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Standing Committee on Agriculture and Water Resources
Superannuation investment in agriculture

McDONALD, Mr Andrew, Assistant Secretary, Food, Investment and Energy Branch, Agricultural Policy Division, Department of Agriculture and Water Resources

GALEANO, Mr David, Assistant Secretary, Farm Performance and Forestry Branch, Australian Bureau of Agricultural and Resource Economics and Sciences, Department of Agriculture and Water Resources

WILKIE, Ms Joann, First Assistant Secretary, Agriculture Policy Division, Department of Agriculture and Water Resources

RYAN, Mr Michael, Director, Agriculture Investment, Agriculture Policy Division, Department of Agriculture and Water Resources

Committee met at 12:19

CHAIR ( Mr Rick Wilson ): I declare open this public hearing of the House of Representatives Standing Committee on Agriculture and Water Resources for its inquiry into superannuation fund investment in agriculture. If you wish to have evidence heard in private, please let me know and we will consider your request. Although the committee does not require you to give evidence under oath, I wish to advise you that this hearing is a formal proceeding of the parliament. Giving false or misleading evidence is a serious matter and may be regarded as a contempt of parliament. If you object to answering a question, please state the reasons for your objection, and the committee will consider the matter. I would now like to invite you to make an opening statement.

Ms Wilkie : We have no opening statement.

CHAIR: I have been flicking through some of the submissions that we've received so far and one in particular caught my eye in relation to your field and that's from Warakirri Asset Management. They state:

Investment manager decisions. Some of the information challenges include:

Agricultural sector data is not readily accessible or centralised. The available information is fragmented and difficult to access;

Relevant data must be sourced from a range of organisations in a range of different formats;

Information such as financial and physical data, including information on soils, climate, river flows, groundwater, dam levels, markets, supply and demand trends, and values, both domestically and globally, is difficult to source or non-existent.

You may take issue with some of those comments but I'm just presenting the comments as presented to us. They also go on to say:

There is a lack of independently verified statistically meaningful data publicly available to allow performance comparison and benchmarking with the agricultural sector and against other investments including a lack of—

I've just pulled some points out here—

long term income and capital returns data sector by sector in regions, in particular in large-scale investments;

long-term income and capital return data of top-performing farms/investments over time and by region;

Agriculture sector data is generally not published in a timely manner which limits its usefulness.

There's a whole range of comments which I have thrown in to get the conversation going.

Mr McDonald : I'll make some introductory comments and then I'll pass to my colleague David. Firstly, some of those comments go to broadly based data sets. Investors make decisions about investing in individual entities or businesses. The sorts of questions that they've got there, those data sets will never come down to the farm level without some sort of extraordinary level of investment that is beyond what any reasonable government would contemplate. So I would make that general observation because the question is not so much around what the public available data is but more around: are the individual agricultural businesses providing investable options for external firms to get into?

Some of your other submissions will identify that there's a lack of liquid investment options from the sector and that there's only a small proportion—fewer than 20 per cent—of agricultural businesses that are operating as companies or the sorts of trusts that allow external investors to come in and purchase an agricultural property on an easy-entry-and-exit sort of basis. With that, I'll pass to David, with those global comments, and he can—

Mr RAMSEY: Can I just check something?

Mr McDonald : Yes.

Mr RAMSEY: You said 20 per cent, did you?

Mr McDonald : Yes—less than 20 per cent of farm businesses are operating as companies or trusts—

Mr RAMSEY: What does 'less than 20 per cent' mean? Is it five per cent or fifteen?

Mr McDonald : I'd have to check that and come back, on notice, with a precise figure. But the point here is that, in other fields, in other sectors, you've got companies trading on the stock exchange. There are very few agricultural businesses on the stock exchange. Say you buy shares in a publicly listed company on the stock exchange; if you buy them today you can sell them tomorrow. You can't do that with a typical agricultural farm.

Ms SWANSON: I just want to drill down into that a little bit further. So 'less than 20'—could you just repeat that information for me one more time? Less than 20 per cent—

Mr McDonald : Of farm businesses are operating as companies or trusts. So they've declared themselves as a business—

Ms SWANSON: Or a trust.

