Agribusiness Report: Farm investments for the rest of us

Photo / NZ Herald

Until recently it wasn't easy for New Zealand small investors to take part in the country's most successful industry: dairy farming.

Sally Sisson says the entry level investment was typically $250,000 or more. "That's far too high for most investors. We're now working on dairy syndicate projects where the starting price can be as little as $25,000 -- a comfortable point for many people, which gives them an opportunity to participate in New Zealand's fastest growing export sector".

Sisson is joint CEO of Forest Management New Zealand Limited and through that connection works with Roger Dickie, co-ordinating and managing rural investment syndicates. Dickie has established 86 forests for more than 2500 investors from New Zealand and overseas.

Now the group is organising dairy partnerships along similar lines. Dickie's current project is Eastbourne Dairy Farm, a 242-hectare property in Southland.

Sisson says European investors view farm investments almost as a pure capital gain play, with the land being the focus and anything from farm operations the icing on the cake. Local investors are equally interested in the milk returns.

There's a clear-cut investor profile. Sisson says rural investors are typically well-educated, professional people. Many are city dwellers who want to take part in the country's main export industry. She says rural investors tend to be at the older end of the age range; there's little interest from young people. Many of the investors she sees had their fingers burnt by finance companies and are not interested in more down-to-earth investments.

Liquidity can be a problem with farm or forestry partnerships. Sisson says: "These are not funds. Each investor gets a share in the trees and in the land".

Although each project is a limited company, they are not listed on the market. Sisson says some rural investments struggle with liquidity: "It's not unknown for investors to try to unload their holdings on Trade Me. However, there are 2500 investors already with money in Roger Dickie's farms and forestry projects. This mean there's an active secondary market which gives a degree of liquidity. When an investor wants to sell, we have a database of likely buyers.

"Farming is not a liquid investment by nature, typically it can take months or years to sell a business or even shares in a business. However, the large aggregation of investors makes this much easier." She says there's a possibility future rural projects may run as funds,, which would address the liquidity problem.

The goal with Eastbourne Dairy Farm is to sell $11 million of shares in the business, with a minimum investment of $25,000 and further parcels of $5000. Dairy farm shareholders will get a return from farming operations and from growth in the capital value of the farm. The prospectus for Eastbourne Dairy Farm puts the pre-tax dividend at five per cent per year over a ten year period, but it makes clear the return is dependent on the milk price.

Dairy farming has only recently moved on to the investment map in a big way. Sisson says the relatively recent rise in milk prices made everyone sit up and take notice. The long-term prospects for dairy farming are good.

"If we listen to the messages we're getting from the government and from Fonterra we should do well".

There's a clear need for investment capital in the sector.

Sisson says compliance costs are now much higher than in the past and there's a renewed awareness of the relationship between production and costs with extra money being poured into irrigation, pasture improvement and genetic improvement of dairy herds.