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New index will provide insight into ag investment performance

by Beef Central, 06 December 2016

Hylton Park 1

 

INVESTORS in Australian agriculture will for the first time have access to a measure of the investment returns being generated by the sector, following the recent launch of a regularly-updated Index.

The Australian Farmland Property Index was launched recently at the Australian Farm Institute’s roundtable conference in Brisbane.

The index will enable investors to compare the agriculture sector’s performance against that of other asset classes.

The baseline index has been calculated for the financial year ending 30 June. It shows an impressive average return of 23.9 percent across the portfolio. This figure was made up of an 8.3pc increase in income, and 14.6pc from capital appreciation.

In launching the Index, the Australian Farm Institute’s executive director Mick Keogh said the institute was supportive of the index as it would provide and indicator of the performance of the Australian agricultural sector on a regular basis, and promised to help and encourage investors to include the sector as an important component of a balanced investment portfolio.

The index will be published quarterly, and will be based on the actual income and capital returns of a group of corporate farms that together account for more than $827 million in total asset value, aggregated into a single index.

The participants in the index recognise the need for better quality information on the returns generated by agricultural investments over time, as well as other factors such as volatility.

The Index is based on the National Council of Real Estate Investment Fiduciaries (NCREIF) index which has been available for North American agricultural investors since 1990. From a starting base of US$350 million, the NCREIF index now reports US$7.8 billion from 729 properties. It also provides the Timberland index which reports on forestry assets valued at US$24.2 billion.

The index will use the same basic methodology as that used for the US, but with some small tweaks to reflect differences in the Australian agriculture sector.

In the initial stages, it will be based on a portfolio of corporate farms that together total more than A$827 million in total asset value. The quarterly performance of these businesses is then aggregated into a single index. There are strict rules around participation in order to preserve the confidentiality of those participating.

Over time, the number of participants is expected to increase. This will enable provision of more detail across different locations. It may also provide other data, for example the returns from buying and leasing farms to Australian farmers to manage as compared with returns achieved by investors who choose to manage their own properties.

The launch of the index is an important development for the agribusiness sector. The more information business owners and investors have, the better positioned they are to be drive increased efficiencies and be competitive in an increasingly benchmark global market place.

Blue Sky Water Partners’ Michael Blakeney supported the launch of the independent index compiled under a proven methodology as an important tool for investors.

“We believe that the index will provide quality information for professional investors to fully assess the sector from both an income and capital return basis, as compared with other investment classes,” he said.

 

Source: NCREIF



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