Mr McDonald : under taxation law.

Ms SWANSON: The remainder, the 80 per cent—what are they?

Mr McDonald : They are owner-occupiers or partnerships.

Ms SWANSON: Thank you. I just wanted to clarify that.

Mr KEOGH: So the point, just so that I can crystallise that, is that it's the lack of corporatisation of the agribusiness sector that inhibits the capacity for external investment, whether that's from superannuation or other investment vehicles?

Mr McDonald : Essentially, yes, because a corporate company has to produce a different form of profit and loss data than an owner-occupier or partnership would.

Mr KEOGH: Taking that back a level, there are obviously reporting obligations and information transparency and all of that, but also the capacity to even take a stake—there has to be a way to get that equity—

Mr McDonald : Correct.

Mr KEOGH: and, as you pointed out I think, it is desirable for there to be a capacity to trade that equity, even if it's not entirely liquid—

Mr McDonald : Yes.

Mr KEOGH: and, if you're looking at partnerships or sole trading or family trusts, as opposed to a corporate trust arrangement, there are no units; there are no shares; there's nothing to trade.

Mr McDonald : That's right, and the only clarification I'd make there is: these are individual business choices and there has to be willingness on both sides. So I suppose my retort to that submission and that point is that the sort of data that they desire—which goes to the due diligence that they would want to undertake before they make those sorts of investments—really needs to come down to an individual business level. I'm putting forward that I believe that's a very big ask and would be beyond what a government would ordinarily consider investing in.

CHAIR: I'm a farmer. I fill out my ABARES survey every year, and obviously that global information goes to total flock numbers and total crop production. But couldn't you devise some sort of agricultural profitability index or do it by identifying a random sample of—I don't know how many; you guys are the statisticians—hundreds of farmers, and then follow them through, year by year, and then publish some sort of profitability index or something? This particular group are already invested in agriculture. We're trying to give a signal to people who are looking, perhaps, to invest in agriculture, to be able to demonstrate that it is a profitable sector—if it is, and I believe it is—so that they've got some hard data that they take back to their boards and shareholders, or to their members, in the case of superannuation funds, and say, 'This sector is a sector that is profitable and worth investing in.'

Mr McDonald : I'll pass to David in a second, but I believe our ABARES data does do that now, but it does it at an aggregate level and it does it through sampling and year-on-year comparisons. So, David, do you want to talk—

Mr Galeano : Yes, it may be useful to take a couple minutes just to explain the farm survey program, how we do it and why.

Mr KEOGH: Could I just ask one question before we get into that detailed information. Your original point was more that it's not about a lack of information; it's a lack of product. There's not much to actually invest in.

Mr McDonald : Yes, there's that point. I agree with that. But the other thing is that some of those points go to wanting it at a greater specificity than is currently available. Ultimately any investor, be they domestic or foreign, has to go down to the individual entity that they're looking to invest in, and therefore it's got to be available at that level as well if they're going to do their due diligence.

Mr KEOGH: Yes. Thanks.

Ms SWANSON: So granularity is the issue.

Mr Galeano : Where to start? The surveys that we do at the moment have pretty well been done as they are since about the late 1970s. Every year we've got four main surveys we do. We've got a broadacre survey: that's livestock, cropping and so on. There are about 1,600 sample points in that. We do a dairy industry survey; there are about 300 sample points in that. We've got a vegetable industry survey with another 300 or so, and there's an irrigation survey in the Murray-Darling Basin with about another 500 sample points.

The design of the survey is to be able to give, from a statistics point of view, statistically robust estimates at those industry levels by some zones and regions within Australia and by state. It's not to provide benchmarking type information for very small regions. There are about 30 regions in Australia that we have in the broadacre survey, for example, and we cannot break all of those down by, for example, cropping farms in region X. We just don't have enough sample points for that. The original purpose of the survey was to provide information to governments about reform of industries so that, for example, if we're going to deregulate the dairy industry, as we did many years ago, we've got a base dataset so we can say, 'Well, if we change our policy from X to Y, this is what we think the implications might be for this industry.' In general, that's the purpose of this survey.

