PDI will pay cash for the farms and, without the burden of debt, it can use the monthly milk payments to pay quarterly dividends rather than bank interest.
Craig says smaller dividends will flow within six months of the purchase of a farm and then increase once the farm reaches full production.
He expects the dividends to eventually gross 5.5 to 6 per cent, based on the present milk price and after management fees, but before tax.
PDI would become part of the Unlisted market, where shareholders can trade their shares through the internet. Craig says PDI could list on the main NZX market if the shareholders wanted, and the life of the fund could be 10-15 years when the farms are sold. "It's like a bond; in the end, investors want their money back." PDI has just completed a roadshow of the country and Craig says the interest was strong in the provinces "where they understand dairying and the impact it has locally".
"There are retired farmers who still wish to be involved," he says. "A lot of people in the city think dairying is all about capital gain when you sell the farm; they are surprised when they realise they can get 6 per cent income out of a farm if it doesn't have any debt."
Based on the 2010-11 production season, dairy returns were $11.6 billion, or 72 per cent of all farm gate value of $16 billion. Sheep products (lamb, mutton and wool) were worth $3 billion and beef $1.2 billion.
Business and Economic Research Limited (Berl) calculated the gross domestic product (GDP) contribution of pasture-based products equalled $24.5 billion, or 12.2 per cent of the total New Zealand economy for the June 2011 year.
A PDI analysis reported a 200ha dairy farm milking 620 cows and producing 260, 400kg of milk solids a year created income of $1.83 million. Last year's milk price was a record $7.60 a kilogram.
Farm working expenses was nearly $980,000, leaving a cash-operating surplus of $850,000 and a gross dairy operating profit of almost $685,000 ($3421 p/ha). The value of the farm was $10.5 million.
PDI has enlisted Feilding-based MyFarm to identify suitable farms, in Canterbury, Otago and Southland, and then manage the dairying operations. With farmers concentrating on reducing debt, the value of dairy farms at present is 21 per cent below the 2008 peak.
MyFarm already owns 47 properties, including 35 in Southland, that cover a total of 13,369ha and run 31,600 cows and 25,000 lambs.
MyFarm has estimated that global demand for internationally traded milk will rise 41 per cent in the 10 years to 2019. Wealthier middle-class populations in developing regions such as China, South East Asia, North Africa and Middle East are consuming more dairy products.
PDI and MyFarm aim to buy farms in the range of 200-250ha and milking about 700 cows on each of them. Overseas ownership will be restricted to less than 25 per cent of funds invested in each farm.
The PDI independent directors are chairman Malcolm Bailey, a director of Fonterra since 2004; John McDonald, past director of Rural Bank and Dairy Equity; and Alister Body, director of DairyNZ. Craig and Brian Cloughley are directors of Agri Capital Services, which will manage PDI's interests.