Why farming assets never pay for themselves, but create substantial wealth

Ian Robinson*, Robinson Sewell Partners, 22/09/2021

Keeping family farms in business is a central platform of the Federal Government’s Agricultural Competitiveness White Paper.

A COMMON outcry amongst the farming community is that the price of farms and properties seems out of context with the income they can generate.

There is a strong misconception that a property should pay for itself, and if it can’t then it is too expensive. But this argument is flawed by simple economic fundamentals within an unbiased deregulated market. Here’s why.

Like all assets, a farm is priced at its highest and best use within a supply and demand framework. There are four key points to note at this juncture that are relevant and unique to farm land.

Unlimited supply

Where supply is potentially unlimited, like the production of push bikes, then the price function will be a proponent of the number of buyers versus production units.

Too many bikes produced, and the price will fall. Land is a finite resource – in fact, it is a globally shrinking resource due to urbanisation, land degradation and regulation.

Demand pressures are continually increasing for farming commodities due to rising level of global wealth and demand for protein within the current population. Then add a growing population baseline and you have a strong tailwind of future earnings.

In conjunction with diminishing land availability, you now have a unique thematic of where the price of land is heading into a realm that is disconnected to the immediate production parameters.

Highest and best use

The second point is “highest and best use”.  A push bike is self-explanatory and most likely finite within the universe of possible uses. A farm or property can yield value on many different spheres – some tangible and measurable and others intangible which create unexplainable “white noise” around expected pricing.

Traditional farming enterprises come to mind initially. Then there is the collage of boutique agricultural possibilities – bio-security credits, carbon sequestration, intensive farming – change of land use, eco-tourism.

White noise may entail but is not limited to land banking as a counter cyclical investment, emotive passion for an agricultural vocation, and even space has a value, just to name a few.  The highest and best use for one buyer could be very different for another.

Geographically non transferrable

The third point is that land is geographically non transferrable. You cannot move your asset to a more desirable location. Therefore, geopolitical, and geologically it is a very rigid asset. By definition, this makes agricultural land even more attractive if the geophysical position of the land is in a desirable location. Australia, for instance, is highly-regulated, politically stable and noted for its clean and qualitative food production. Tick, tick and tick.

Derivation of extracted value

The fourth point is derivation of extracted value. A more cost-efficient farmer or grazier (who may have already procured economies of scale, applied superior technology and management application) can extract a higher return than potentially the asset operating as a stand-alone, undercapitalised enterprise. Therefore, the bidder who can extract the highest value can afford to bid the price of an asset higher against someone that wishes to operate the farm as a stand-alone.

Low interest rates and good seasonal conditions are just adding fuel to the fire.

A generic topic of conversation but one that is heating up with the current rush for agricultural land across Australia.

Will it continue? Our view is yes.  Buyer demand is still very prevalent and with another substantial harvest about to play out, coupled with strong commodity pricing recharging the financial war chests, it is buyer pitted against buyer for land that is finite and highly desirable.


* Ian Robinson is a founding partner with Robinson Sewell Partners. RSP is an independent agribusiness financial advisory firm located in NSW, Tasmania and South Australia but also servicing QLD and Victoria. RSP’s clients tend to be geographically remote, have limited accessibility to professional services, operate sophisticated businesses with substantial assets under management and time challenged. Click here to access details.


















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  1. Michael Vail, 05/02/2024

    Well that’s a few points, well made. Thank you.

    Yes, supply and demand are important factors in price-discovery: but farming and grazing land in Australia, is starting to look like a ramped-up, ‘pumped’ market.

    I can tell you for fact, from 61-years of market data for pastoral grazing land sales in Queensland, that the Agents’ touted prices atm are in nose-bleed territory above the mean and median: in a very right-skewed data series, with a very long, thin tail to the right (and, all the risk is in the tail) … to wit, $17,000 per Beast-Area against a mean/average closer to around $2,500 per Beast-Area: for land (ex-livestock).

    The truth is a bit more simple. IMO

    A few salient points follow:

    Not all land is created equal.