CHAIR: I think that's really important. While government does need that sort of national, regional and industry-level data, according to Industry Super Australia's submission we've got $2 trillion invested in super funds in Australia, and 0.2 per cent of that is being invested in agriculture. You take your direction from government, and that's what we're here to do. If there's anything that we can do in terms of providing statistical information that makes it easier for super funds to assess these potential agricultural investments or to measure their performance or agriculture's performance against other sectors, that's something that this committee—I think I can speak on behalf of the other members—would be very interested in pursuing.

Mr Galeano : Yes.

Ms Wilkie : I'm not as familiar with the agriculture data, having only been in the department a few months, but I'm more familiar with broader economic data, and some of the issues from the submission you quoted to start with are common across a lot of industry sectors. For example, I'm quite familiar with the BLADE database that the ABS runs, which is the Business Longitudinal Analysis Data Environment. One of the issues in working with the data in it is that, once you start getting down to that really granular level of detail, the Australian economy is so small that after a certain level down you can't get the data disaggregated anymore, because you can identify individual companies and individual businesses. So there are broader issues at play here with this sort of data. I would have to agree that different agencies collect the different data. Even in the agriculture sector you've got different data, as was mentioned, that's collected by the ATO, the ABS, ABARES and Environment. There are various other government programs around that are trying to make sure we bring all of those sorts of datasets together, but they've got some way to play out before you can go to a single source to get everything. So I guess some of the issues that have been raised there are actually issues that go to a lot of economic data available in Australia. They're not specific to the agriculture sector, and we probably should take some of that into account.

Mr Galeano : The data we collect is quite detailed. We collect information on revenues and other receipts and do a detailed break-up of their costs, their debt, their investments and the labour on their farm and so on. We produce a range of statistics, which we publish in a report—I've got one here—every March. We put up databases on our website where people can go and search for data. In addition to that, if people ring us up and say, 'Hey, we know you guys do this farm survey. Are you able to keep the data in this way for us?' we'll go and have a look at that for them. If it's a relatively simple cut of the data—it doesn't take us much time or cost too much—we'll happily provide that to people, as long as it meets the statistical robustness that we require. We won't release information that we don't have enough sample points for that region to report on.

CHAIR: We're just beginning this inquiry and you're our third group of witnesses. We haven't spoken to any of the actual super funds, investors or other interested parties yet. We'll probably get some feedback from them and a more detailed picture of the information that they might be looking for, so we are talking in generalities here.

Mr RAMSEY: I just thought I might take a slightly different tangent. As I said, I'm a farmer—that's my background—and I've been very keen for this inquiry. It has been a frustration for me that others have not seen agriculture as a suitable investment vehicle. Having said that is an act of faith. I believe more investment would make us more productive, although I don't actually know that; it's just what I believe. Do we have any view on the underinvestment in Australian agriculture and what we might be capable of if more people were ploughing more money into agriculture?

Ms Wilkie : Mr Ramsey, that's a very interesting and very big question. It is generally considered and generally acknowledged by anyone who works in agriculture and agricultural policy that there is an issue broadly in investment and things like succession planning, with just the demographic changes that are likely to happen in Australia. Looking at the average age of Australian farmers and farm business owners over the next 10 to 20 years, we will see many of those people retire. Just looking at the workforce-age population shift, the number of people who are likely to come in and want to take over those businesses is less than the number of people who are currently in those businesses. So there is no doubt that there is a succession. Then there's an issue of whether, given the land values in many areas, people would have the capital available to invest in those as a sole trader or as a partnership rather than taking on some sort of corporate structure. So there are definitely issues around that.

Would investments make us more productive? Yes. In my area of the department, one of the things I'm responsible for is research and development and investment in R&D. From my perspective, yes, ownership of farms and potentially corporate ownership of farms might be correlated with greater productivity or profitability, but, as a sector, putting money in or investing in R&D, new products, new processes and new ways of doing things on farms over the last 30 years has been where Australia has got its best productivity improvements in the sector. The biggest gains to the sector have actually been through R&D, with both public and private investment.

