KEY POINTS:
Agriculture may be our main earner of export dollars but it has not exactly proven attractive or lucrative to off-farm investors.
Traditionally, return on investment has stalled around 2-3 per cent with major financial windfalls coming from capital gain on the sale of a property.
Because of this,
farming has largely been the domain of family ownership and equally unspectacular returns from processing milk and meat has resulted in the dominance of cooperatives.
Agribusiness leader and chairman of Dairy Equities Peter Jensen said farmers valued the security of land ownership over its earning ability and that compounded a reluctance to venture into the unknown.
AgInvest director Andrew Watters estimated outside investors owned 1 per cent of the $80 billion to $100 billion worth of rural sector assets.
But that share was growing.
In the dairy sector, he estimated 400 to 500 owner-operator farmers were leaving the sector a year, replaced by farms with multiple ownership.
Change was occurring, with the recent launch of several agricultural investment products both here and, in the case of PGG-Wrightson, the taking of New Zealand agricultural expertise to Uruguay.
Through its subsidiary, New Zealand Farming Systems Uruguay (NZFSU), it has three farms already and intends purchasing at least seven more, focusing on dairying and beef.
It is drawn by Uruguay's low-cost system, the potential to expand production and the temperate climate, which is similar to Northland's.
NZFSU chairman Keith Smith said an Uruguayan farm could be bought and developed into a dairy unit for about $8000 per ha, compared to the $27,000 per ha it costs in New Zealand.
In its prospectus, PGG-Wrightson said it could triple production by using New Zealand systems and intensive grazing management.
PGG-Wrightson investment in Uruguay could be a sign it thinks it can achieve a higher return there than in New Zealand.
A chairman of former corporate dairy farm owner Dairy Brands, Jensen said there was interest in investing in New Zealand agriculture but few ways to do it.
An $80 million public offer by Dairy Equities would fund the purchase of fair value shares in Fonterra and was over-subscribed.
Beneficial ownership of the shares entitled Dairy Equities to receive distribution of profits and capital gain on the shares but Jensen said farmers had been slow to grasp the concept and sell their shares.
He expected greater interest at the end of this season next May, when farm ownership changed hands.
While capital appreciation tended to be the strongest driver in agriculture investment, Jensen said farmers were their own worst enemy, bidding up the price of land to what they could afford rather than what it could earn.
Andrew Watters of Feilding-based pastoral farm equity manager AgInvest said he was yet to see a New Zealand company invest in agriculture overseas and make money.
Land might be cheaper in Australia, but there were labour and water shortages.
"Uruguay may be different, but there are still good opportunities here."
Watters said AgInvest looked beyond capital appreciation.
By following strict property selection criteria, including location, soils quality and climate, they picked properties with potential to expand production by between 20 per cent and 30 per cent over five years.
Once farms had been chosen, investors were found who contributed between $200,000 and $1.4 million to fund the property's purchase, with AgInvest overseeing its management.
AgInvest had focused on dairying, but Watters said there was potential for selected sheep and beef farms, which could expand production, with annual rates of return of 2-4 per cent.
There was also huge potential for New Zealand agriculture, the country's only "world class" industry, with international demand for food and protein growing as incomes rose.
But the key for New Zealand farmers, whether ensuring their own viability or attracting outside investment, was not to be an average performer.
"You cannot expect to be an average farmer and do well."
- OTAGO DAILY TIMES