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RURAL & AGRIBUSINESS

2014Australia and New Zealand

Research and Forecast report

In collaboration with

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First Half 2014Australia & New Zealand


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Colliers InternationalA leader in global real estate services, defined by our spirit of enterprise. Through a culture of service excellence and collaboration, we integrate the resources of real estate specialists worldwide to accelerate the success of our partners. We represent property investors, developers and occupiers in local and global markets. Our expertise spans all property sectors – office, industrial, retail, residential, rural, healthcare, hotel and retirement.

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We have 200 research professionals in 90 offices on 6 continents

Accurate and objective property research should be the foundation of all good property decisions. Colliers International provides reliable, unbiased and authoritative property research & investment property advice across all property sectors and geographic markets within Australia and across the globe. We share our knowledge and experience to deliver innovative and effective solutions and investment property advice. Our unique approach integrates people, experience, systems, and technology to create meaningful business connections and client outcomes.

374 offices in63 countries on6 continents

United States 140

Canada 44

Latin America 25

Asia Pacific 81

EMEA 84

US$2.1 billion in annual revenue

134.8 billion square feet under management

15,800 professionals and staff


2014 – A turning point for rural and agribusiness? 5

Our perspective – Rural & Agribusiness 8

Market Overview:

Opportunities for counter cyclical wine grape investors 10

Major investment required to realise chicken meat demand 12

Good value and improving profits 16

Long term outlook supported by elevated global demand 19

Growing Asian, Middle East and established markets to

drive beef demand 22

Another bumper year ahead for New Zealand rural and agribusiness investment 24

Our experience – Rural & Agribusiness 30

Contents

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3Rural & Agribusiness | Research & Forecast Report | 2014

La Belle & Welltree Station, Adelaide River NTSold by Colliers International.

4 A Colliers International publication


2014 – A turning point for rural and agribusiness?The outlook for rural and agribusiness is positive, with New Zealand enjoying a burgeoning dairy sector and Australia showing signs of market recovery in most regions. This view is predicated on rising food demand from Asia’s expanding middle class, improved availability of bank finance and higher levels of corporate and institutional investment activity within alternate asset classes. It is anticipated these factors combined with a positive outlook for rural commodities, will stimulate rural and agribusiness investment over the short to medium term.By Mark Courtney Director | Research [email protected] In regards to cotton, many of the large established growers looking to diversify into other regions are focussing on the Murrumbidgee Valley. Increased demand for properties suited to cotton production within the Murrumbidgee Valley may be attributed to a relatively lower cost of land when compared to farms in the northern regions, typically higher water security and the similarities in yield. On the back of this increase in demand, the Murrumbidgee is experiencing significant growth in cotton ginning demand.

In the dairy industry, significant interest has returned largely due to demand from China. While the offshore appetite for dairy assets is increasing, a lack of institutional grade assets of a scale suitable for institutions represents the primary drag to market growth. Factors supporting increased profitability include increasing milk prices, lower feed costs and land values.

On another positive note, prospects for the poultry sector are bright as the industry matures into a highly sought after, discrete agricultural investment class based on growing demand for chicken meat.

Sentiment in the Australian wine industry suggests that asset values are most probably past the bottom of the cycle, with internationally recognised regions such as the Barossa Valley showing good signs of recovery and value rebound. However opportunities for counter cyclical investors to take advantage of low entry costs are still available in warm climate regions, and some highly regarded cool climate regions that are lagging behind the Barossa Valley recovery.

Meanwhile, land values for beef producers remain below pre-GFC levels with some sales in drier areas recording significant price reductions. Notably, as most receiver stock is moving, the level of transactional activity appears to be accompanied by a slight rise in market confidence. Although the longer term outlook is positive, it remains a buyers’ market in the near term.

The forestry case study also presented in this report provides analysis of the costs associated with reverting land from forestry back to pasture or to fallowed land. Through an analysis of sales in the Esperance Shire, the study shows that land burdened with trees has achieved a discount of 35 per cent per hectare, under what would be assessed as fenced, pastured and watered grazing land values, or arable land values as the case may be.

In New Zealand, continued domestic and offshore purchases, especially in the dairy sector remain a market defining feature. Overseas buyers for both forestry and farming assets are seeking opportunities as major North American, European and Asian funds looking to balance portfolios, take advantage of New Zealand’s safe investment status and proximity to a protein hungry Asia.

This report presents the recent trends and near term prospects for some topical rural and agribusiness industries and regions. Although some industries look set to counter enduring challenges due to climatic factors and global competition, generally the forward view appears more favourable than it has been for a number of years. It is quite possible that 2014 marks a turning point.


Key indicator charts Major world trading partner growth projectionsIn positive signs for the agribusiness sector during 2014-15, the annual growth rates of the gross domestic product for United States and the Eurozone are projected to improve. Although China is likley to experience some moderation in growth, a relatively high rate in excess of 7 per cent is expected as Japan’s GDP is forecast to ease to 1.3 per cent.

Official cash rateRecent comments by the Reserve Bank of Australia suggests that there is likely to be an extended period of stability with the official cash rate. In recent months, the RBA has pointed to a number of factors including growth in the global economy which is continuing at a moderate pace, helped by firmer conditions in the advanced countries. The RBA has noted that commodity prices in historical terms remain high, but some of those important to Australia have continued to decline of late. The RBA maintains that monetary policy is appropriately configured to foster sustainable growth in demand and inflation outcomes consistent with the target.

Wheat gross unit values The Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) anticipates a moderate decline for the world wheat indicator in 2014-15. A forecasted decline in world production is expected to be more than offset by an increase in opening stocks, resulting in world wheat supply of 888 million tonnes in 2014-15. World wheat opening stocks are forecast to increase 11 per cent to approximately 193 million tonnes from the 2013-14 season.

Source: Deloitte Access Economics / Colliers International

United States Japan Eurozone China Australia

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

2009-10 2010-11 2011-12 2012-13 2013-14(f) 2014-15(f)

GDP GROWTH – AUSTRALIA AND WORLD TRADING PARTNERS

Jul-0

4

Jul-0

5

Jul-0

6

Jul-0

7

Jul-0

8

Jul-0

9

Jul-1

0

Jul-1

1

Jul-1

2

Jul-1

3

Jul-1

4

7.25%

2.50%

4.72%

2%

3%

4%

5%

6%

7%

8%

10 Year Average

Cash

Rat

e (%

)

RESERVE BANK OF AUSTRALIA OFFICIAL CASH RATE

Source: RBA / Colliers International

0

50

100

150

200

250

300

350

400

2008–09 2009–10 2010–11 2011 –12 2012–13 2013–14 (f) 2014–15 (f)

$/t

281

218

257

227

313

334 321

GROSS UNITS VALUES - WHEAT

Source: ABARES June Quarter 2014 / Colliers International



Cattle and lamb gross unit values According to ABARES, the weighted average saleyard price of beef cattle is estimated to have fallen by 1 per cent in 2013-14 to 315 cents per kilogram. Unfavourable seasonal conditions may result in further downward pressure to beef cattle prices during the first half of 2014-15. ABARES suggests demand for Australian beef and live cattle will remain strong. Conversely, lamb and sheep prices have been on an appreciating path, and are expected to maintain this trend in 2014-15. The Australian weighted average saleyard price for lamb is forecast to increase by 5 per cent in 2014-15 to 500 cents per kilogram, reflecting a fall in lamb supply. Export demand should remain supportive of lamb prices.

Wool gross unit valuesA contraction in production volumes from Australia, the world’s largest wool producer, is expected to result in the indicator wool price increasing by 6 per cent in 2014-15 to approximately 1130 cents per kilogram clean. This increase will be somewhat constrained by weakening demand from China, attributable to declining growth in Chinese retail garment sales and diminishing use of natural fibres in major developed economies.

Cotton gross unit values As a result of government policy changes, China’s cotton production is forecast to be the lowest in nine years, while Australia’s production is anticipated to remain relatively high – in line with the rest of the world, in 2014-15. This is despite issues with irrigation water availability in Australia. As a result of increased production, excluding China, and substantial stocks, the world cotton indicator price is expected to fall in the order of 6 per cent in 2014-15. Despite China’s policy shift – to consume a larger proportion of its stockpiles as opposed to maintaining production, world production is forecasted to remain high in 2014-15.