Mr RAMSEY: Coming back to the first half of your answer, you identify as one of the great issues facing agriculture at the moment is finding new owners for the businesses. They seem to be making money, but it is actually about finding people who are going to invest in them. One thing tells me it's a bit of a mixed story. There is a lack of investors but the price keeps going up. It means there are enough investors or there are plenty of investors out there if the price keeps going up. We can't sort of cut it two ways. But I share your concerns, because I look at the farming community—it's not too bad just where I live—and think, 'Something is going to have to happen in the next 20 years, because there is going to be quite a change.' You are right. Young people say, 'How am I ever going to get into this?'—unless they are born into it.

Ms Wilkie : Some of the research and development corporations—Dairy Australia, for example—have actually done a lot of work. Dairy, like grains, tends to be a high capital investment so it's not just the land values; it's do you have the money to invest in irrigation systems, in the appropriate dairying systems and in other machinery. So they've been putting a lot of work into different approaches to succession planning and different approaches to investment in farms as well as looking at cooperative investments, tenant farms with options to lease and then eventually takeover the farm, and a whole range of options. They've been talking to dairy farmers about what these various options might be. As Andrew said, around 80 per cent of farms in Australia are still family owned rather than being corporates, which limits the options around debt versus equity financing and those sorts of things. There's a very big culture in the Australian agriculture sector around farms being retained as family owned properties. So that's why Dairy Australia is putting a lot of effort into looking at these sorts of options: because they're more in line with the culture of Australians farmers.

Mr RAMSEY: It's a very efficient way to run farms, because owner-operators work harder than anyone else!

Mr Galeano : The other point I thought it would be useful to make is that getting the incentive structure right with corporates is a challenge. We've actually found that the family owned farms tend to do better on average than the corporates. Part of our hypothesis is that you're on the ground, you're there on the day, you make decisions quicker and so on.

CHAIR: My observation from my electorate is that we're moving to family corporate farms; they are family owned properties, but they are very large properties employing quite a lot of people. But, for them to go to the next stage, they require more capital. There's a lot of interest in this inquiry and we were hoping to promote it via Facebook. Does anyone have any objection to a few photos being taken? We'll distribute the photos to the other members of the committee, if that's okay? All right. We'll progress.

Mr McDonald : A source for the secretariat is the report Greener pastures. The member for Hume had some involvement with the report, in his previous role. That's probably the best report around the investment needs of the agriculture sector that's publicly available.

Mr PASIN: That was going to be my point, Joann. I was going to direct you to that report, because you said in your comment that you weren't aware of any such report. That report exists. It is now somewhat aged. It said that in order for agriculture to meet its potential there is a minimum investment requirement of $600 billion, and that was in 2012. I expect by now we would be looking at something closer to a trillion dollars; we may perhaps not be there yet. The reality is that this investment framework is not just on farm; it is post-gate as well. So I'd encourage the department to be across that report. I'm encouraged, Andrew that you're aware of it, because if I think about the handbrakes that are operating on agricultural potential today, the capital drought is probably front and centre together with the need for infrastructure around roads and telecommunications.

Mr McDonald : A big part of that report, as I understand it, was around planned farm succession and the capital needed to bring in that, as opposed to basically the inheritance model that predominates through family farm ownership.

Ms SWANSON: Could I go back to data collection. I think that's going to be really important in agricultural investment. We're hearing already from witnesses that they need more data and they're hungry for more data. We know that data collection is not necessarily going to become more easy but there is much more data floating around. I just wondered what ABARES' forward planning on that is. Everyone has a mobile phone these days. We know that we're going to have data at magnitudes that we've never had before. I think it's an important part of the investment in superannuation piece. But you've been collecting data since the seventies, and I'm interested in what the plan is going forward to capture the enormous extra data that we will have?

Mr Galeano : I think Jo mentioned before about that there are other data sources out there. The ABS do a survey every year, and there are about 20,000 or 30,000 farms included in that. So we're working with the ABS at the moment to try and get access to that data, the idea being that that's a richer dataset that might be able to inform policies better, but also if there are some things that they're collecting that we're collecting, there's no point doing it twice; let's just do it once and reduce that administrative burden. But then there are all sorts of other administrative datasets out there—to do with levies and other things—that potentially could be useful. It's definitely something we're interested in getting into. Our farm surveys are still very much face-to-face interviews with farmers. We're reluctant to change that just because we're worried about the data quality side of things. From just sitting around the kitchen table, you pick up so much about the structure of their business—ABC Pty Ltd and XYZ Pty Ltd are actually the same business and they're leasing off each other or whatever. We're worried we might miss some of that detail in an online survey. So we're keen to stick with face to face and keen to make better use of other datasets that are out there.

