Capital returns and trends in Australian farmland values
Because Australian farmland values vary so widely due to the country’s diverse climate conditions and farm types, a national level analysis of Australian farmland prices should only ever be used as a rough indicator of price trends on a regional basis. Nevertheless, some generalisations can still be drawn:
- Australian farmland has shown reasonably consistent value appreciation (and continues to do so) in most regions and agricultural sectors.
- Australian farmland prices are very low by international standards, especially by comparison to other Western farmland markets.
Looking at Australia as a whole, average rural land values have risen year on year in all but three of the last 20 years. Notwithstanding a notable fall in 2011, which was the first fall in values since 1993, average Australian rural land values had risen for 17 straight years. The 2011 fall was driven primarily by the extreme flooding of 2010-11 which negatively impacted land prices in some areas (in particular in Queensland where the cost to the agriculture sector was estimated at AU$1.6 billion).
The total value of Australian rural land assets in 2011 was AU$265 billion, up from AU$57 billion in 1992, equivalent to a 367% rise over 20 years. Over this period total land value appreciation was almost six times higher than the total rate of inflation of 64%.
Rural land value appreciation and Australian inflation, 1991-92 to 2010-11 (1991-92 = 0)
Although there are obviously wide variations in performance across different regions of the Australian Wheatbelt, the average compound annual price appreciation for Australian rural land over the last decade (2002-2011) was 8.8%, equating to a 133% rise in average prices over the period.
Given the rise in the value of the Australian dollar against many other currencies during that period, returns were greater for many foreign investors in Australian agriculture. Ten year capital returns for US dollar investors were 254%, equating to a compound annual capital return of 13.5%, or 243% over the period and 13.1% annualised for sterling investors.
Ten year capital return for rural land owners in a selection of currencies, 2002-2011
Despite this impressive performance, Australian farmland still remains very reasonably priced compared to many other farmland markets. This is true of both of many Western farmland markets and some of the more popular emerging market investment destinations, implying significant scope for further growth in Australian farmland values.
Measured on a land price per unit of production basis, at an average of US$950 per tonne of wheat produced annually, Australian land prices are less than half those of the United States (US$2,400 / tonne annual wheat), New Zealand (US$2,500 / tonne annual wheat), the United Kingdom (US$2,575 / tonne annual wheat) and even Brazil (US$2,400 / tonne annual wheat).
Comparison of global farmland prices per tonne of wheat produced, 2011
One of the most remarkable opportunities for investors in Australian agricultural assets is the fact that at the sub-regional level farmland is frequently not priced efficiently by the market (i.e. on the basis of risk adjusted returns).
For a more detailed understanding of the variation in land prices for different regions of the Australian Wheatbelt, including a state by state comparison of land values and rates of return, please download our free report, Comparative Analysis of the Australian Wheatbelt. The document addresses the key question: which region of Australia has delivered superior returns to agricultural investors in the past and is most likely to offer superior risk adjusted returns in the future?
References and data sources:
- Savills International Rural Research, 2012
- Australian Bureau of Statistics, Australian National Accounts, National Income and Expenditure Data Series, 2012
- Australian Bureau of Statistics, Agricultural Land Use and Selected Inputs Data Series, 2012
- Australian Government Department of Agriculture, Fisheries and Forestry, Australian Bureau of Agricultural and Resource Economics and Sciences, Agricultural Commodities Statistics, 2012
- Agricultural and Resource Economics and Sciences, Agricultural Commodities Statistics, 2012
- Australian Bureau of Statistics, Australian International Trade Data Series, 2012
- United States Department of Agriculture, Production, Supply and Distribution Database, 2012
- Organisation for Economic Co-operation and Development (OECD), Agriculture and Food Statistics, 2012
- World Bank, Agriculture & Rural Development Database, 2012
- Food and Agriculture Organization of the United Nations, Agricultural Statistics Database, 2012
Farming is like any other business: all other things being equal, income is dictated by the quality of the management team. Even enterprises with similar soil, climate and business model can show a high degree of variance. This means tenant / manager selection is a critical component of the agricultural investment process.
Inefficiencies in the farmland pricing mechanism are one of least exploited opportunities to increase returns as a farmland investor. When it comes to buying agricultural assets, we are able to help our clients beat the market because of our unconventional approach to acquiring farms and the information advantage we have in the markets in which we specialise.
Investing in Australian agriculture
Australia’s robust economy, strategic location and investment friendly business environment have made the country one of the world’s top destinations for foreign investment, with FDI inflows of over twice the OECD average (% of GDP basis, 2011).
Geographic and sector focus
For investors, the choice of agricultural sector will be driven by your risk tolerance and overall investment objectives. As a general rule, arable agriculture (i.e. the cultivation of annual crops, in particular grain) is the least volatile farming sector.