$7.5 billion annual capital investment needed in Australian agriculture

18.02.21

AgriFutures Australia’s Capital requirements of Australia’s agriculture, fisheries and forestry sector report has identified an additional $7.5 billion in net capital investment per year is needed if the Australian agriculture, forestry and fisheries sector is to achieve the National Farmers’ Federation $100 billion vision by 2030.

The sector currently attracts investment of around $1.2 billion per annum, a long way short of the $8.7 billion per annum the report found was needed.

AgriFutures Australia Senior Manager Jennifer Medway said, “Stakeholders told us that the missing piece of the puzzle to achieving the $100 billion goal was understanding the capital needed to support growth.”

“Our past reliance on increasing land values to fuel debt as a form of capital is unsustainable. To innovate and grow productive farm businesses, we need capital investment to drive agtech adoption and new ways of doing things.”

As well as encouraging growth, Ms Medway said that innovation and attracting more diverse forms of investment was critical to increasing productivity.

“Capital investment is a key growth driver as it creates space for innovation and change. Whether it’s buying a new tractor, adopting new technology or increasing your economy of scale by purchasing additional land – these strategies keep Australia at the forefront of global agriculture.

“There are alternative farm investment models such as leasing, share farming and corporate investment, however we need to continue development of new models that are accessible to all types of agricultural enterprises, including small family farms.”

The report included data modelling to understand the link between capital and market growth over the 10 years to 2030, outlining recommendations to improve investment in the industry.

“Over time if these recommendations are implemented, farmers’ options for sources of investment capital should broaden from the current reliance on loans and their own equity to also include investment from other sources,” said Jim Binney, Director of Natural Capital Economics and an author of the report.

“This will unlock new opportunities to access capital investment and fuel sector growth,” he added.

In addition to attracting investment at a farm gate level, Mr Binney highlighted the need for industry to improve their attractiveness to investors.

“The best way to attract more capital is to have bankable projects. Like all businesses, farmers should always be seeking new opportunities.”

Access to information critical for growth

One of the most important findings from the report was the significant lack of suitable information for potential investors. Data regarding individual businesses as well as sector and industry-wide information was found to be insufficient, particularly in terms of attracting equity investors.

Mr Binney said that individual businesses had a role to play in collecting information needed by investors.

“Without quality data, such as industry performance benchmarks, available in a timely manner, investors struggle to see the merits of investment. In a competitive market, agriculture needs to demonstrate an attractive risk adjusted rate of return.

“Individuals need to work together to provide consolidated sector and industry level data essential for investment analysis. Clearly industry associations and organisations such as ABARES also have a pivotal role in collecting and reporting this information.”

Access to data is also important for farmers, fishers and foresters. A better understanding of market opportunities, market and production risk, and performance benchmarks will help focus on improving return on investment.

The research was undertaken by NCEconomics and funded through the AgriFutures Australia National Rural Issues (NRI) program, which aims to facilitate agricultural growth by addressing current national and cross sectoral issues facing the agriculture, fisheries and forestry sectors.

To learn more about Capital requirements of Australia’s agriculture, fisheries and forestry sector, download the report.