Ms MARINO: I apologise for being late, but I had to speak in the chamber. As a dairy farmer in this place, I'm interested in the extension and the use of the information that you provide to the farmers themselves, what use they make of it, how it's delivered and how they use it.

Mr Galeano : We publish some aggregate statistics, and we've got various reports and things that we put up on the website and send out. We've got some databases up online that people can get in to and extract particular variables they're interested in. We also send the farmers that participate in the survey—which is about 2,500 to 3,000 farmers a year—a report that we call a co-operator report. It's information on the details of their farm compared to some benchmark for the region that they operate in and the industry that they operate in. The feedback we get from that is that farmers find that quite useful because they can compare how they look compared to some regional average. So that's, I think, the main way that they use the data. We also get data requests from investment companies, super companies and individuals, where they do a custom data request. So they'll want, for example, the top 25 per cent of farms to performing in industry X in region Y. As long as we can dig that out fairly easily for them, and we've got enough data points to do that, we'll happily provide that for them and we tend not to charge if it's a simple job. So we're keen to get the data out there so that people use it.

CHAIR: Going from memory on the sort of information that we had to provide, I guess you can define or determine the profitability, because you obviously—

Mr Galeano : Yes, farmgate income.

CHAIR: An agricultural investment for a super fund or a corporate probably has three components: it's a real estate investment, it's an operational farming type investment and it's also a commodity in that it's linked to the performance of the various commodities that they are investing in. So would a potential investor be able to drill down and find sort of historical information or trends or so on in those areas you get?

Mr Galeano : There are two main rate-of-return measures that we publish, and there's historical information available. One is the rate of return excluding capital appreciation—your operating profit. Then we produce another measure called rate of return including capital appreciation, because the value of farm land in general has been going up, so that increases the rate of return. We've got that historically since the surveys began and people can go onto the website and get that information.

CHAIR: So ABARES publishes a land value? I mean that would be information collected through the normal ABS process?

Mr Galeano : As part of our survey we ask farmers the value of the capital and their farm—the value of their property and other assets on their farm; it's market value. Of course, if they haven't sold their property in however many years, it's a bit of a guesstimate.

CHAIR: That one's always a hard one, because Rowan's farm is worth twice as much as his next-door neighbour's. Is there actual land sale data that's used to calculate a regional land value, or is it simply on what people put on this survey?

Mr Galeano : The information that we have in our survey is what farmer tells us, but there is other data available through—I'm not sure who it is, but the states have their registers of land valuation. So they've got that data. I'm not quite sure about the accessibility of that data.

CHAIR: The reason I ask is I saw in one of the rural publications in Western Australia a couple of weeks ago that they had published land value increases over the last 20 years. I don't know where they got that data from.

Mr Galeano : I suspect it's that land valuation.

CHAIR: The lowest increase in land value in agricultural land was WA, which had appreciated four per cent per year over the last 20 years. I think New South Wales was up around 6½ per cent, and everyone else was in the middle. So it's pretty attractive investment, but we're not seeing a lot of interest. When I look at some of the returns of some of the funds, they would have been pretty happy to do between four and 6½ per cent, I imagine.

Ms SWANSON: I just want to pull back for a second. We know that we have an ageing farm sector. We know that we have a need, if we want to invest more in that farming sector, for corporatisation and moving away from the family-owned partnerships model—actually, that's the wrong language. We don't necessarily want to move away from farmer-owned and family-run farming, but we need to find some sort of investment mechanism, potentially. Superannuation is the answer, but looking broadly at this into the future, we want to be able to continue to produce food and fibre in Australia. We're probably at a pivotal point. Do you have any recommendations to the committee about this, given that you are the department of agriculture? Where is your information leading you on this? Moving away from superannuation per se and looking at it globally, we've got ageing farmers and we want to keep producing food and fibre in Australia. What should we be doing? I mean, surely someone is thinking about this. This is really important, isn't it?

