Weekly Wrap 🗞 | Regionalisation - the time is now; Infrastructure let down; Farmers continue to power the econ omy ....

Megatrends set to shape the future of Australian agriculture

ABARES and CSIRO recently released an insight into how five distinct megatrends are set to shape Australian agriculture’s industry over the next few decades. The five megatrends were identified as: Growth juggernaut: Three billion empowered consumers; Fractal politics: Beware the dance of giants; More from less: The permanent race for advantage; Cascading planetary risks: Coming, ready or not; and Disruptive technologies: Opportunities for the brave. Each is set to offer a range of unique opportunities and challenges for farmers, government and the economy.

Now is the time to invest in agriculture

Capital – the debt and equity used to purchase and upgrade assets – drives productivity improvements. It allows farm businesses to invest in machinery, software, land and countless other assets which drive down input costs and increase output levels.

To put it very simply, the industry’s growth depends on it being able to increase its capital stock. Of course, this growth depends on other factors, like access to high-value export markets and low transport costs, but adequate capital is the most fundamental.

It is therefore worthwhile asking what level of capital the industry needs to reach its ambitious goal of $100 billion by 2030. The answer, according to a recent AgriFutures report - Capital requirements of Australia's agriculture, forestry and fisheries sectors -, is that the industry needs an annual increase in net productive capital of $8.7 billion.

To put this into perspective, the current annual amount is just $1.2 billion. It shows that radical action is needed for the industry to meet its goal.

The industry’s debt is at its limit – having increased 88 per cent in the past 20 years – and the lion’s share of any new capital must therefore be in the form of equity finance.

Luckily, the AgriFuture's report makes a number of original and perceptive recommendations as to how the sector could attract new sources of equity to help fill the current investment shortfall.

Like much good policy work, there is a role for both industry and government to help the industry get its house in order. The first step is data. Access to quality, timely information and industry performance benchmarks to a standard required by institutional investors has been cited as a key barrier to investment in the sector.

ABARES and the Australian Bureau of Statistics are well placed to make the necessary reforms here.

Certain business practices, inadvertently, deter investors. For example, the focus on production at the enterprise scale, versus the creation of asset value. The lack of succession plans is also a major issue.

To put the matter simply, a farm business geared towards continuously growing its value with arrangements in place for seamless intergenerational transfer will have a much easier time attracting investment.

The emergence of natural capital markets also has the potential to open up new pools of capital for the sector. The Australian Government’s Agriculture Stewardship Package is currently working to achieve this very goal by creating a market that investors can confidently use to meet sustainable development goals and improve environmental outcomes.

It is no exaggeration to say that the industry is facing a capital drought - now is the time to start preparing.