GROSS UNIT VALUES - COTTON

0

100

200

300

400

500

600

c/kg

320

415

311

444

336

519

337

509

318

371

315

475

343

500

2008–09 2009–10 2010–11 2011 –12 2012 –13 2013 –14 (f) 2014 –15 (f)

Beef Cattle Lambs

GROSS UNIT VALUES - BEEF CATTLE AND LAMB


0

100

200

300

400

500

600

700

800

2008–09 2009–10 2010–11 2011–12 2012 –13 (f) 2013 –14 (f) 2014 –15 (f)

c/kg

430456

623

666

568583

615

GROSS UNIT VALUES - WOOL


0

100

900

200

300

400

500

600

700

800

2008–09 2009–10 2010–11 2011–12 2012 –13 2013 –14 (f) 2014 –15 (f)

$/Ba

le

439466

857

511

453

515 504


NEW ZEALAND – FASTEST GROWING EXPORT COMMODITIESTop 10 commodities and top 3 markets

$255 millionButter

$790 millionCheese

$44 millionCasein

$440/bale(227kg)

$465/bale(227kg)

$500/bale(227kg)

May 2012 May 2013 May 2014

$645 millionSkim milk powder

$555 millionWhole milk powder

$400 millionOther dairy products

January February March April May June July August September October November December

450

430

410

390

370

350

330

310

290

270

250

Value of dairy exports

Dairy Timber Beverages Precious metals & stones

Cereals Miscellaneous food items

Medical & other

equipment

Meat Seafood Other

$5.41

$6.65

22.9%growth

2012/2013 2013/2014

Wool Lamb Beef cattle Cotton Wheat

$583$475

$315$227 $222

$334 $321$343$500

$615

5

4

3

2

1

0

-1

2014

/15

2008

-201

3 ch

ange

/$b

307.75293.50

313.00

332.75419.25399.50 390.00

328.50321.50

426.75

POSITIVE SIGNS AND LOW INTEREST RATES

ABARES Gross Unit Values Forecast

ABARES MAINTAINS A RELATIVELY STEADY PRICES OUTLOOK OVER THE YEAR AHEAD

GDP Growth - Australia and world trading partners Reserve Bank of Australia official cash rate

Source: Dairy Australia and Colliers International Research

DAIRY HAS A STRONG APPETITE FOR GROWTH

Australian farm gate milk prices

GROWING CONSUMPTION AND STRONG PRICES SUPPORT DEMAND FOR COTTON

BEEF PRICES IMPROVED IN FIRST HALF 2014

Eastern Young Cattle Indicator (EYCI)


Source: Statistics NZ, NZIER, Colliers International


2013–14(f) 2014–15(f)

7.3% - down 0.2% from 2013/14

3.0% - up 0.6% from 2013/14

2.7% - unchanged from 2013/14

1.3% - up 0.7% from 2013/14

1.3% - down 0.3% from 2013/14

China (yuan)

USA (dollar)

Australia (dollar)

Eurozone (euro)

Japan (yen)

July 2014 2.5%

10-year average 4.42%

Current cash rate is 1.92% below 10-year average

China Australia USA Other

c/kg

cw

t

20102011201220132014

Our perspective RURAL & AGRIBUSINESS


How else can we help you?Speak to one of our property experts [email protected]

For more information about Colliers Internationaland working with us, visit;www.colliers.com.au

2014 AUSTRALIA AND NEW ZEALAND

NEW ZEALAND – FASTEST GROWING EXPORT COMMODITIESTop 10 commodities and top 3 markets

$255 millionButter

$790 millionCheese

$44 millionCasein

$440/bale(227kg)

$465/bale(227kg)

$500/bale(227kg)

May 2012 May 2013 May 2014

$645 millionSkim milk powder

$555 millionWhole milk powder

$400 millionOther dairy products

January February March April May June July August September October November December

450

430

410

390

370

350

330

310

290

270

250

Value of dairy exports

Dairy Timber Beverages Precious metals & stones

Cereals Miscellaneous food items

Medical & other

equipment

Meat Seafood Other

$5.41

$6.65

22.9%growth

2012/2013 2013/2014

Wool Lamb Beef cattle Cotton Wheat

$583$475

$315$227 $222

$334 $321$343$500

$615

5

4

3

2

1

0

-1

2014

/15

2008

-201

3 ch

ange

/$b

307.75293.50

313.00

332.75419.25399.50 390.00

328.50321.50

426.75

POSITIVE SIGNS AND LOW INTEREST RATES

ABARES Gross Unit Values Forecast

ABARES MAINTAINS A RELATIVELY STEADY PRICES OUTLOOK OVER THE YEAR AHEAD

GDP Growth - Australia and world trading partners Reserve Bank of Australia official cash rate

Source: Dairy Australia and Colliers International Research

DAIRY HAS A STRONG APPETITE FOR GROWTH

Australian farm gate milk prices

GROWING CONSUMPTION AND STRONG PRICES SUPPORT DEMAND FOR COTTON

BEEF PRICES IMPROVED IN FIRST HALF 2014

Eastern Young Cattle Indicator (EYCI)


Source: Statistics NZ, NZIER, Colliers International


2013–14(f) 2014–15(f)

7.3% - down 0.2% from 2013/14

3.0% - up 0.6% from 2013/14

2.7% - unchanged from 2013/14

1.3% - up 0.7% from 2013/14

1.3% - down 0.3% from 2013/14

China (yuan)

USA (dollar)

Australia (dollar)

Eurozone (euro)

Japan (yen)

July 2014 2.5%

10-year average 4.42%

Current cash rate is 1.92% below 10-year average


c/kg

cw

t

20102011201220132014

Our perspective RURAL & AGRIBUSINESS




2014 AUSTRALIA AND NEW ZEALAND

The 2014 vintage was affected by a combination of severe frost in the Riverina and other areas in NSW, poor flowering across many regions, and then heatwaves and torrential rain leading up to harvest. Various industry sources are predicting a total of around 1,650,000 tonnes were crushed (2014 Australian and New Zealand Wine Industry Directory, Winetitles Pty Ltd). This compares to 1,833,000 tonnes in 2013. The area planted to vines has reduced from an estimated 173,000 hectares in 2007 to around 146,000 hectares in 2013.

Overall the Australian wine grape industry is still looking for a light at the end of the proverbial tunnel. From a grower’s perspective grape prices are too low and input costs continue to rise. From a producer’s perspective international competition from countries such as Chile and Argentina, and a resilient Australian dollar continue to squeeze margins. Australia has dropped from fourth to fifth largest exporter of wine in the world (by volume).

A high Australian dollar has not deterred international interests from investigating and acquiring stakes in Australian wine industry assets. Naturally, a lower Australian dollar would further encourage foreign investment.

Colliers International’s Rural & Agribusiness wine industry specialisation reports that around 15 per cent of its transactions last year involved overseas interests. Chinese investors purchased three out of thirteen vineyards sold by Colliers International in the Barossa Valley. The largest single wine business transaction was Delegat’s purchase of Barossa Valley Estates for more than $24 million. Delegat is a New Zealand public company (Delegat’s Wine Estate Ltd). There is now only a handful of listed Australian wine companies with the largest being Treasury Wine Estates Ltd. The great majority of wine industry enterprises are small private companies.

Many enterprises would welcome foreign investment as a capital injection to retire debt in the first instance. Others would appreciate foreign investment in the form of added value to the enterprise such as increased sales to absorb surplus capacity. It is however considered that the preferred form of investment is not simply a case of injecting new equity into a current business. Ideally, equity partners need to offer more than just equity, as many wine businesses are seeking partners that have an existing distribution network to increase sales. A recent case in point is the successful joint venture between McLaren Vale located Gemtree Wines and a Chinese investor. Through the financial support from their joint venture partner, Gemtree has recorded a

WINE GRAPE MARKETOpportunities for counter cyclical wine grape investors

2014


Barossa Valley Vineyard Portfolio, SASold by Colliers International.



tripling in turnover and production. In addition, Gemtree Wines has gained access into the expanding Chinese market.

Meanwhile others see opportunities to upgrade or expand and are unable to access the funds. This is partly due to the difficulties involved in persuading domestic institutional lenders to commit further funds to businesses with limited cash flows, regardless of the strength of their balance sheets. Formal valuations based on business earnings struggle to support lending criteria.

Colliers International’s Rural & Agribusiness is regularly approached by established industry participants, usually second tier enterprises, who recognise the opportunities which they cannot fund. They seek private funds, domestic or foreign, or an introduction to complementary businesses. They have learned to cope with a high Australian dollar, lower commodity prices and relatively high input costs but they realise it is unsustainable in the longer term to simply “tread water”. Surplus capacity demands

to be taken up and business models are facing change. Foreign capital is joining up with local producers in a trend which we expect to continue.

The metaphoric dim light at the end of the tunnel is matched by the market’s sentiment that industry asset values are still near the bottom of the cycle. Assets can be purchased at historically low prices as rudimentary SWOT analysis shows there is real opportunity for cashed up, counter cyclical investors to take advantage of low entry costs. The most sought after assets are vertically integrated businesses in strategic locations, particularly assets in the Barossa Valley Geographical Indication (G.I.), an internationally recognised regional brand along with Bordeaux and Napa Valley.