Ms Wilkie : Yes, and it's one of those problems where there's no single answer or single approach to it. We look at that sort of issue through a variety of different lenses. Part of it goes back to what Mr Ramsey was asking before, in terms of how you improve the productivity or the profitability of farms. There's definitely a trend to larger properties, so one answer to that is consolidation as farms turn over ownership, so it's not one farmer buying one farm, but consolidation of properties. That's sort of one part of the answer.

The money will need to come from a variety of different sources, too. In terms of who is choosing to invest in agriculture, food and fibre will be important into the future. It's a large part of our exports at the moment, and that sort of thing. But part of it depends on ongoing climate variability, ongoing conditions into the future and global markets. We're price-takers in most of the markets that we export to, and 70 per cent of our of our agricultural products goes overseas. All of those things count towards what the future is going to look like in the ag sector and, therefore, what risks people are prepared to take, whether they be a superannuation fund, a foreign investor, a private investor or somebody deciding that they've had their 10 years in the big city and they're going back to farming. Those are all the sorts of things that people will need to take into account. The policy issues and ramifications are very broad.

CHAIR: I don't think we're going to solve it today.

Ms SWANSON: I know, but I just think it's important to have a global view.

Mr RAMSEY: This comes back a little bit to where we started. We were talking about a corporatised model being more attractive for superannuation companies to invest in, and I've been mulling it over. There's got to be a bit more than that at play. When the Van Diemen's Land dairy company came on the market, when the New Zealand council decided to get out of its investment in Australia, the buyer in the end was a Chinese buyer. That would've been an ideal operation for a superannuation company to pick up: a really good portfolio of $80 million or $90 million or whatever it was. It already had management in place and it had plans; they knew what they were doing. I would have thought that that's the kind of thing a superannuation company would look at and say, 'Here's a real opportunity,' and yet there didn't seem to be any interest from that sector at all. There was a pushback from a group of Australian businesses trying to get back in the game but, by and large, it went to the best—I've got no particular truck with that. It's interesting that they just weren't interested. I don't know if anyone's got any thoughts on that.

Mr McDonald : We can't offer any information about the range of potential bidders that might've been under that transaction—

Mr RAMSEY: No, no. Just in principle, you would have thought that was a really ideal model for them.

Mr McDonald : That's what comes to the market. You're getting whole offerings to the market, and, effectively, the trustees or the owners of those respective businesses then have to make a decision about who they sell their businesses and properties to. That's effectively what happened in that instance.

CHAIR: I think we'll find as this inquiry goes on that there are super funds who don't actually want to be active owners and managers of dairy farms. There needs to be some sort of middle management investment vehicle that does have the skills to make the decisions to invest in dairy farms or wheat farms, whatever it might be, and then to attract a range of investors into that fund rather than a super fund saying, 'We're going to go and buy Van Diemen's.' Anyway, that's just my opinion.

Mr McDonald : I think there are examples of that already. It's probably not at a large scale; that's the challenge.

Ms MARINO: I just want to make a point about the opportunities for super and even for the structures in the new crop of new young farmers who aren't in a family situation. One of the great challenges is to get new young people capable of being able to invest in the sector, and to have the support to do that. It's very difficult with the next crop of young farmers. I think this is another option of models ahead as well.

CHAIR: Once again, a personal observation from my experience is that, in the family farm situation, the son or daughter was expected to come home and work for very little—maybe into their 50s—until mum and dad retired. We've lost a lot of good people out of agriculture now. The new model will look something like corporate people paying good people a proper wage, and that'll be a career path. Hopefully, that will attract people back into agriculture. Even though they might not be part of the ownership structure, they'll still have a good career through a corporate structure. In North America, there is a much more mature investment environment in agriculture. They have a stock exchange index, which is the ultimate measure. Are you aware of what the American Department of Agriculture provides in terms of data and information?

Mr Galeano : Only very shallowly. I know that they do their own surveys and they collect a whole lot of data but I haven't had much experience myself with the details of that. Other people back at ABARES would know more about it.

CHAIR: Could we ask you to provide a little bit of information on what the North American dataset looks like? We might be able to pick some ideas out of that.

