Should Australia invest more Super funds in Agribusiness?

Should Australian Superannuation funds invest more of your money in agribusiness? It’s something that Deputy Prime Minister, Barnaby Joyce, enthusiastically supports.

At a recent speech at the annual Australian Bureau of Agricultural and Resource Economics in Canberra, the Deputy Prime Minister and Agriculture Minister renewed his encouragement of superannuation funds investing a greater proportion of their funds under management into agribusiness.

According to a 2015 survey by BDO, released in February 2016, Australian superannuation funds invest just 0.3% of the $364 billion funds under management in MySuper products into the agriculture sector. This is despite the agriculture industry representing approximately 12% of Australia’s GDP, generating over A$145 billion annually and A$32 billion in exports.

“Given the prominence and importance of the agriculture sector to the Australian economy, it would seem like a viable area for investment. To date, limited investment has been made by superannuation funds,” states the report.

Key findings

The BDO report made the following key findings:

• Less than 0.3% of MySuper (superannuation fund products) assets are within the agriculture sector as of 30 June 2014
• MySuper offerings already constitute about one-third (30 per cent) of superannuation capital
• Superannuation funds largely invest in listed assets. If more agricultural companies became publicly listed, it may provide an easier avenue for superannuation funds considering investing in the sector.
• The lack of investable products and the lack of asset managers specialising in agriculture are identified as the most important obstacles to investment in the sector

Joyce encourages investment

Addressing the ABARES Outlook Conference, Barnaby Joyce said: ” A key issue we must focus on is how we can improve the level of Australian investment in our agricultural industries and make it clear that it’s a good investment. I hope you’ve heard me say it by now, but our soft commodity market, especially the protein market, has been doing exceptionally well. Rural exports have now overtaken coal to be our second largest export, after iron ore.

“Foreign investors well understand the long-term value of Australian agriculture and they are lining up to invest. What we have seen is that our potential – especially in such areas as super funds – has not really reflected what I believe is the exceptional opportunity.

“ANZ estimates that there is a capital investment and requirement in agriculture between now and 2050 of $600 billion to enable production growth and a further $400 billion needed to support farm turnover.

According to the BDO report, foreign direct investment in agriculture has traditionally been quite strong in Australia. This is ultimately beneficial for the sector and the economy as a whole, assuming it’s the right investors and the appropriate arrangement according to our research on superannuation investment in Australian agriculture.

Foreign investors are more likely to purchase agricultural assets than domestic counterparts. This means that these local assets may be an unrealised opportunity for potential Australian investors.”

Farm performance

According to the Department of Agriculture and Water Resources (ABARES) 2016 outlook, despite the significant consolidation of farm numbers and growth in average farm size over the past 25 years, families remain the main source of capital used on Australian farms. This is because the family farm model is still a very effective business structure.

ABARES data shows that among large farms, families tend to outperform corporates in terms of operating returns. The most likely explanation, according to ABARES, is that family farms are operated by the people who own them and who have very strong incentives to maximise returns while managing exposure to risk, and to do this with a relatively long-term view

Where do superannuation funds invest?

Eligible Australian workers who earn above a minimum threshold each month receive “superannuation guarantee” (SG) contributions from their employer. Anyone who receives SG contributions but does not nominate a preferred superannuation fund for these SG contributions to be directed into has the money paid into a MySuper product.

The latest APRA quarterly statistics show that a typical MySuper product will have an asset allocation along the following lines (rounded to the nearest percentage):

• Cash – 5%
• Fixed Income – 19%
• Australian listed equities – 24%
• International listed equities – 20%
• Property – 9%
• Other equities – 7%
• Infrastructure – 5%
• Other – 1%

“We really need to move with the times and get with the long term profile of the agricultural sector so that someone who is walking down Martin Place or walking down Collins Street, or walking through Cabramatta, can also feel that they are an owner of the Australian asset,” said Joyce.

“And the grand conduit to that is people’s superannuation. There is the capacity – $2 trillion dollars in it – for this to happen. We should be working out how we do it. We can’t call ourselves the smart country or the clever country if we are not even clever enough to work out how to make that connection between the person on the street and the agricultural asset in their return.”