From a rural and agribusiness investor’s perspective a strong case can be put forward that Australia’s wine industry sector at current asset values represents the greatest potential for capital growth over the longer term.

Scotchmans Hill Wines, Drysdale VIC Sold by Colliers International.

How else can we help you? Speak to one of our property experts [email protected]

For further information about our research please contact: Tim Altshwager National Director | Agency, Rural & Agribusiness Tel +61 8 8305 8844 | [email protected]


As the Australian chicken meat industry continues to develop and expand in line with the dynamics of Australian diets, industry participants are making a significant investment in developing new chicken grow-out farms (broiler farms) and increasing the capacity of processing facilities in an effort to capitalise on the ever increasing domestic demand for chicken meat.

The conversion of some traditional broiler farms to free range and RSPCA-approved farms is also a noticeable trend in the sector, all due to the consumer push for the application of less intensive farming practices.

Production and consumptionThe chicken meat industry in Australia has grown consistently over the past decade, averaging around 4 per cent a year. In 2012-13, production reached 1.05 million tonnes (carcase weight). Chicken meat now makes up one-quarter of meat production in Australia, compared with 18 per cent a decade ago.

Growth of chicken meat production is forecast to continue to grow over the short to medium term. In 2014-15 chicken meat production is forecast to increase to 1.1 million tonnes, a 3 per cent increase on 2013/14 production and by 2018-19, production is projected to be around 1.25 million tonnes, with its share of total Australian meat production increasing to 28 per cent.

Projected growth in production over the next five years is largely in response to an ongoing increase in domestic consumer demand, as retail prices of chicken meat remain well below prices of alternative meats.

Australia is among the largest consumers of chicken meat, on a per person basis. The domestic market is projected to continue to account for around 95 per cent of chicken meat production. Over the 10 years to 2012-13, growth in per person consumption of chicken meat averaged 3 per cent a year.

Chicken meat is projected to remain Australia’s most consumed meat over the medium term. Australian chicken meat consumption

is forecast to rise by 1 per cent in 2014-15 to 45.2 kilograms per person. Over the medium term, consumption is projected to grow to 47.7 kilograms per person by 2018-19.

Past and projected future growth in Australian chicken meat consumption reflects the competitive pricing of chicken meat relative to pork, beef and lamb. Over the five years to 2012-13, chicken meat was on average 21 per cent cheaper than pork and 22 per cent and 45 per cent cheaper than beef and lamb, respectively.

The low price of chicken meat relative to other meats is a reflection of strong productivity growth achieved in the Australian chicken meat industry over successive decades. Because of the use of selective breeding techniques, chickens used for meat production reach their ideal slaughter weight in around 35 days, using a total of around 3.4 kilograms of feed. In comparison to 64 days and 4.7 kilograms of feed were required to bring a chicken to market weight in the 1970’s.

In contrast with beef and sheep meat production, the chicken meat industry in Australia is highly concentrated and vertically integrated. Around 70 per cent of meat chickens are slaughtered by the major two processing companies, Ingham’s and Baiada. Five privately owned medium sized process and several smaller processors account for the remaining 30 per cent or thereabouts of chicken slaughter. Chicken meat farmers are generally contracted by processing companies to grow out day-old chicks supplied by the companies.

Significant demand creating investment opportunitiesWith the major growers in the sector gravitating to the key poultry ‘hubs’ such as Griffith, NSW and Port Wakefield, SA where affordable land can be acquired for major developments, a significant shift has occurred in the scale and automation of poultry farms in order to drive efficiencies and economies of scale. Twenty years ago, a four to six-shed family owned and operated farm

POULTRY MARKETMajor investment required to realise chicken meat demand

2014




located on the outskirts of a city was a sizable operation. Today, portfolios of 10 to 12 shed farms requiring investment in the tens of millions are the new-age broiler farm producing millions of chickens per annum. Currently, syndicates of private investors are developing and owning such farms and there is a significant opportunity for institutional investment.

There are two institutional investors involved in the ownership of broiler farms in Australia. With the listing of Rural Funds Group on the Australian Securities Exchange in February this year, together with the entry of private equity firm TPG who purchased Ingham’s in 2013, Colliers International anticipates that there will be significant growth in the number of sophisticated investors who will become aware of the opportunities for investment and be attracted to the sector.

Notable development activityExamples of major developments in the pipeline across the country include Baiada’s requirement for an additional 50 to 100 broiler sheds in the Griffith region, New South Wales, as well as Santrev’s DA approved 42 shed free range development near Blanchetown in South Australia. Once complete, the Blanchetown facility will be the largest free range chicken growing operation in the Southern Hemisphere. To put the size of such operations into perspective, each grow-out facility broiler shed covers in excess of 2,000 square metres and can require an investment around $900,000 per shed.

The sector continues to grow largely from within through company equity and cash flow. As the sector matures the opportunities for institutional investment are expected to build

Poultry Breeder Farms, NSW & SAValued by Colliers International.

to facilitate expansion of the industry to counter the ever rising demand. Banks have financed some major projects and in some instances lent up to 70 per cent LVR.

The opportunities for investment in general terms are in the ownership of breeder and broiler farms. Breeder farms contain parent poultry stock that produces fertile eggs. These facilities are owned and managed by the processing companies and offer passive investors an attractive sale and leaseback model of 10 to 20 year terms with double digit yields.

Broiler farms house chickens for consumption in facilities established by the producer, who manages the operation and grows the chickens from one day old out to processing weight under contract to the processing companies. Broiler farms provide investors with a greater return on investment than that generated by the passive model. It is notable though that they are also generally characterised by higher levels of operational risk. For both asset classes the depreciation benefits are significant.

Sales evidence indicates that broiler farms have been transacting at prices indicative of greater than 12 per cent EBIDTA. It is also notable that leased investments tend to feature tighter yields due to significantly reduced agricultural operational risk. While broiler farms are traditionally owner occupied, professional management and long term supply contracts provide for a near-passive investment which suits the profile of investors who are more risk averse. The chicken meat industry is one of the most lucrative agribusiness industries in Australia currently. The near to medium term prospects for the industry appear robust as it continues to mature as a highly sought after, discrete agricultural investment class predicated on growing demand for chicken meat.


For further information about our research please contact: Jesse Manuel Manager | Agency | Tel +61 8 8305 8857 [email protected]


CASE STUDY

Forestry

It is well documented that Australia’s hardwood plantation estate expanded rapidly through Managed Investment Scheme development in the period from 1997 to 2007. It is equally well documented that since the collapse of most of the major Managed Investment Scheme operators in this sector since 2008, some areas are struggling with the economics of ongoing forestry activities. Some of these sites will remain in forestry but will be dedicated to softwood rather than hardwood production. However it is generally accepted that the national estate will contract as those properties that have proven to be undesirable forestry sites move from forestry back to traditional grazing, cropping or in some cases dairying uses. This has given rise to a high degree of speculation about the costs associated with reverting land from forestry back to pasture or fallowed land ready for use.

There are two particular scenarios that typically emerge in dealing with removal of timber and re-establishment of pasture and farm infrastructure. The first relates to harvested properties where the tree crop has been removed and stumps and by-product remain on the land. The second is where low value tree crops are effectively abandoned and the land is cleared through complete tree removal. There are cost implications in both scenarios and a wide level of value discounting has emerged within the market place for the undertaking of these “forestry reversion works”.

Colliers International (Rural & Agribusiness/Research) considers the Esperance Region of Western Australia to provide an interesting perspective on the present problem of reversion cost impacts on value.

Reversion cost discounts and the withdrawal of plantation forestry in Esperance




For further information about our research please contact: Alex Thamm National Director | Valuation, Rural & Agribusiness Tel +61 8 8305 8878 | [email protected]

The main developer of hardwood plantations within the Esperance Region was Integrated Tree Cropping Limited which was acquired by Elders parent Futuris Limited and later rebadged as Elders Forestry. Elders Forestry is understood to have owned in the order of 13,000 hectares of forestry plantation land and managed a further circa 46,500 hectares of plantations in the region.

Since its withdrawal from the forestry sector, Elders Forestry’s freehold estate has been totally divested and the leasehold arrangements terminated through landowner negotiation. The result of this orderly market activity is the emergence of a reasonable body of evidence demonstrating the level of discount that buyers in the market place have attached to the cost of removal of trees and restoration of alternative production.

An overview of rural transactional activity within the whole of the Esperance Shire in the period from 2007 to May 2014 is shown the table below. The data comprises all sales over 40 hectares with outliers and related party transactions removed.