Mr Galeano : Yes.

Mr KEOGH: Can I go back to the corporatisation issue you raised. The submission that we got from Industry Super talked about where there is superannuation investment in agribusiness. Whilst there is some direct investment, most of it seems to be through other funds. That really reflects where we see superannuation investment in business generally. It's either through a very liquid option, like listed stocks on the stock exchange, or, if it's in infrastructure, it's through listed unit funds or things of that nature. Likewise, that's what we're seeing in agribusiness. Do you think we've got a bit of a double effect, in that there is not a large corporatised, or unitised, agribusiness environment to invest in, but equally there is not a big agribusiness investment fund selection to go with that?

Ms Wilkie : I think both of those play into it, but also, if you look across the range of different agricultural sectors, the level of corporatisation is quite different. Forestry, for example, has quite a lot, and there's a lot more super fund investment into forestry. But the nature of that industry lends itself to that as well. I agree with Andrew. Which one comes first is probably part of the issue there, but it also goes to the nature of the industries themselves and whether the nature of the industry just doesn't lend itself to the fund's strategies or whether there's something in terms of, if you do have more corporatisation, they can sell themselves better to those sorts of investors, or market themselves better.

Mr McDonald : The corporates can produce a different level of performance and management data, and that's why they tend to be the areas that funds are investing in, where there is limited investment.

Mr KEOGH: You mentioned before, and I think some of the other committee members mentioned before, the difficulty of access to capital in the sector generally. Do you have a concern that even the capacity for the sector broadly to move towards models where it could attract that superannuation investment is hampered because of that baseline lack of access to capital, and you've got to spend a bit of money to create the vehicles to allow for that future investment?

Ms Wilkie : I think capital is one aspect of that, but there are a lot of other, broader things. It's almost going down to the next level. One of the reasons the corporates are more attractive is that they understand things like what their costs of production are. There's nothing stopping a partnership or a sole-trader owned farm understanding what their costs of production are. They just don't tend, as often, to run their business in that way. Sometimes it comes down to business management experience on the part of the owner. It can come down to education and experience outside the farm sector. There are a whole heap of issues around that.

Mr KEOGH: That sort of information or management style would lend itself to being able to access debt capital.

Ms Wilkie : Yes.

Mr KEOGH: But, if you're in a situation of being a sole owner or a partnership or a closely held family trust, it doesn't provide an equity investment opportunity.

Ms Wilkie : No, but there's nothing stopping you going to an accountant or a financial adviser and talking to them about what your business model options might be.

Mr KEOGH: Going forward.

Ms Wilkie : Yes.

Mr KEOGH: I think this is a really interesting point. Is there generally an issue across the sector around capacity of farm—I'll use the term loosely—managers, who are often farm owners, because of the inherited and traditional mechanisms of operating these businesses, in that business acumen sense, to be able to operate the business in ways that allow for that access to capital or to create investment opportunity?

Mr McDonald : It depends what their business objectives are. It depends if they're seeking this or not, as farm operators.

Ms Wilkie : There is probably data we can pull out that gives a general indication of trends or averages on that sort of thing.

Mr Galeano : Distribution.

Ms Wilkie : Distributions. But corporates can be badly managed. I've seen surveys of the Australian economy generally showing that our management effort or performance, across all sectors, is below average compared to OECD countries. So corporates can be managed badly or well. Family farms can be run badly or well as well. I don't think it's so much the structure of the business. The point I'm making more is that it's more about the education or experience levels of the people running them.

Mr KEOGH: Yes, so there is a capacity issue there.

Ms Wilkie : Yes, there is a capacity issue there.

Mr KEOGH: Let's take that to the next step then. You will see a reluctance of external investors to invest in a business—and this is not straight agribusiness—where the business is essentially about the one key person.

Ms Wilkie : Yes.

Mr KEOGH: And that's regardless of what that sector is, because there's such a high risk that, when that key person goes, the performance of that business will go with them. It strikes me from the conversation that we've had today that this is a sector that is very vulnerable to that, because the farmer—or the farm management team, if it's a bigger farm—very much knows that farm, how best to operate that farm and the conditions that it exists in. It is the willingness of someone to invest in that, even if they've got all the data. There's still a high degree of variability based on the individual, which doesn't really suit corporate external investment.

