Funding the agriculture sector is good business
12th March 2021Market Review
Last week, the government sponsored AgriFutures released a report titled ‘Investing for the Future: Why Capital investments are key to the growth of Australian agriculture’.
The National Farmers’ Federation has outlined a roadmap to grow the output of Australia’s agriculture sector to $100 billion by 2030. From a base of just over $66 billion (2020), this ambitious target will require a more than 50% increase in the sector’s contribution to Australia’s gross domestic product (GDP). The report identifies a $7.5billion dollar gap per year in funding the sector (refer table 1). Debt to equity in the sector is low at a 20% Loan to Value (refer graph 1.) on aggregate and we expect 30-40% of the annual funding gap needs to come from debt.
The opportunity exists now to back many agricultural groups across the supply chain leveraging existing equity to grow the overall productive capacity. The report also alludes to the funding gap that exists between available bank credit and equity funding and notes the lack of alternative credit funding available to the sector. While banks need immediate cashflow to service their debt and customer deposits, non-bank credit is often better placed to support development that will yield cash flow from agriculture in 2-5yrs.
Merricks Capital has a strong background in the agricultural sector, including a $400 million loan portfolio and a separate $400 million agriculture inventory finance book. With ownership in several farm management and asset servicing companies we have “boots on the ground” assisting our team in Collins St in managing the life cycle of a loan. Our loans are focused on helping farmers and the agriculture supply chain grow to meet the opportunity outlined in the recent report. With limited competition outside the $70bn loan balance sheet of the commercial banks we consider there a significant opportunity to deploy alternative credit and achieve strong risk adjusted returns through our asset backed investment philosophy. We have a strong pipeline of agricultural funding opportunities, with $171 million across 6 new loans in the final stages of due diligence expected to settle this month in New Zealand, the Northern Territory, Victoria and NSW.
Pedal to the metal
Last week, the government sponsored AgriFutures released a report titled ‘Investing for the Future: Why Capital investments are key to the growth of Australian agriculture’. The National Farmers’ Federation has…