The data is drawn from the entire Esperance Shire and takes in lower rainfall and value land to the northern portions of the Shire Area. The main area of tree farm development and the focus of our analysis is the Esperance Plains to the east and the inner north east district – areas that generally receive 600mm plus of annual rainfall and where land achieves a higher value.

The chart below shows the results of 10 tree farms that have been sold by Elders forestry to graziers, and are destined for reversion to grazing and or cropping uses. The sales indicate an average rate of $1,320 per hectare was paid for plantation land requiring clearing. Corresponding grazing land has been analysed to have achieved an average rate of $2,008 per hectare. The analysed forestry land values ranged from $1,000 to $1,575 per hectare, and not surprisingly the larger sites tended to achieve rates at the lower end of the value range (sales 1 and 5 in the chart).

PeriodNumber of

SalesTotal Value

Average $ per Hectare

Total Hectares

2007 44 $79,285,880 $2,182 44,379

2008 51 $124,074,404 $2,269 60,510

2009 20 $64,325,359 $2,030 33,435

2010 17 $74,165,234 $1,847 35,973

2011 36 $71,568,732 $2,088 39,335

2012 30 $51,735,832 $2,269 27,640

2013 39 $111,271,302 $2,039 62,042

2014 24 $39,992,202 $2,216 27,404

RURAL TRANSACTIONS IN ESPERANCE SHIRE 2007-14

Source: Landgate (WA Government)

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$0

$500

$1,000

$1,500

$2,000

$2,500

1 2 3 4 5 6 7 8 9 10

Rate

per

hec

tare

Area

(hec

tare

s)

Grazing ($ per hectare, LHS) Forestry ($ per hectare, LHS) Total Area (hectares)

FORMER FORESTRY SALES – ESPERANCE SHIRE

Source: Colliers International Research

We have determined that the ten forestry transactions included in our analysis indicate that on average, the land burdened with trees has achieved a discount of 35 per cent or $696 per hectare, under what we would assess as fenced, pastured and watered grazing land values, or arable land values as the case may be. We note there were additional forestry property sales recorded during the period however these transactions involved complicating factors associated with lease negotiations and have been excluded from our analysis.

It is possible that buyers within the Esperance district are factoring in less remediation cost that other regions, where cost estimates range widely from $600 to $1,600 per hectare and even higher in some instances. Possible influencing factors may include the removal of whole trees being a simpler exercise than dealing with stumped land. It is also possible that several good cropping seasons may have enhanced the appetite of buyers, some of whom may derive tax benefits through undertaking capital expense projects.

The image below shows reverted land where trees were bulldozed into rows and burnt over approximately 12 months.


As one of Australia’s major rural industries the Australian dairy industry directly employs approximately 43,000 people on farms and in manufacturing plants. It is primarily pasture based and has the ability to produce milk at a lower cost than many major milk producers in the world. Although it accounts for a small percentage of the world’s cow herd, Australia remains a leading exporter of dairy products.

More than 40 per cent of Australian milk production is exported, mainly as powder or processed product. The remaining 60 per cent is consumed domestically. Australia accounts for approximately 2 per cent of the world’s dairy production, though is ranked fourth in terms of world dairy trade (7 per cent), behind the United States (11 per cent) and the European Union (31 per cent), with New Zealand the largest (37 per cent). Australia’s major international markets for dairy products include China, Japan, Singapore, Malaysia and Indonesia.

Australia’s milk production has declined on average by approximately 1.8 per cent every year since 2002. The primary reason for the drop in total production is not due to declining cow production, which has in fact increased, but an approximate 20 per cent drop in cow numbers in Australia during this period. The impacts of drought and low water allocations in southeast Australia and up until recent times, poor milk prices, represent the key factors accounting for the decrease in cow numbers.

There are two distinct areas into which Australian milk production is directed – the liquid milk market and manufactured milk market. These two markets have different market characteristics and provide differing pricing outcomes for Australian producers. The proportion of milk that is directed to the manufactured milk market is largely dependent upon domestic consumption of fresh milk in Australia, with any production not used for fresh milk sales generally used for manufacturing.

Victoria has the largest milk production per capita. A larger proportion of its milk is used in manufacturing than other states

in Australia (approximately 92 per cent). Other states, such as Queensland, have much lower production per capita and as a result, direct only a small percentage of their production to manufacturing. Manufactured products include goods such as milk powders, cheese and butter. Given they are less perishable than liquid milk, manufactured milk products represent a significant proportion of Australia’s dairy exports.

The Australian dairy manufacturing sector is diverse and includes farmer-owned co-operatives, public, private and multinational companies. Co-operatives still account for approximately 35 per cent of the Australian milk output with the largest co-operative (Murray Goulburn) accounting for around 33 per cent of this output whilst Norco processes a proportion of the NSW milk intake at around 150 million litres. There are also publically listed companies including Warrnambool Cheese & Butter (now largely owned by Saputo) and Bega Cheese Limited with major multi-national dairy companies including Fonterra, San Miguel, Saputo and Parmalat that process the balance of supply. As well as the above mentioned companies and co-operatives there is a growing cottage/boutique dairy sector focussing on organics, bio-dynamics and associated specialised cheese, yoghurt and milk products.

Increased milk pricesFarm gate milk prices are influenced by milk quality and composition productivity and off-peak supplies. Farm gate milk price for southern producers opened the 2014-15 season on a high note with Murray Goulburn setting the opening price at $6.00 per kilogram of milk solids sending a strong price signal to farmers with Fonterra trying their best to match this at $5.80 per kilogram of milk solids. Both processors at this stage are forecasting closing milk prices at around $6.20 to $6.30. It is not clear at this stage what price other processors will open at but they are all expected to be around this price point, the most interesting will be Warrnambool Cheese and Butter as they look to increase profits as a result of a substantial purchase price.

DAIRY MARKETGood value and improving profits

2014




Negotiations on the Korea-Australia Free Trade Agreement (KAFTA) were concluded in early December 2013. The agreement when implemented will set most Australian dairy products on a journey to full trade liberalisation. The notable exception however is milk powders which were left out of the final agreement. While the majority of dairy products will see tariffs phased down over time some dairy products will enjoy zero tariffs. Dairy Australia estimates that the first year benefit of tariff savings for Australia through KAFTA will be in the order of $US 7.6 million, and that figure will grow year on year as the Country Specific Quotas (CSQ) volumes increase and the out-of-quota tariffs reduce.

The results from the Japan-Australia Economic Partnership Agreement (JAEPA) for dairy are less than those achieved by the KAFTA. Improvements are the provision of CSQ’s for cheese for manufacturing into processed cheese, and for cheese for shredding. Non-cheese dairy products to achieve improved access include ice cream; frozen yogurt; casein; milk albumens; lactose and milk protein concentrate. Dairy Australia estimates that the first year benefit of tariff savings for Australia under JAEPA will be in the order of $US 4.7 million, and that figure will grow marginally year on year as the CSQ volumes increase.

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$AU

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Farm Gate Milk Price ($/kg Milk Solids)

AUSTRALIAN FARM GATE MILK PRICES

Source: Colliers International and Dairy Australia

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AUSTRALIAN DAIRY EXPORTS

Source: Colliers International and ABARES

Dairy Portfolio VICValued by Colliers International.

Rising confidence and inquiryFarmer confidence has improved significantly in most regions over the last 12 months with 75 per cent of farmers now positive about the future of the dairy industry, compared to a low of 43 per cent this time last year according to the latest National Dairy Farmer Survey. Sentiment has increased significantly in six of the eight dairying regions with at least 70 per cent of farmers in each region now feeling positive about the future. For many farmers higher profitability compared to 12 months ago has improved their outlook. In 2012-13, 57 per cent of farmers reported making an operating profit. Expectations from the latest survey data show approximately 80 per cent of farmers will have made profits in the 2013-14 financial year.

The dairy market nationally is experiencing fair trading conditions with investment in farms relatively subdued but with a high level of enquiry at present. Although milk prices in 2013-14 have improved and farm margins have increased in some cases, many operators are still recovering from a number of years of little or negative income which may take a number of good seasons to recover from and we are starting to see the result of this recovery now with a higher level of enquiry for dairy farms.

In the milk processing market confidence has emerged with a number of purchases and acquisitions occurring in the last 12 months, the most prominent being the acquisition of Warrnambool Cheese and Butter (WCB) by Canadian dairy company Saputo. Further to this Unnamed investors have purchased a $52 Million stake Bega Cheese, whilst Fonterra has purchased the modern “Tamar Valley Dairy” in Tasmania which was sold in the hands of receivers for an undisclosed sum. In addition to this United Dairy Power has also traded hands to Chinese interest further reinforcing the demand in the processing sector at present which is likely to flow through to the farm gate.


