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One of the difficulties facing New Zealand's most productive and successful business sector is access to, and attracting, investor capital.
More than 25 per cent of New Zealand's productive sector is in agribusiness yet it is widely perceived as one of the more difficult and inaccessible sectors for investment - perceptions held by retail investors, large fund managers and those overseas looking to invest in New Zealand's agricultural success story.
Few successful agriculture-based businesses are listed on the NZX, especially when you consider how significant a contributor agriculture is to the economy - and many successful agribusinesses are co-operatives or highly successful, family-based operations and therefore not readily available to outside investors.
Even our most successful agribusinesses find it difficult to shore up capital positions and ensure access to funds for future business development.
In late 2012, an ANZ Insight Report, Greener Pastures, identified the potential for the New Zealand's agribusiness sector to capture another $0.5 trilion - $1.3 trillion in exports by 2050. But to achieve those goals the report also identified a need for up to $340 billion in international and domestic investment to enable production growth ($210 billion) and support farm turnover ($130 billion).
Where is that investment coming from now and in the future?
As the largest financial backer of agribusiness in New Zealand, ANZ creates, identifies and supports emerging trends in accessing new capital in the sector.
A focus for our agribusiness team at ANZ is creating "investable businesses". We help owners address and improve areas such as productivity, governance and management of these businesses. The overall goal is to enhance returns through consistent improvements in productivity driven by research, innovation and good management.
Creating clear separation between governance, management and operational matters helps address several issues for owners and potential investors and overcomes investor concerns around transparency of revenue streams and liquidity of their investment.
That separation shows potential investors where the business is heading, how it is performing in terms of reaching its production targets, where in the business their investment is going, and how their investment is performing financially.
Seeing how well a business performs helps address the liquidity concerns some investors have about getting their money out of an involvement in the sector - strongly performing businesses or holdings will sell more readily when it's time to exit.
Productivity gains are also readily recognised and this again helps investor confidence. It's generally accepted that investments in agribusiness return about 3-7 per cent, but top-performing operations are gaining returns in high single figures and even low double figures. Raising more businesses to that level of performance - a task for private, government and industry-based organisations - again makes the sector more attractive to new investment.
Making the sector more attractive will also help solve another problem - farm succession. Our research shows more than 70 per cent of farmers want a family member to succeed them in the business but only 47 per cent have family members working in the business and only 10 per cent of farmers have a succession plan. Farm succession is also under pressure as fewer graduates are emerging from agri-based university courses.
Further constraining interest in investing in the agri-sector are the long-term investment horizons, volatility in earnings and fluctuating commodity prices that spook potential investors who don't understand the sector. However, we see a long-term positive trend.
Investors and fund managers used to looking at quarterly or, at most, yearly returns need to develop an understanding that the long-term trend in commodity prices is rising. There is always a degree of caution required in predicting a continuation of that long-run pattern but the fundamentals are sound.
Emerging middle classes in massive markets such as China, India and Indonesia are driving a sustainable upswing in demand for protein. Our Greener Pastures report identified demand for agricultural output could grow by as much as 60 per cent by 2050. Link that demand to ongoing worldwide population growth and the opportunities for both New Zealand and Australia to become a food bowl for the wider region are significant.
So where is the investment coming from that will drive the required productivity gains in New Zealand? Our regulations around overseas investment rank us a lowly 48th of 53 OECD countries for ease of access for foreign investment. Despite that ranking and the political anti-foreign investment rhetoric that seems to rise to prominence in election years, there is ample overseas interest in investing in our agricultural sector.
That money is coming from around the world, from investment funds and businesses that understand the prospects of long-term investment horizons matched to growing demand and New Zealand's production and processing capabilities as well as the potential for further growth. We need more foreign investment as there is an obvious gap between national savings, and what we can finance domestically, and the levels of investment actually required in the sector.
The other rapidly growing source of capital in the sector is equity partnerships.
ANZ has access to a local and international pool of around $160 million looking for equity investment opportunities and has set up around two-thirds of existing equity partnerships in the sector.
Other operators in the field are also experiencing increasing demand with some set up to give access to retail investors and others working with large family holdings, high net worth investors and trusts to pool capital and find opportunities.
Equity partnerships bring a mix of skills and capital that supports growth and expansion and they are a rapidly emerging pathway to farm ownership. They spread the risk of investing in the sector, can release equity for succession planning and unlock the benefits of investing in the sector without having to own a farm.
There is a high level of interest in the sector and more equity coming into the market. Add that to our focus on creating those "investable businesses" and we see positive steps towards achieving Greener Pastures.
• Graham Turley is ANZ NZ Managing Director Commercial & Agri.
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