The commitment of Federal and State governments to make infrastructure spending a priority to stimulate the economy through COVID-19, is key to attracting investment into the agriculture sector, according to a new report from MinterEllison called Ahead of the Harvest, 2020-2022.
MinterEllison commissioned Acuris to survey 100 domestic and international investors in agriculture assets to gauge their appetite for investment in the sector and the most favourable conditions that attract investment. The survey was conducted pre-COVID-19, however many of the investors’ observations point to a sector that has strong foundations for attracting investor confidence as Australia rebounds from the economic downturn.
“The fast-tracking of infrastructure projects by State Governments and the Federal Government’s $1 billion Relief and Recovery Fund to support regions, communities and industry sectors (including agriculture) will contribute to a stable climate for future investment,” said MinterEllison partner Matthew Cunningham.
In particular, infrastructure investment will help with agribusiness’s market distribution. Also required is stable, reliable internet. It is encouraging that before those factors came into play, the infrastructure currently in place was considered more than adequate by respondents, with 65 per cent nominating it as a reason to invest.
“Superannuation funds have also expressed an appetite for investing in infrastructure, further demonstrating confidence in infrastructure as an important driver of economic recovery for the economy at large, and specifically the agriculture industry,” Mr Cunningham added.
Australia’s success in negotiating free trade agreements (FTAs) is highly regarded by investors with 72 per cent citing FTAs as Australia’s top advantage when considering agribusiness investment.
Crucial to Australia’s international competitiveness is its 14 FTAs in key markets across the Asia Pacific (including China, Japan and South Korea) and the United States. Australia also has signed and concluded, but not yet put in force the PACER Plus FTA between New Zealand and eight Pacific Island countries (Cook Islands, Kiribati, Nauru, Niue, Samoa, Solomon Islands, Tonga and Tuvalu) and is pursuing a further six (United Kingdom, European Union, India, the Gulf Cooperation Council, Pacific Alliance and the Regional Comprehensive Economic Partnership) that will open Australian agribusiness to export opportunities.
“Short term, these opportunities have been paused as global economies suffer the consequences of the COVID-19 pandemic, however, longer term, Australia’s negotiations to open more markets in the Asia Pacific region will be good news for agribusiness investors and mergers and acquisitions.” said MinterEllison partner, Glen Sauer.
Another key reason to invest in Australia’s agriculture sector is our political stability and legal certainty. Sixty-three per cent of respondents say governance, stability and transparency make Australia attractive for agribusiness investment. The cohesion between Federal and State governments in their response to COVID-19 through the National Cabinet has further emphasised Australia’s political stability during a time of crisis.
“Australia’s strong foundations, sound governance and transparency make it one of the safest places in the world to do business and with the politically bipartisan approach to infrastructure investment, this is unlikely to change in the near term,” said Mr Sauer.
“There is no doubt that COVID-19 has put a pause on the world’s focus on new M&A transactions and while it’s clear there will be significantly-reduced volumes of activity in the agriculture sector for the remainder of 2020, our expectation is that there will be a modest recovery in 2021, with further strengthening in 2022,” said Mr Sauer.
Medicinal cannabis was the sub-sector identified as having the most investment potential (85 per cent). The investment potential of viticulture was favoured by 74 per cent of investors.
Climate change and natural disasters were identified by 82 per cent of respondents as the main barrier to investment, closely followed by wage and other input costs (72 per cent). Australia’s ageing farmer population was identified as a challenge for the sector.