In the last 12 months increased competitiveness for milk supply has become apparent with processors increasingly prepared to offer incentives in return for supply contracts. Most recently Fonterra has revamped its pricing structure to offer a higher base price whilst Bega Cheese is offering a three cents per litre incentive for 3 year supply contracts in Victoria and NSW whilst Murray Goulburn are offering pre-paid step ups to put money in farmers pockets at the start of the year rather than the end.

Key outlook factorsColliers International anticipates that the key issues that are likely to influence market conditions in the near term include:

• Interest rates, which if maintained at current levels will be supportive of operator’s profit margins;

• Weather conditions, which are very favourable at present with all major water storages full across the major dairying regions;

• The cost of feed, which is currently high due to a global shortage of cereals and the domestic market for hay is in tight supply however there is likely to be some price easing in hay and grain with good rainfalls received across many of the local grain growing regions and throughout Australia; and

• The Australian dollar, the value of which exerts significant impact on the Australian dairy industry’s global competitiveness. Resilient demand for the Australian dollar has driven the exchange rate back above 94 US cents, which represents a key challenge to holding milk prices at current levels.

Limited institutional grade assets Colliers International has noted significant interest return into dairy due to the demand coming from China with a number of offshore buyers currently looking for dairy assets. The biggest hindrance to this investment at present is the lack of institutional grade assets (at the farm gate level) with the scale suitable for these large institutional players. At present there are really only two major corporate dairy players including Warakirri Asset Management and ACE Farming Company. Both have a number of assets spread throughout Victoria and while Warakirri are not in expansion phase ACE are.

The factors supporting the potential for increased profitability include increased milk prices, potentially lower feed costs and land values. In terms of areas, one particular region with strong prospects is Northern Victoria. This region has undergone significant transformation in recent years. During the drought

many dairy and horticulture producers were forced to exit the market and sell down water entitlements. This process with the development of significant irrigation efficiency projects has meant that the remaining farms are well positioned for the coming years.

Murray Goulburn are in the process of spending around $70 million upgrading the Cobram facility to include a state of the art cheese cut and wrap plant which should assist in maintaining the current milk price points. The northern region is capable of producing similar volumes of dry matter production to that in east Gippsland. Now that water reliability is likely to be similar there is little difference in the regions, although northern Victoria benefits from significantly lower freight costs on purchased feed.

Colliers International maintains that there is good value in most dairy regions at present. This is due to lower asset values and high milk prices that will ultimately support and drive profitability. It is our view that a number of players will enter the market in the next 12 months looking to get a foothold in the Australian dairy industry which features entry costs that are lower than those associated with the New Zealand dairy industry.


For further information about our research please contact: Tim Jelbart Associate Director | Valuation | Tel +61 2 9257 0244 [email protected]

Dairy cow enterprise, SA Valued by Colliers International.


The Australian cotton industry is based primarily in NSW and Queensland with approximately 66 per cent grown in NSW and the remaining 34 per cent grown in Queensland. The major production areas in NSW stretch southwards from the Macintyre River on the Queensland border and encompass the Namoi, Gwydir and Macquarie valleys. Cotton is also grown along the Barwon and Darling Rivers in the west and the Murrumbidgee and Lachlan Rivers in the south.

In Queensland the major areas suited to cotton include the Darling Downs, St George, Dirranbandi and Macintyre valleys whilst regions such as Emerald, Theodore and Biloela in central Queensland are also cotton growing regions. These regions are shown on the following pages.

Around 70 countries in the world grow cotton. The six largest global cotton producers in 2013 by size were China, India, the United States, Pakistan, Brazil, and Australia. The four largest global cotton exporters by size are the Unites States, India, Brazil, Australia, and Uzbekistan. In both of these categories, the top five countries account for 70 per cent or more of the world market.

COTTON MARKET OVERVIEWLong term outlook supported by elevated global demand

2014


USA

Pakistan

India

China

Australia

Brazil27%

25%

4%

6%

9%

11%

GLOBAL COTTON PRODUCTION 2013

Source: Colliers International / Indexmundi

India

USA

Australia

Uzbekistan

Brazil

Burkina Faso

27%

19%

10%

7%

6%

3%

GLOBAL COTTON EXPORTS 2013

Source: Colliers International / Indexmundi

The Australian Bureau of Resource Economics (ABARES) maintains current estimates for world production of cotton in 2013-14 at approximately 25.7 million tonnes, a decline of 2 per cent on 2012-13. China is the world’s largest producer of cotton, but most of this is consumed domestically. The United States has been the largest exporter for many years. With the 2013-14 cotton picking underway lower production has been recorded throughout all major producing countries (with the exception of India). However, stronger than average yields are expected to offset the impact of lower levels of planted area.

China, Indonesia and Thailand are the main buyers of cotton followed by South Korea, Japan, Taiwan, Pakistan and Italy. China is the largest importer of Australian cotton and China’s cotton demand, which is primarily used to support its textile industry, has a direct and significant impact on the Australian cotton export industry of which we export approximately 68 per cent of our total production. The implementation of a Chinese government policy to purchase cotton directly from domestic producers for


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Number of Bales Produced

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NUMBER OF BALES PRODUCED & HECTARES PLANTED IN AUSTRALIA (227KG)

Source: Colliers International / Indexmundi & Cotton Australia

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9

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Total Production (227kg Bales) $/Bale (227kg) Long Term Average Price

LONG TERM AVERAGE PRODUCTION & COTTON LINT PRICES – AUD/BALE (227KG) JANUARY 2001 TO DECEMBER 2013

Source: Colliers International & Indexmundi

a national strategic reserve has resulted in the maintenance of relatively high cotton prices even though world production is currently in excess of consumption. World production has been at record levels for the past three years, however more than 50 per cent is held in the Chinese National reserve.

In recent times world cotton prices (in AUD) have been extremely volatile with prices ranging from $450 per bale up to $1,000 per bale in 2010-11 season. In 2013-14 gin-gate returns indicate $504 a bale (227kg - including the value of cotton seed and net of ginning costs) up from $486 per bale in 2012-13. For most growers this is on par with the average historical price of cotton ($481 per bale). ABARES forecasts suggest that a decline in return to Australian growers on the back of a decline in world prices for 2014-15 to around $498 per bale. This reduction could potentially be exacerbated if China increases the release of the domestic stockpile to local buyers.

Dry seasonal conditions this season have restricted production throughout major growing regions of Australia driven by a significant reduction in dryland plantings. This has resulted in an estimated 8 per cent decrease in overall production in 2013-14 when compared with last season’s harvest of 1 million tonnes. Overall however, the last three years has seen record production figures for Australia largely driven by strong prices, good growing conditions and increasing consumption.

The graphs below provide an indication of the historic price points per bale for cotton and production volumes in Australia (including area planted) during recent times.

Large falls in production in 2001-03 and then again in 2005-09 were largely due to severe drought conditions that extended throughout most of the eastern seaboard of Australia. Prices were also at historical lows meaning that not only was production significantly lowered but that overall returns and profitability was low to negative. Looking ahead to 2014-15 ABARES predicts a decline in Australian production and exports driven by greater returns for alternate crops, particularly sorghum and drier than average seasonal conditions. That being said, both indicators will remain well above the previous long term averages prior to 2012-13. On a global scale the ABARES long term outlook remains strong for prices driven largely by growing world consumption on the back of greater assumed incomes and population growth in major apparel consuming countries.

Investment trendsThe last 24 months have seen a number of transactions throughout all major cotton production regions. However, there is a growing focus on the Murrumbidgee Valley as many of the large established cotton growers look to diversify into other valleys. Increased demand for properties suited to cotton production within the Murrumbidgee Valley can be attributed to a lower capital cost of land when compared to cotton farms in the northern regions, typically higher water security and the similarities in yield. On the back of this increase in demand, the Murrumbidgee is experiencing significant growth in cotton ginning demand. With one gin already constructed at Leeton and two more forecast within the next 12 months, the demand for properties in this region in particular is on a solid footing.

Darlington Point Aggregation, NSWValued by Colliers International.




