KEY POINTS:
The promoters of a public share offering seeking $60 million to invest in farms and agriculture businesses are promising investors annual returns of at least 15 per cent - despite uncertainty over how long the price of farm land will keep rising.
BT Funds Management and AGInvest yesterday started an offer to raise money for the unlisted Agri Private Capital Fund, which will invest half its capital in "high potential pastoral farms" and the rest in small- to medium-sized agri-businesses.
The new fund adds to a growing range of investment opportunities open to the general public wishing to invest in New Zealand agriculture. These include PGG Wrightson offshoot NZ Farming Systems Uruguay, Dairy Equity and the soon to be listed Dairy Trust.
Andrew Watters, principal of specialist farm equity manager AGInvest, said the offer would run for around three months or until the $60 million mark was reached, although there were provisions for it to exceed that amount.
On the farming side, the fund would look for properties to develop to achieve "at least a 25 or 30 per cent increase in productivity", said Watters.
Agri-businesses of interest would be unlisted, small- to medium-sized businesses with a track record of paying cash dividends, and with the opportunity for earnings and revenue growth, he said.
"We think there are more than 100 of these that are under the radar of most people's perceptions.
"Examples of what these companies might eventually look like could come from [PGG] Wrightson Seeds, Gallagher and Tru-Test - all companies that started off as SMEs but have grown out of the agricultural sector to get more global scope and reach."
Asked if a projected internal rate of return of more than 15 per cent a year would rely on land speculation, Watters said although two-thirds of the dairy sector's 12 per cent annual rate of return over the past decade was down to capital growth, AGInvest had managed to operate in an environment where land prices had always been considered overvalued.
He said AGInvest had managed a 74 per cent a year return for shareholders when it sold former corporate dairy farm owner Dairy Brands in 2001 after acquiring management rights in 1999.
The Real Estate Institute of New Zealand says the March rural property market was up 10.2 per cent on the year before, despite a warning by the Reserve Bank last year for farmers not to buy land in the expectation that double-digit growth in property values would continue.
Watters said one of the fund's key investments would be Fonterra shares through farm ownership.
The agricultural sector had a strong outlook with European production shrinking, the use of the United States corn crop for biofuel increasing and a steady population increase to feed.
New Zealand's unique geography also meant the country would be one of the least affected by climate change, which was likely to affect major competitors such as Australia.
Back to the land
* Agri Private Capital Fund will invest half of its capital in high-potential pastoral farms and the rest in small to medium agribusinesses.
* The fund expands the limited opportunities the general public have to invest in agriculture, New Zealand's largest sector, which makes up 17 per cent of GDP.
* The Reserve Bank last year warned that farmers could not expect double-digit annual growth in land prices to continue, but March figures show the rural property market up 10.2 per cent.
