirements for short-term reporting and the risk. They see it as risk.

Mr Mahar : I think it is happening but at a smaller level, a lower level, I suppose. Again, with some of the crises, if you call them that, whether it's the dairy industry issue of a couple of years or drought, I think people are starting to look at those, but it's not at a wide, large scale, as I understand it.

Dr GILLESPIE: Also, is there much of a growth? I know there are some indices where people invest and trade in other products, like beef. They don't actually own anything, they just buy and trade—

Mr Mahar : Futures trade.

Dr GILLESPIE: yes, product. Is that taking off yet here? I know there are people, again, who propose things to me, but it seems like it's a small part of the market.

CHAIR: The original futures market was in wool. That was the first futures market ever, so agriculture was out at the forefront.

Dr GILLESPIE: We used to have a futures market here, but in the GFC it got hoovered out of the place.

Mr Mahar : Again, it's probably at a lower level, but I do talk to people about how they've hedged and bought, consolidated or reduced their risk in terms of crops. So it's happening but at the smallest level, I suspect.

Mr RAMSEY: Certainly wheat and grains—

CHAIR: Which is leveraged off the Chicago Board of Trade. Those markets need volume and liquidity. You get that in beef and pork belly, wheat, corn and other commodities that are traded in the US, and we sort of piggyback off those. Unfortunately, in the wool market, which was the original futures market, we just don't seem to have liquidity or the volume to get liquidity to attract the speculators which actually drive those markets.

Tony, we've heard from several witnesses that the lack of information about agriculture and agricultural investments in the investment sector is a problem. They just don't think of agriculture. It's not front of mind. They've got their investment advisers, who generally aren't familiar with agriculture. Do you see a role for the NFF in providing information to the investment community, promoting agriculture as an investment that the investment community should be considering? I know you've got your '$100 billion by 2030' campaign, but really that's aimed at policymakers and talking about some of the policy settings. But the attraction of capital for investment and innovation is a part of reaching that $100 billion target, as you mentioned in your preamble. Do you see a role for the NFF in engaging more directly with the investment community?

Mr Mahar : If I'm honest, we've toyed with that idea. We've deliberated about how much we can engage in that process. We're absolutely about promoting the industry. If there's more that we can do around that, I think we will. As you say, it's a $100 billion strategy that we've outlined. We'll do part of that. The information around or data performance of the industry is again something that, as a national body, we can help communicate.

CHAIR: But you need that data in a timely fashion for ABARES—

Mr Mahar : Yes, absolutely.

CHAIR: then you can go out.

Mr Mahar : There's a range of information out there around performance, commodity statistics and commodity forecasts, and we do, when we can, try and amplify that and communicate that out there.

In terms of advocating, we absolutely advocate for investment, but on individual parcels or properties or anything like that we wouldn't go anywhere near that.

CHAIR: No.

Mr Mahar : I don't think you're suggesting that, but, on the point around data and advocating, I think there's probably an opportunity for the national body.

CHAIR: I'll use an example. Rural Press a couple of months ago, in their real-estate section, had a list of returns over the last 20 years on agricultural real estate. I think New South Wales was tracking at about six per cent and WA was about 4½, which are pretty good returns over a 20-year period. I doubt whether anyone in the investment community would have seen those numbers and been aware of the fact that, if you'd just purchased an agricultural property or a portfolio of agricultural property in those places over the last 20 years, leased them out and received, depending on the value of the property, between three and five per cent cash income, you'd also have picked up quietly a capital gain of between four and six per cent on top of that.

I'm not sure whose role it is for that information to be circulated amongst our investment community, but that's something we're deliberating on, and obviously that's a decision for organisations like yours to make themselves.

Mr Mahar : Absolutely. I think that we should definitely consider communicating that data and getting it out as much as we can.

CHAIR: As there are no further questions, thank you very much for attending today's hearing. If you've been asked to provide any additional information, please provide it by 4 October. You will be sent a copy of the transcript of your evidence for review.

Committee adjourned at 13:26