For further information about our research please contact: Angus Barrington-Case Director | Valuation | Tel +61 2 9257 0242 [email protected]

VALLEYAIRPORT

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Macquarie

Cas tlereagh

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© Colliers International

Property Name Location Vendor Purchaser Land Area Sale Price Sale Date

Macintyre Downs Aggregation Macintyre Valley, QLD PrimeAg Australia

LimitedGlobal Ag Properties Pty Ltd (TIA-CREFF) 5,376 ha (approx.) $34,500,000 February 2013

Bengerang Gwydir Valley, NSW KFT Investments Australian Food and Fibre

2,270 ha (approx.) $20,400,000 December 2013

Riverpoint Aggregation Macquarie Valley, QLD Riverpoint Enterprises Panizza 5,315 ha (approx.) $19,200,000 November 2013

Ravensworth South Murrumbidgee Valley, NSW Harris Tandou Limited 7,670 ha (approx.) $33,200,000 December 2013

Warra Darling Downs, QLD PrimeAg Australia Limited

Global Ag Properties Pty Ltd 4,395 ha (approx.) $21,000,000 (approx.) March 2013

Gundaline Murrumbidgee Valley, NSW Twynam Agriculture Southern Agriculture 15,000 ha (approx.) $25,000,000 (approx.) February 2014

Examples of market activity in the sector


Beef production plays a central role in the Australian agribusiness sector. The Australian Bureau of Agriculture and Resource Economics (ABARES) estimates that during the 2012-13 financial year the total gross value of Australian cattle and calf production including live exports was AU$7.7 billion with approximately 55 per cent of all Australian farms carrying beef cattle.

Australian beef production can be divided into two main regions, being southern and northern production. The main destination for Southern Australian grown beef is the domestic market with much of the beef and veal originating from South Eastern Australia’s higher rainfall regions. In contrast, northern cattle tend to be grown for live and packaged export markets.

The northern beef market comprises the Northern Territory, Queensland and the northern portion of Western Australia. It accounts for 8,800 of Australia’s 32,350 broad hectare beef producing farms (ABARES 2012-13). The northern market is characterised by the production of primarily Bos Indicus breeds including Brahman, Santa Gertrudis and Droughtmaster with the vast majority developed for export.

According to ABS data, over the 10 year period between June 2002 and June 2012 total cattle numbers in Queensland, Northern Territory and Western Australia increased by 15 per cent. High stocking rates continued until mid-2012 however, the onset of an extensive dry period throughout the second half of 2012 and into 2014 has had a significant impact. The continuous build-up of stock prior to the failure of the northern wet season resulted in a large offload of slaughter age cattle and movement of stock to southern states. ABARES indicates that saleyard prices in real terms for all classes of beef cattle fell by 1 per cent during 2013-14 to the lowest recorded since 1997-98.

Australian beef exports comprise chilled and frozen meat products, breeders and live animals for offshore processing. Australian live cattle exports sent from northern ports (Darwin, Townsville, Broome, Wyndham, North Queensland and Pilbara) between 2010 and 2012 decreased by approximately 170,000 head or 31 per cent. This decline is due largely to a 350 kilogram weight limit enforced on all cattle exported to Indonesia in 2010 and a reduction in export permits following the live export ban to Indonesia in 2011.

Australia’s live exports have increased considerably in recent times following a decision by the Indonesian Governments to postpone its requirement to become 90 per cent self-sufficient in beef consumption by 2014 and to increase their number of import permits. This combined with rising demand from Vietnam and Israel has resulted in ABARES estimating that Australian Feeder and slaughter cattle exports have increased by 93 per cent in 2013-14 to 990,000 head.

The southern beef market centres on the production of primarily Bos Taurus cattle with breeds including Angus, Hereford, Charolais and Shorthorn. The majority of southern production is destined for the domestic market which accounts for 35 per cent of all beef or veal produced in Australia.

The Eastern Young Cattle Indicator (EYCI) is the main reference point for cattle prices in Southern Australia. Gains have occurred

BEEF MARKETGrowing Asian, Middle East and established markets to drive beef demand

2014


Kangerong Station, Chartes Towers QLDSold by Colliers International.



in the first half of 2014 following depressed prices well below the 350 cents per kilogram carcass weight (cwt) throughout much of 2013. The graph below provides an indication of the variability of the EYCI and the current pricing in relation to previous years.

The EYCI has tracked well below averages for the past five years as a result of excess supply which has been compounded by poor seasonal conditions. According to ABARES the Australian cattle and calf slaughter is estimated to have increased by 13 per cent in 2013-14 to 9.6 million head which is the highest since 1978-79.

Demand for boxed beef from major export destinations has ensured that the underlying strength of beef and veal exports has remained healthy. The graph below outlines the dominant countries to which Australian beef and veal is exported.

Japan, US and South Korea remain key importers of Australian beef and veal while the expansion of exports to China is occurring at a rapid rate. According to MLA statistics in the 2011-12 financial year, total beef exports to China were 7,736 tonnes shipped weight. In the 2012-13 financial year exports to China were up by 1,093 per cent to a total of 92,279 tonnes.


For further information about our research please contact: Rawdon Briggs Director | Agency | Tel +61 7 3370 1764 [email protected]

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29%

20%

South Korea

China

USA

Japan

Other

Saudi Arabia

CIS – Russia

Indonesia

Philippines

Taiwan

MAJOR BEEF AND VEAL EXPORT DESTINATIONS 2013

Source: MLA/Colliers International

EASTERN YOUNG CATTLE INDICATOR

Source: Colliers International Research / MLA

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Australia’s long term outlook for beef producers is positive. This is largely due to robust relationships with export partners which have been boosted by recent trade agreements with Japan and Korea. It is not surprising that the key opportunities for the industry are centred on the export market. There are three key factors which will have a marked impact on the Australian beef export market. Firstly, a sustained Australian dollar currency depreciation would lift Australian exporters’ competitiveness. Secondly, the completion of construction of the AACo’s abattoir in 2014 which will provide an alternative to live export markets for the northern region. And thirdly, the significant opportunity for a more affluent China and the Middle East to continue to grow as export partners.

From a property perspective, land values remain below pre-GFC levels. Some sales in drier areas have seen price reductions in the order of thirty per cent. High numbers of receiver sales has been a market feature over the last 12 months. However, as most receiver stock is selling, the transactional activity and including some competition in the market is leading to a slight rise in market confidence.

The Northern Territory market has seen more interest and sales in the large scale beef enterprises, with notable sales including:

• Riveren & Inverway: 5,554km² with carrying capacity 40,000 head sold to JAPFA Santori

• Willeroo: 22,000 head capacity sold to Great Giant Livestock

• Killarney: 5,515km² with 41,000 head, sold to Jumbuck Pastoral

• La Belle Downs & Welltree Station: 22,000 head capacity on 994km² purchased by AA Co.

The northern market has seen rising enquiry and competition as the growing export market starts to show promising signs with rising Free On Board price per kilo rates. Between December 2013 and April 2014 exporters saw $2.35/kg for trade steers, the highest they have been since late 2011. Meanwhile the Queensland market remains affected by severe drought and high volumes of receiver sales. There have been some notable sales in regions where rainfall is a little more reliable, though properties that are selling are generally significantly improved with water infrastructure and improved land systems. Overall it remains a buyers’ market, but from an industry perspective the longer term outlook is positive.


Export prices have grown further over the last year on the back of solid demand from China together with the return of traditional markets such as Australia, the United Kingdom and the European Union. The value of agribusiness, economies of scale, revenue returns achievable and the corporatisation of the sector is stimulating the property market. National aggregated values of properties sold worth NZ$5 million and over in the rural sector reached just over NZ$1.7 billion in the June 2014 year, with the outlook for another bumper year ahead.

The New Zealand Institute of Economic Research (NZIER) predicts major trading partner growth to hit 3.4 per cent and grow to 3.9 per cent in 2016. This is expected to augment demand for primary products, with rising expectations for high-end value commodities sought after in the United Kingdom and European Union such as lamb leg and middle cuts and wine. Asian partner trading conditions continue to thrive, with strong demand, especially for dairy, meat, wool, wood and seafood.

The RBNZ and Treasury forecast for the NZ dollar to soften against our major trading partners. The increased competitiveness in pricing will provide a boost to gross revenue across the agricultural sector, which is expected to rise by 10 per cent over the next four years to NZ$7.7 billion after an impressive 73 per cent rise over the last year, according to Statistics New Zealand (StatsNZ) and Ministry for Primary Industries (MPI).

The increasing importance of the agricultural sector is leading to the structure of the family-farm model in New Zealand undergoing substantial change. This is being fuelled by the relative profitability of agribusiness, technology, growing importance of exports, amalgamation of farms for economies of scale, land value growth and increased intensity. In addition, there is an increasing requirement for advanced skills and capability for farm management to reach its maximum potential and profitability to remain globally competitive. This is leading to further corporatisation of the farming sector in New Zealand, which is a trend set to continue.

Access to water has been a critical component driving the value growth in farms, particularly in the dairy sector. A NZIER study on the benefits of further investment into irrigation schemes has led to the irrigation acceleration fund from the Government. This has the potential to support 340,000 hectares of new irrigation and boost exports by $1.4 billion a year by 2018, rising to $4 billion by 2026.

In regards to climate, the outlook for June to August 2014 is for average to higher air temperatures than normal across most areas in New Zealand. Rainfall, however has a 45 per cent to 50 per cent probability of being normal, according to NIWA.

