Agribusiness

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There are two basic components to the Morrison government’s latest A$1 billion package response to the drought affecting large parts eastern Australia. One part involves extra subsidies to farmers and farm-related business. The other involves measures to create or upgrade infrastructure in rural areas.
Unfortunately, most funds will be misdirected and the response is unlikely to secure the long-term prosperity of regional and rural communities. This is a quick fix to a political problem, appealing to an important constituency. But it misses the point, again, about the emerging economics of drought.
<h2>Hitting the political target</h2>
The bulk of the A$1 billion package is allocated to a loan fund. The terms of the ten-year loans are more generous than what has been offered in the past. They are now interest-free for two years, with no requirement to start paying back the principal till the sixth year.
Farmers will be able to borrow up to A$2 million. In addition, loans of up to A$500,000 will also be available to small businesses in drought-affected towns.
Because recipients are not having to pay the full cost, these loans are in practice a form of subsidy.
Subsidies are used by government to make more people undertake an activity than would otherwise be the case. In this case the government is offering a subsidy to keep farmers and small businesses owners doing what they’ve been doing, even though from an economic point of view this might not be very wise at all.
The question that should be asked is: “do we want more or fewer people to be involved in a farming activity that is vulnerable to drought?”
Most farming in Australia is completely reliant on rainfed crops and pastures. Rainfall is already highly variable. All the indicators from climate science is that rain will be even more unreliable in the future.
In addition, the agricultural industries currently drought affected are not just at the whims of rainfall. These industries are constantly changing and being affected by new technologies and market forces.
For most agricultural produce the key market force is price. Sure, some farms and farmers can carve out niche markets, but most farm businesses depend on producing at lowest cost. Increasingly, the farms that survive in a highly competitive global environment do this by exploiting economies of scale. Big farms are thus more profitable than small ones in the good times (such as when it rains); and during the tough times (such as during drought) they have more resources and deeper reserves to ride it out.
Ultimately, this means successful farms are continually getting bigger and small farmers are getting squeezed out.
The data also support the view that the farmers who survive and are simultaneously exposed to drought <a href="https://onlinelibrary.wiley.com/doi/10.1111/1467-8489.12195" target="_blank">ultimately become even more profitable</a>, because of what they learnt about managing in a difficult environment.
This is not to argue drought is a good thing for any farm, but it does raise a serious question about any government policy that effectively encourages more people to keep doing something when global and technological forces would point to it being unsustainable.
<h2>So what’s the point?</h2>
The second component of the Morrison government’s relief response involves directing about A$500 million from existing regional infrastructure funds into building roads and other things into affected communities.
While many will welcome this on top of the the extension of loans to small business in country towns, the policy detracts from the serious questions that confront rural and regional communities.
The economics of agriculture has flow-on effects to towns, but it would be wrong to think all are impacted in the same way.
As a general rule, when farmers sell up, they tend to leave from the small communities first. The upshot is that small communities get smaller, older and poorer as those least mobile are left behind. These people also generally require more, not less, public support. Mid-size communities tend to level out, while continuing to age. Large regional centres tend to grow and prosper.
The point is that each community requires different things from government. Genuine public goods like roads, health services and education are desperately needed and undersupplied in many cases. Providing cash to a few select businesses and grading a gravel road in this situation belies the complexity of the long-term challenges and fails to address serious issues.
An elderly retiree in a rural town might well ask why their local road or bridge is only upgraded during a drought. Surely, government should focus on providing legitimate public goods for the long term, regardless of the weather.<img src="https://counter.theconversation.com/content/126583/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important; text-shadow: none !important;">
<a href="https://theconversation.com/profiles/lin-crase-9904" target="_blank">Lin Crase</a>, Professor of Economics and Head of School, <a href="http://theconversation.com/institutions/university-of-south-australia-1180" target="_blank">University of South Australia</a>
This article is republished from <a href="http://theconversation.com" target="_blank">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/australias-drought-relief-package-hits-the-political-spot-but-misses-the-bigger-point-126583" target="_blank">original article</a>.
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j.ballantyne1990-6AQqhLzZaK

Australia’s drought relief package hits the political spot but misses the bigger point

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The award winning free range egg production farm and marketing business of Green Eggs Pty Ltd based near Great Western in Victoria has been offered to market.
It has been listed for sale by expressions of interest closing with agents Rodwells of Ruralco property on Wednesday 9 October.
The offer is inclusive of substantial freehold property, state of the art hen housing and egg production equipment and established marketing connections.
According to the marketing material, "the business generates high cash flow, is very profitable and has considerable scope and potential for immediate expansion under a new ownership."
The property also produces wool, lambs and beef but no ham.
Currently, with the facilities they have established Green Eggs runs 25,000 hens on the natural pastures of the farm with space for more.
The business currently operates with an effective full-time staff of twelve many of whom are long term employees and live in the local village of Great Western or come from the adjacent larger centres of Ararat and Stawell.
Throughout the property significant work has been completed by the Green’s including boundary and internal fencing, dam construction, rabbit and erosion control and Landcare works.
Rodwells Ruralco Property selling agent Max Brown says he believes the sale opportunity will attract interest from other participants in the egg industry, from farmers seeking a diversification or a new activity for a son or daughter, and from investors as with all the production and marketing systems in place the return to an investor would be several times higher than what might be returned from money market or other financial instruments at current investment rate percentages.
The offer for sale of Green Eggs Pty Ltd is on a walk in walk out basis inclusive of all buildings, plant and equipment, producing hens together with all the intellectual property and the branding and marketing that has been successfully created over recent years.
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Free range Green Eggs agribusiness farm listed