Mr Galeano : You can't buy a high-performing farm and assume that it will continue to be a high-performing farm. You've got to manage it.

Mr KEOGH: Especially if it were a high-performing farm. As you pointed out, individual and family owned farms often outperform corporate farms and part of that has to do with historical corporate knowledge.

Ms Wilkie : And I think that is true across small- and medium-sized businesses generally—

Mr KEOGH: Which also don't get a lot of superannuation investment.

Ms Wilkie : regardless of what sector you're talking about.

Mr McDonald : This is not limited to just agriculture.

Mr KEOGH: No, but that issue does come up in agriculture and it probably comes up a lot more.

CHAIR: What's different about agriculture is the capital investment. A small- or medium-sized business may be renting a shopfront, a warehouse or a factory, whereas with agriculture you generally need to invest a lot of money to acquire the land.

Ms Wilkie : Yes, and you also don't get much change out of $1 million if you're buying machinery for a grain property, for example.

Ms SWANSON: Just picking up on that point, that was part of the observation I was trying to make about the technological changes we will see in the future and the collection of data via smartphones and a whole range of technological apparatus. There will be opportunities for people to have greater access to that level of acumen and expertise. It's coming.

Ms Wilkie : Yes, theoretically, ideally and hopefully. There are some barriers to that. Even today there are various machinery that collect data. Certain types of tractors have sensors attached to them and all that sort of stuff. The amount of data some farmers have access to is absolutely extraordinary. Again it comes back to a capacity issue. Do they have the ability, the time and the capacity to interrogate that data and improve their decision-making on the basis of that data?

Yes, technology will take us further and further towards that ideal. The productivity benefits, whether you're talking land management or profitability in your business, are potentially enormous, but there are a lot of things that need to fall into place. For example, the ACCC is also looking into who owns that data. Is it John Deere, who are collecting it in their system from the tractor, or is it the farmer whose property they are on? There are a whole range of issues around that before we really start seeing the benefits of that.

Mr Galeano : There is an interesting thing for me to think about there. Yes, there is all this data, but are there any impediments to the private sector coming in and doing that analysis for the farmer, just like the farmer gets in a contract fencer or an accountant? Are there any rules the government has in place, or doesn't have in place, that are impeding those businesses or the market to fill that void? That's an interesting area for me to have a think about.

CHAIR: We had ASIC in here last week. Their MoneySmart website describes agriculture investments as very risky. Is that backed up by the data?

Mr Galeano : We would say that it's quite variable, but we haven't actually done any work—not to my knowledge anyway—comparing ag sector variability to other sectors. That's not to say it hasn't been done. Someone else might know.

Mr McDonald : The Australian Farm Institute has got some papers comparing the volatility of farm incomes and farm profitability with other Australian sectors. The secretariat might be able to find that for you.

Mr Galeano : I think that was referenced in one of the submissions.

Mr McDonald : Right. That's where there's some work around all of that. All of that is saying that, when you combine fluctuations with commodity prices and have seasonal changes over the top of all of that—as we all generally colloquially know—you get some really good years and you get some bad years. The thing is that longer term those things can even out, and you can put trendlines over that. It's a bit like capital appreciation of land values. You can put trendlines over all of that. But if you're looking at a rate of return on an annual basis, that volatility is there.

CHAIR: I have a couple of comments about that. Firstly, on the scale we're talking about here you can get some geographical and commodity diversification across your portfolio and, secondly, one of the reasons I think super funds are a great vehicle is it is patient capital. I know that they've got to report annually and they need to satisfy their members that they are getting a reasonable return, but obviously their capital is more patient.

Mr McDonald : It can be patient. I'm not sure that it is, but it can be.

CHAIR: Are there any last questions before we wrap things up? All right. Thank you very much for coming in. It's been a very enlightening discussion. We have asked for a little more information to be provided. Could you forward that additional information to the secretariat by 19 July. You will be sent a copy of the transcript of your evidence, to which you may suggest corrections. Thank you all.

Committee adjourned at 13:12