Overall commodity prices have softened from the record highs achieved for most of 2013 and early 2014. Oversupply in international milk production was created from greater efficiencies and innovation together with more competition from the EU, US and Australia. This increased production may depress prices in the short term, but medium to long-term growth forecasts suggest strong rises in the future. In the short-term, rises in other commodities such as meat and wool, fruit and wine are likely to assist total growth.

NEW ZEALAND MARKETAnother bumper year ahead for New Zealand rural and agribusiness investment

2014


Pastoral Portfolio, Riverina NSWValued by Colliers International.



New Zealand HighlightsDairyMuch of the demand for dairy is arising from emerging markets in Asia, with China leading the pack. Exports to China have grown from NZ$0.2 billion revenue in 2001 to $6.1 billion for the year ended March 2014. New Zealand is a heavy weight in the top four largest dairy exporting nations, but the others including the US, EU and Australia have also raised milk production. New Zealand’s focus on biosecurity, innovation, irrigation and investigation on limiting seasonal and climate impacts on products should assist to keep the New Zealand dairy industry in a commanding position.

Meat and woolThe focus on dairy has resulted in lower herd and flock numbers domestically and abroad. The rising demand for meat and wool products from Asia, the US and the UK along with technological advancements in breeding is assisting to counterbalance reducing numbers. The total meat and wool export market is at NZ$6.5 billion and is expected to reach NZ$9.4 billion by 2018.

ForestryThe demand for wood and associated products from Asia is strong, with MPI forecasts showing log export prices will average the highest levels since the 1990s. The record prices and increase in volumes is likely to lead to lower prices in the 2014-2015 season before rising again thereafter.

HorticultureConfidence remains high in the horticultural sector with 58 per cent of producers expecting the rural economy to improve in the year ahead, according to the latest Rabobank Rural Confidence Survey. The recovery in the kiwifruit industry following the PSA outbreak combined with stronger pricing are the major reasons.

ViticultureA record vintage of 420,000 tonnes is expected for 2014, up 22 per cent year-on-year, according to New Zealand Winegrowers. There are now over 35,000 hectares of vineyard planted areas, with strong demand for Marlborough Sauvignon Blanc variety leading to more planting. Australia (31 per cent), the US (24 per cent) and the UK (22 per cent) continue to be New Zealand’s largest export markets, according to StatsNZ.

Date Address Location Type Sale Price Land Area (ha) Rate/Hectare

1H14 126 Ealing Montalto Rd Canterbury Dairy $64,940,000 1,284 $50,576

2H13 114 Griggs Rd Canterbury Dairy $25,100,000 413 $60,775

1H14 1957 Mangaohone Rd Wanganui Grazing $24,000,000 439 $54,676

2H13 Elderslie Rd North Otago Dairy $19,500,000 443 $44,018

1H14 Wharere Rd Bay of Plenty Dairy $19,025,000 404 $47,089

1H14 187 McNally Rd North Otago Dairy $18,500,000 594 $31,164

2H13 1612 Ashburton Staveley Rd Canterbury Dairy $16,600,000 329 $50,456

1H14 278 & 301 Forks Rd Canterbury Dairy $16,500,000 343 $48,160

1H14 Cowans Rd North Otago Dairy $16,600,000 454 $36,344

2H13 16 Froggat Rd Southland Dairy $16,372,190 433 $37,845

FASTEST GROWING EXPORT COMMODITIES (TOP 10 COMMODITIES & TOP 3 MARKETS)

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Beverages

Precious metals & stones

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Miscellaneous food items

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2008-13 change/$b

FASTEST GROWING EXPORT COMMODITIES (TOP 10 COMMODITIES & TOP 3 MARKETS)

Source: Statistics NZ / NZIER / Colliers International

Source: Statistics NZ

Record dairy sale price leads buoyant year of rural salesThe aggregate value of rural property sold in New Zealand over NZ$5 million in the June 2014 year reached just over NZ$1.7 billion. The result was boosted by the sale of a 1,284ha dairy farm in Ashburton which sold in March 2014 for just under NZ$ 65 million. This is the highest price for a dairy farm recorded by REINZ, and the farm is now reportedly under full New Zealand ownership.


Sales activity remains the strongest in the South Island, a reflection of its high rural to urban ratio and its size, being a third larger than the North Island. Of the top 10 sales, eight were in the South Island and all except Southland were on pivot irrigated farms. In the June 2014 year, South Island rural sales of NZ$5 million and over accounted for 56 per cent of the volume and 63 per cent of the aggregate value of total New Zealand sales, according to REINZ data. Around 47,000 hectares of land was transacted, most of which was located in Canterbury. Many of the purchasers are existing landowners and operators using strong cash flow to borrow to purchase more land and overseas funds.

Dairy farm sales comprised approximately 60 per cent of the 200 plus sales recorded over the last year above NZ$5 million, with rising prices achieved per hectare a trend set to continue as competition for optimal production sites rises. Purchaser confidence is underpinned by high revenue growth from the dairy sector that has been achieved over the last decade. Given the emerging markets’ growing demand for New Zealand branded dairy products and other high-end value commodities, aggregated sales value of properties in the dairy sector, which reached NZ$1 billion in the year to June 2014, is forecast to grow to around NZ$1.18 billion over the next five years.

Dairy remains the considerable focus for many and conversion and expansion of other rural land uses into dairy remains strong. The appetite for conversion land is causing the average price per hectare of all land uses to rise. Grazing land in the South Island accounted for half of the rural property sales in the South Island in the June 2014 year, with a high proportion to be used for conversion or supporting dairy activity. The rate per hectare for grazing land NZ$5 million and over averaged $31,050 hectare in the June 2014 year, according to REINZ.

Offshore interest gathers paceNew Zealand’s agribusiness growth and the attractiveness of primary products to offshore markets have attracted the attention of international purchasers. This trend relates to the corporatisation of the primary sector with international interests looking to grow and enhance production, increase certainty in the supply chain and increase their skills and management capability in a country globally renowned for agribusiness.

Foreign direct investment (FDI) in New Zealand reached NZ$101 billion, up from NZ$90 billion in 2008. Just under half of New Zealand’s FDI originates from OECD countries, with 45 per cent from APEC. Just 5 per cent comes from the EU with 2 per cent from ASEAN countries. The Overseas Investment Office (OIO) for 2014 year-to-date, approved a total of 39 applications across all commercial and rural sectors, with no declines.

Over the last three years there has been a resurgence in agriculture, forestry and fishing FDI, hitting a new high in the year to March 2013. FDI increased from a cyclical low NZ$3.7 billion in the year to March 2011 to just under NZ$4.8 billion in the year to March 2013.

In the first half of 2014 a number of major transactions have occurred across multiple sectors. This includes:

• $212 million investment by China Mengniu Dairy Company, the majority shareholder of Yashili, intends to continue to construct a milk processing plant in Pokeno.

• SFL Holdings Limited (74 per cent Chinese ownership, 26 per cent New Zealand ownership) to acquire up to 100 per cent of the shares in Synlait Farms Limited .

• Ceol & Muir Inc. with a 50 per cent split in ownership from Italy and Argentina was granted OIO approval to take over and develop the farming operation at Onetai Station.

• A large-scale farming business Craigmore Farming who bought two 400 plus hectare farms in the South Island. Matariki Forests, the third largest owner of forestry in New Zealand with 66 per cent ownership in the US, purchased 309 hectares of land in Opotiki.

• Qwil Investments (the majority of ownership split between various Hong Kong (SAR) owners) and Accolade Wines (US and Australia with 38 per cent and 19 per cent ownerships stakes) have purchased 596 hectares under a freehold and leasehold deal respectively.

Tomato Exchange Glasshouse, Guyra NSWValued by Colliers International.



The Overseas Investment Office (OIO) assesses applications from foreigners who intend to make substantial investments in New Zealand. Under the Overseas Investment Act of 2005, foreigners must obtain consent to acquire:

• or ‘take control’ of 25 per cent or more of New Zealand businesses or property worth more than NZ$100 million,

• non-urban land over 5 hectares and/or land over 0.4 hectares that includes ‘sensitive’ land (e.g. reserves, historic areas),

• parts of islands and

• land over 0.2 hectares that includes or adjoins the foreshore.

Decisions need to provide specific satisfied criteria for a substantial and identifiable benefit to New Zealand such as the creation of jobs, previous investments, economic interest, advance significant Government policy or strategy and increase export receipts.

For 2014 year-to-date, the OIO have approved a total of 39 applications across all commercial and rural sectors, with no declines.

