Agribusiness

But, it’s a booming market. According to industry association Agribusiness Australia, Australia’s agribusiness value chain is now estimated to be worth more than $505 billion. This figure, based on research conducted by Neil Clark and Associates, is growing at 3 per cent per annum and represents 12.5 per cent of the national industry revenue, which is valued at $4.0 trillion.

Agribusiness Australia’s chief executive Tim Burrow says that out of 135,000 farms across Australia, only 2,601 - or 2 per cent - are classed as corporate or large, meaning they have revenue greater than $2 million and an average revenue of $6.3 million. 

“The majority of these are in horticulture, cotton, grains and beef and generate a total of 36 per cent of the total value of production,” he said.

Agribusiness is a pretty broad term. It is generally sorted into two categories: pre-farm and post-farm.

Pre-farm based industries are the farmers on the land covering a diverse range of enterprises: sheep, sheep meat, sheep wool, beef cattle, poultry, grain growing, canola, cotton, rice, sugar, fruit and vegetables.

The bull run

According to regional broker Ian Robinson, about 80 per cent of the funding requirements of these farmers are associated with land and land acquisition.

“The remaining 20 per cent would be for working capital to run and function the business,” Mr Robinson says.

“The gearing on the balance sheets tend to be quite high to accommodate growth and expansion within a family enterprise, because of the capital intensity that's required to expand a business.”

He added: “At the moment, agribusiness is going through a very bullish period, both from an asset pricing point of view and from a production-consumption point of view, domestically and globally, with very strong asset prices.”

There has been a confluence of economic and seasonal forces that have worked in favour of Australian agribusiness.

For a start, the industry has come out of a long period of drought. A few years of decent weather has given many farms the commercial ability to generate cash flow, restore profitability and repair their balance sheets.

From a macroeconomic perspective, the falling Aussie dollar has been a boon for farmers, particularly when the majority of Australian agricultural produce it exported to the global market.

“We've also had a low interest rate environment, which has allowed the farmers the capacity to borrow and gear up for the next phase of expansion,” Mr Robinson says.

Not all brokers can crack the agribusiness market. There is a certain level of insider knowledge required, a deeper understanding of the industry and its systems.

Brad Sewell of Robinson Sewell Partners explained: “You might have good finance skills, but if you get into a cotton property or a beef cattle property and you don’t know the difference between a steer and a heifer or the difference between wheat and barley, you lose credibility straight away.

“People who engage our services need to understand how the production systems work, and how the environment works,” he says.

Agribusiness is at the centre of Robinson Sewell Partners operations. Mr Sewell specialises in remote areas in central, northern and eastern Australia and works with people who operate in some pretty diverse environments.

“I could be in central Australia one day and then overlooking the ocean a week later with some sugar cane clients,” he says.

The finance bit

All four major banks provide agribusiness lending, as do most of the non-major lenders. Asset and equipment finance plays a key part in most agribusinesses, while traditional commercial finance solutions are also in high demand.

However, there is generally nothing special or different about agribusiness lending products, says Brad Sewell.

“They might call it an agribusiness term loan or an agribusiness revolving line of credit but fundamentally they’re term loans, they’re overdrafts, they’re exactly the same product that the banks offer to people who want to buy commercial property in Sydney or run a café in Melbourne,” he says.

“They’re pretty much the same products, they just give them a different label.”

One product that is unique to agribusiness is a stock mortgage, where the bank will take a mortgage over the sheep or the cattle and in some cases, have a loan-to-valuation ratio applied.

Unlike SME finance or short-term lending, which have seen a flurry of new entrants and digitally savvy players emerge in recent years, the panel of lenders available for agribusiness lending has remained stable.

Mr Sewell says there haven’t been too many new entrants since the mid 90’s, when banks were winding back their exposures to the agriculture sector. This period saw lenders such as RaboBank, Elders and Landmark come onto the scene. They have now grown into sizeable players in the agribusiness lending space.

“It's not an industry that really lends itself to new types of lenders because it comes back to experience and knowledge and it's one of those industries where you just don't pick that up out of a textbook,” Mr Sewell explains.

“You've got to be engaged in the industry from a relatively early age to really understand it. It's really five major banks and maybe two or three specialists, lenders that have all been around for quite a long time.”

The core lenders continue to dominate funding for major land acquisitions and balance sheet funding, but smaller players do operate in the working capital side of agribusinesses.

Recently there has been some activity on the equity side of land acquisition, driven by institutional investors and pension funds, both locally and offshore. There has also been interest in crowdfunding or alternative options for land acquisition among certain circles.

“We're getting a lot of enquiries about what other alternative avenues are available to structure their funding arrangement to suit various situations on a case-by-case basis,” Mr Robinson says.

“Generally, these funding arrangements are pushing the capabilities of what the banks can provide because they're constrained by their policy and regulation,” he says.

“The borrowers are getting a little savvier and looking for a little bit more flexibility and commercial sensibility to take advantage of such strong markets that are in play at the moment. And, with the new generation of farmers coming through that are highly educated and sophisticated, then they will be looking for various different funding structures, whether it will be joint ventures with funding partners, or supply chain value-add type arrangements.

“Definitely, we'll see in the next 12 months’ new variations and the creation of new lending products coming in for sure,” he added.

It’s been a strong few years for Australian agriculture, with plenty of good times ahead. Favourable macroeconomic conditions coupled with growing offshore demand for Australian produce means farmers will need a trusted adviser for their funding needs.

Brokers are becoming increasingly important to Australian farmers. Mr Robinson says that he has seen a marked increase in the number of brokers entering the agribusiness market over the last 18 months.

With strong tailwinds driving Australian farming to new heights, savvy finance brokers have a major opportunity on their hands.