    Drought is a huge risk factor. Ongoing drought destroys cash-flow, and across a few years.

    Some land is actually worth no more than the livestock value at market-price, and any improvements upon it.

    Some land (#30 x instances in the sample data) was sold WIWO in times past, with the land actually ‘given-in’. Meaning a negative price, in real terms, and by some significant margin.

    It is the annual EBIT (or Operating Profit) that pays for Debt, Dividends, Taxation, and re-investment: and an asset to be classified as an investment, must stand alone and pay its way: where the ROIC must be greater than the Cost-of-Capital (Debt and Equity) through the term of ownership: without relying solely on a ‘handy exit’.

    When interest-rates as cost-of-money artificially go towards zero, and stay there for a decade or more, asset prices head towards the stratosphere; as somehow, magically, the cost-of-money is somehow ‘risk-less’ … not so, as we shall all soon find out.

    Mean-reversion in asset-prices is an economic fact: and Japanification ‘disease’ is coming soon, along with another 1970’s type dose of StagFlation (of rising, inflated consumer prices, and falling asset-prices). Both are poison to holders of assets.

    There’s the fundamental value of an asset (eg land), and then there’s its current market-price … they sometimes meet, but are rarely the same. The first is based upon the present-value of the cash-flows arising from it, across the investment horizon: the latter is driven by the framing and signalling of self-interested , rent-seeking, market actors, that using puffery, do not tell the whole truth, whilst trying to compare the incomparable, via an echo of evidence past.

    And yet, whilst a rising tide lifts all boats: an ebb-tide leaves some listing quite badly, lying on the mud.

    There’s been so much forward demand brought-forward and reflected in market-prices that after the crunch comes, the market may do a 1930’s to 1960’s re-enactment; and stay flat, sideways, and boring, for 30-years or so …

    Be aware of those ‘talking their own book’ … old investment saying.

  2. Graham Wilson, 23/09/2021

    I agree wholeheartedly with the previous comments on this article. Mr Robinson should take more note of short and long term history of land and primary production. Look at the situation less than 2 years ago.

  3. Tony James, 23/09/2021

    The implicit message in this article is that land purchase decisions are in large part motivated by a desire to secure the benefit of future appreciations in the capital value of the land, and are not driven by the actual or perceived productive capacity of the land. We see this in the admissions of some larger corporate agricultural investors where quoted annual returns are broken down into capital appreciation and operating return components.

    What the article has not discussed are the social and demographic ramifications of the ongoing consolidation of farm holdings. Collections of smaller farms that 20-30 years ago might have supported 6 different families are now invariably held by a single owner, often absent, with a manager and maybe an offsider responsible for day-to-day operations. Perhaps this is a case of inexorable and inevitable progress that we are foolish to think we can hold back, but the impact of this on the social fabric of rural Australia and the notion of independent family farming is difficult to ignore. We appear to be transitioning from a nation grounded in a long-standing tradition of yeoman farmers to one consisting mostly of landless serfs.

  4. Andrew Freshwater, 23/09/2021

    I’d still much rather be sensible and purchase property than can pay for itself – if the merry go round ever stops then its basic commodity production that will stop the bank from being on your back and giving you and your family a hard time having to come up with money from somewhere to pay back this overpriced asset!

  5. Tony Clancy, 22/09/2021

    “. But this argument is flawed ” etc. Mr Robinson is incorrect. There are three methods of farm valuation not one and only an alien or alien Government with odious intent, a fool or a ‘gee’d-up’ client of an Estate Agency pays the highest. Looking to land increases as opposed to common sense productivity promotes sales to aliens, one of Australian’s greed and ignorance issues . Wisdom is not to buy and flog land but to buy in a comfort zone for the land, operator age, commonsense, societal and climate geared to the intended occupation.

  6. Graham johns, 22/09/2021

    If a property cant pay for itself how on earth is it going to be paid for? There is no higher or best use when your talking pastoral land, its simply not possible to change land use in the desert.
    I disagree that the astronomical price rises will continue, it is simply to far out of reach for average producers and the average producer is the backbone of the industry. A huge correction is imminent and not far away.

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