A bright outlook for New Zealand’s rural and agribusiness property marketsThe outlook for the rural and agribusiness sector is strong with continued domestic and offshore purchases, especially in the dairy sector. Overseas buyers for both forestry and farming assets will continue to seek opportunity as major funds look to balance portfolios, taking advantage of New Zealand’s safe investment status on the doorstep to Asia’s growing demand for protein. New infrastructure investments most notably dairy plants and irrigation schemes are expected to boost productivity as regional towns benefit from unprecedented spending streams from the surrounding rural and rural service industries. We expect greater focus from purchasers on the South Island, encouraged by the ongoing expansion of irrigation schemes throughout Canterbury and North Otago. Substantial investments from North American, European and Asian funds will continue with New Zealand’s favourable dollar allowing investment yields that are significantly higher than their home markets presently provide.

Accolade Winery Portfolio, NSW, VIC, SA, WA & TASValued by Colliers International.


For further information about our research please contact: Chris Dibble National Manager | Research | Tel +64 9 359 7919 [email protected]


120 properties totalling over 293,000 hectares, with a value in excess of $420 million

Our experience



ASFI Portfolio WA, SA, VICc. $40 million

Portfolio of leased blue gum plantations.

Bengerang Farm Garah, NSW$20.4 million

Irrigation asset including plant.

La Belle & Welltree Station Adelaide River, NTc. $27.1 million

Large grazing property of approximately 200,000 hectares.

Kangerong Station Charters Towers, QLD$9 million

Cattle property approx. 22,400 hectares.

Norton Mandeville Gretna, TAS$6.5 million

Irrigated and dryland cropping and grazing property.

Barossa Valley Vineyard Portfolio SA$5.8 million

Portfolio of vineyards.

CPVP No 1 & 2 Glenroy, SA$4.9 million

Large commercial vineyard, plant & equipment.

Kriedemann Farms Woongoolba, QLD$3.2 million

Two sugar cane properties.

Russell’s Barossa Valley Portfolio Krondorf, SA$2.28 million

Portfolio of vineyards.

Riverland Cold Stores Loxton, SASold

Cold storage facility.

Scotchmans Hill Wines Drysdale, VICUnder contract

Winery business only.

Dukes Plains Thoedore, QLD$6 million

Bio-diversity offset comprising of approx. 7,900 hectares.

sold

IN THE LAST 18 MONTHS


242 assets totalling over 3.72 million hectares, with a value in excess of $2.5 billion



Poultry Breeder Farms NSW & SAPoultry

Two large scale leased Poultry Breeder portfolio’s comprising of 9 farms.

Accolade Winery Portfolio NSW, VIC, SA, WA, TASWineries & Vineyards

5 wineries and 13 vineyards.

SLM Pastoral Portfolio NSW & QLDPastoral

Holistic grazing portfolio comprising of 800,000 hectares.

Linley Valley Pork WAPiggeries

Two piggeries and a large scale pork abattoir.

Tomato Exchange Glasshouse Guyra, NSWHorticulture

Purpose built 200,000m² Glasshouse tomato production.

Green Triangle Pine Portfolios VIC & SAForestry

64 softwood plantation sites and various ancillary assets.

Dairy Portfolio Cobram, VICDairy

Portfolio of 4 dairies approx. 1,150 hectares.

Oyster Leases South Coast, NSWAquaculture

Oyster Business comprising of 8 leased assets.

Pastoral Portfolio Riverina, NSWGrazing & Cropping

Mixed farming portfolio approx. 230,000 hectares.

Bluegum Portfolio VIC, SA, WAForestry

68 hardwood plantation sites.

Almond Plantation Hillston, NSWHorticulture

Established Almond Orchards approx. 1,900 hectares.

Irrigated Cotton Hay, NSWIrrigation

Irrigated Cotton Operation approx. 8,000 hectares.

valued

UNRIVALLED EXPERIENCEWe are the leading provider of strategic rural and agribusiness property solutions and advice to corporate and rural Australia and New Zealand. From aquaculture to viticulture, rural retreats to sheep and cattle stations, the team provides agency, consultancy and valuation services, representing the largest rural and agribusiness specialisation residing in a first tier international property services provider.

• Disposals and acquisitions advice and recommendations• Lease deals and agreements• Transaction management• Single asset and portfolio assignments• Trust requirements• Balance sheet compliance• Merger and acquisition • Capital raising• Corporatisation and privatisation• Insurance purposes• Feasibility studies and highest and best use analysis• Legal/expert witness including compulsory acquistions

Let us accelerate your success. Speak to one of our Rural & Agribusiness experts today. e: [email protected]

We offer a full range of agricultural property solutions...

Across every agribusiness property and business type...

Everywhere• 24 offices across Australia

• 16 offices in New Zealand

We have the local and global strength and coverage to ensure a successful outcome for this sale process. In the local market we have expertise in;

• Irrigation including cotton production and ginning• Agribusiness infrastructure including post farm gate production• Large scale beef and sheep grazing• Poultry • Vineyards, wineries and cellar door enterprises• Horticulture • Sugar production• Broad hectare cropping• Dairies• Piggeries• Seafood• Agribusiness plant and machinery• Blood stock breeding and agistment

Mike Laven Rural & Agribusiness+64 21 681 272

Duncan Shaw Senior Valuer+61 425 750 051

John Harrison Assistant Valuer+61 8 8305 8807

Alex Thamm National Director +61 409 595 415

Nick Dean OAM, National Consultant +61 411 267 136

Jesse Manuel Manager+61 421 550 242

Tim Altschwager National Director +61 408 814 699

NEW ZEALAND

BRISBANE

ADELAIDE

SYDNEY

PERTH

MELBOURNE

Nick Cranna Associate Director +61 421 709 915

Greg O’Meara Executive+61 8 9261 6653

Rawdon Briggs Director+61 428 651 144

Tom Warriner Senior Executive+61 477 441 011

Angus Barrington-CaseDirector +61 438 384 485

Lachlan Higgins Assistant Valuer +61 400 239 739

Tim Jelbart Associate Director +61 418 314 312

Richard RoyleDirector +61 418 961 575

UNRIVALLED EXPERIENCEWe are the leading provider of strategic rural and agribusiness property solutions and advice to corporate and rural Australia and New Zealand. From aquaculture to viticulture, rural retreats to sheep and cattle stations, the team provides agency, consultancy and valuation services, representing the largest rural and agribusiness specialisation residing in a first tier international property services provider.

• Disposals and acquisitions advice and recommendations• Lease deals and agreements• Transaction management• Single asset and portfolio assignments• Trust requirements• Balance sheet compliance• Merger and acquisition • Capital raising• Corporatisation and privatisation• Insurance purposes• Feasibility studies and highest and best use analysis• Legal/expert witness including compulsory acquistions

Let us accelerate your success. Speak to one of our Rural & Agribusiness experts today. e: [email protected]

We offer a full range of agricultural property solutions...

Across every agribusiness property and business type...

Everywhere• 24 offices across Australia

• 16 offices in New Zealand

We have the local and global strength and coverage to ensure a successful outcome for this sale process. In the local market we have expertise in;

• Irrigation including cotton production and ginning• Agribusiness infrastructure including post farm gate production• Large scale beef and sheep grazing• Poultry • Vineyards, wineries and cellar door enterprises• Horticulture • Sugar production• Broad hectare cropping• Dairies• Piggeries• Seafood• Agribusiness plant and machinery• Blood stock breeding and agistment

Mike Laven Rural & Agribusiness+64 21 681 272

Duncan Shaw Senior Valuer+61 425 750 051

John Harrison Assistant Valuer+61 8 8305 8807

Alex Thamm National Director +61 409 595 415

Nick Dean OAM, National Consultant +61 411 267 136

Jesse Manuel Manager+61 421 550 242

Tim Altschwager National Director +61 408 814 699

NEW ZEALAND

BRISBANE

ADELAIDE

SYDNEY

PERTH

MELBOURNE

Nick Cranna Associate Director +61 421 709 915

Greg O’Meara Executive+61 8 9261 6653

Rawdon Briggs Director+61 428 651 144

Tom Warriner Senior Executive+61 477 441 011

Angus Barrington-CaseDirector +61 438 384 485

Lachlan Higgins Assistant Valuer +61 400 239 739

Tim Jelbart Associate Director +61 418 314 312

Richard RoyleDirector +61 418 961 575

How else can we help you?

Speak to one of our property experts today.www.colliers.com.au

www.colliers.co.nz

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Colliers International does not give any warranty in relation to the accuracy of the information contained in this report. If you intend to rely upon the information contained herein, you must take note that the information, figures and projections have been provided by various sources and have not been verified by us. We have no belief one way or the other in relation to the accuracy of such information, figures and projections. Colliers International will not be liable for any loss or damage resulting from any statement, figure, calculation or any other information that you rely upon that is contained in the material. © Colliers International 2014.

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