For those dairy farmers running pasture-based systems, how do we realign pasture demand and growth? Is it possible to revert to a seasonal calving strategy? And could this lead to greater on farm efficiencies and ultimately drive productivity growth? For this farmer, the answer is yes.
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We all live in an uncertain world. How we cope with this uncertainty on our dairy farms will be governed by the strengths of our relationships and the culture that we have built within our businesses.
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Corporate dairy farming is often associated with thousands of cows and high-input systems but the secret to success may be something rather
more modest. In fact, agCap’s Wolﬁe Wagner says 400 to 700-cow pasture based dairy farms are in the box seat to capture the interest of savvy farm owners.
Have a read of our thought piece on the advantages of a seasonal single calving model on pasture based dairy farms.
agCap is an asset manager specialising in pasture based Australian dairy farm investments, operations and management.
In this paper, whereabouts in Australia might a corporate firm invest fruitfully in dairying, and which key things would they need to “get right” to succeed, are explored.
Some key features of the Australian Dairy Industry that highlights how dairy contributes to Australia’s economic well being.
Australian agricultural investment manager agCap has completed the sale of its first Sustainable Agriculture Fund (SAF) portfolio, grossing more than $180 million for investors and paving the way for a second investment vehicle to focus on Australian dairy.
The sale of SAF’s Tasmanian livestock farms concludes the final tranche of a successful sale process, which combined with the Fund’s strong three-year returns (9% p.a. after fees and tax), is expected to deliver approximately $200 million back to investors over the life of the investment.
agCap CEO Martin Newnham said he’s extremely proud of what SAF has achieved over its life and the way in which the team handled its divestment.
“In less than ten months, we managed 100 property inspections and multiple complex negotiations, all the while overseeing 17 individual farm operations within the SAF portfolio,” Mr Newnham said.
“SAF’s success can be attributed to making sound acquisitions, developing the assets, our matured management model and divesting at the right time.
“Importantly, none of this would have been possible without the patience and support of our investors who backed the original investment thesis and supported agCap throughout the life of the fund.
“The sale of SAF presents a major milestone for them as agri-investing pioneers and for us as we now look to repeat its success with a strong focus on Australian dairy assets.
“The agCap Board and management team decided to exclude agCap as a potential buyer of SAF assets for ethical governance reasons and to ensure process transparency. The insights we gleaned from the sale process, however, certainly affirms our view that well-constructed investments in agriculture can provide institutional investors excellent risk adjusted returns.”
Mr Newnham says long-run cyclical and structural change in the Australian dairy industry is creating an opportunity for institutional investors and managers to partner on a compelling investment thesis.
“Australian dairy farmers are globally competitive, produce high quality safe products with high brand recognition in domestic and overseas markets,” he said.
“We are excited by the opportunities we see in dairy, and with the support of existing agCap shareholders, we are currently assessing suitable structures for potential investors, having commenced work on a pipeline of pasture based dairies in south west Victoria and Tasmania.”
agCap’s dairy investment program is expected to be available to institutional and sophisticated investors in early 2018.
The dairy industry was rocked by the announcement by Australia’s two largest processors to significantly reduce FY2016 milk prices to unsustainable levels. When combined with seasonally dry conditions in an El Niño year, this has significantly affected the financial viability of many Australian dairy farmers.
Faced with the prospect of losing money for every litre of milk produced for the rest of the season, many dairy farmers have rationally stopped milking and reduced the amount of employed labour. These cost saving measures may enable many dairy farmers to survive this difficult time, it will however place pressure on farm staff and their families who may have lost their jobs or have had their hours cut back.
As a sustainable investor in Australian agriculture, agCap has approached these difficult times a little differently.
“We were as surprised as the next person on the severity of the drop in milk prices.” says Wolfie Wagner, Southern Livestock Manager of agCap. “However, we simply got on with it and assessed the impact to our business and investigated the levers that we could pull. In the end rather than dry off our cows, we decided to continue to milk our cows for the rest of the season.”
Wolfie Wagner continues, “While we could have saved some money by drying of our cows earlier than normal, the loss of production means our sharefarmers and their staff would have suffered significantly. As a business were attracting good farm staff can sometimes be difficult, that would not have been sustainable so it was an easy decision.”
Chief Executive Officer, Martin Newnham explains. “Our approach to agriculture is that we operate long-term assets meaning we need to take a long-term approach to our decision making, to ensure the long-term wellbeing of our farms, staff and investors.”
“The unique position we have is the diversified nature of the Sustainable Agriculture Fund. We have operations in grain, cotton, beef as well as dairy. This smooths out some of the cyclical elements of our industry and this affords us the opportunity to manage through subdued prices and difficult seasons rather than acting reactively to short-term events.”