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Chinese owned farming operation Rifa Salutary Pty Ltd is offering its NSW and Victoria based agribusiness portfolio to the market.
Owned by China's Zhejiang Rifa Holding Group, it was Rifa's first Australian agriculture purchase in 2014.
It has since acquired a total of 14 properties in Western Victoria and Northern NSW.
The properties combined land area totals roughly 44000 hectares and Rifa has expectations of selling it for around $150 million.
The largest farm Rifa purchased was the the 22,548 hectare Cooplacurripa Station that runs 5,000 head of cattle for a reported $29 million.
Other purchases by Rifa include two properties adjacent to Cooplacurripa – the Kerriki and “Number One” for $3.5 million – that have a combined acreage of 1,457 hectares.
Plus four additional acquisitions totaling 4,050 hectares – Highland Plain, Avondale, Stonefield, and a portion of Durkin at Warialda have also been purchased for between $12 million and $14 million.
The director of Rifa Salutary and Vice President of Rifa Holding Group, Bobby Jiang, said the company felt the time was right to capture value as a result of completed expenditure and improvement programs, combined with the growth in land value.
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<div id="adspot-1x1-pos1" data-hide-platforms="" data-lazy-load="no">The company's Australian Chief Executive Officer, Cameron Hall said recent investment in infrastructure and improvement programs had set the business up for the future.</div>
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RIFA has also invested in specialist machinery and textiles, aeronautics and aviation, as well as finance and agriculture both in China and around the world.
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Chinese company Rifa offloading some of its Australian agribusiness portfolio

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In Brisbane the permanent plantings and viticulture sectors are the stand out performers in Australian agribusiness industry, with large transactions occurring in 2018 across macadamias, citrus, avocados, almonds and vineyard sectors, according to Colliers International.
The latest Colliers International Agribusiness Research and Forecast Report found, water pricing and water tradability is enabling these sectors to continue to be developed even during the severe drought event.
Rawdon Briggs, Head of Agribusiness, Transaction Services at Colliers International said, “looking forward, agribusiness property values will hold firm in well recognised regions, despite the climatic challenges impacting on cashflows and cash reserves. This drought event has had higher commodity prices than we have seen in previous events over the past four decades."
“It shows in the resilience of the market data. The weaker AUD and free trade agreements are supporting export activity, partially offsetting the downside risks. Australian agricultural trade surplus has grown sharply for the past decade and will continue trending upwards. Agribusinesses is now a standalone asset class and will continue to attract investment from offshore and high net worth groups adding capital."
“Colliers International track completed land deals above $5 million across Australia, with this data showing increased sales numbers YoY to 2018, as the neighbour to neighbour market kicked into gear fuelled by lower cost of debt and higher commodity prices resulting in 254 deals and $3.34 billion in sales in 2018."
Mr Briggs added, "this calculation does not include three large deals executed in 2018, which have now settled in Q1 2019. If these had settled as planned in 2018, Australia would’ve surpassed the peak capital investment high of $3.45 billion and 242 deals completed in 2016.”
The report found that one of the best performers over the last year has been the Macadamia sector with land prices increasing and a steady nut supply. 
Colliers predict that established macadamia orchard demand will remain strong in 2019 and 2020. 
According to Colliers experts the Australian wine industry is approaching a point where demand will outstrip supply. This has translated into significantly higher volumes of property transactions.
Tim Altschwager, National Director, Agribusiness, Transaction Services at Colliers International said buyer enquiry has focussed on vineyards offering scale and efficiency or premium quality fruit. “Larger producers are also offering three and five-year grape supply agreements to secure supply and mitigate rising fruit prices.
“We observe continuing interest from overseas investors in Australian wine industry assets, particularly for premium assets, on the back of continued growth in the value of wine exports. Proven domestic industry operators are increasingly active.
“We expect this will increase competition for credentialed assets. Generally, less favourable growing conditions in South Eastern Australia will lead to a smaller 2019 wine grape crop compared to 2018. This will increase demand for wine grapes and place upward pressure on fruit prices and vineyard values,” stated Mr Altschwager.
Over the last 12 months, ground water prices in the Lower Murray (NSW), Murrumbidgee (NSW) and Katunga (VIC) have seen a sharp appreciation nearly doubling in market value.
Mr Nick Cranna, National Director, Agribusiness, Valuation &amp; Advisory Services said, "we anticipate that water entitlement prices will gradually rise in 2019 although it is difficult to see another year of strong capital appreciation as was experienced in 2018."
“In the unlikely scenario we receive normal inflows into the Southern Murray Darling Basin over the winter months we still believe this will have little bearing on water investors buy mandates into 2019 and 2020,” concluded Mr Cranna.
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