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Chicken features in recipe for ag investments

Liz Wells, March 8, 2021

Riverlands at Blanchetown is one of two farms in AAMIG’s Southern Cross Poultry Fund. Photo: AAM

INVESTMENT dollars are looking to the broiler industry as an attractive place to park capital as major operators Baiada and Ingham’s consolidate their operations.

As the industry achieves new levels of efficiency, the casualty is undoubtedly mum and dad operations rearing chickens in regions beyond the drawing arc of large-scale processing plants.

The winners appear to be mum and dad investors with some of their super in chicken, which continues to enjoy rising domestic demand and minimal exposure to offshore markets.

Growing appetite

Southern Cross Poultry Fund (SCPF) is one of AAM Investment Group’s (AAMIG) four investment funds, and owns two broiler farms in South Australia, one at Blanchetown and one at Murray Bridge.

“Of the $400 million in assets in all four funds all started since February 2018, SCPF has had the strongest growth, and that reflects the investor appetite,” AAMIG managing director Garry Edwards said.

The farms combined produce 20 million chickens per annum, and are the largest single supplier to Ingham’s Adelaide plant.

SCPF was developed with Ingham’s consolidation in South Australia in mind, and is a seven-year fund now in its second year.

“It’s likely to be integrated, and will give investors the choice of retaining, merging or divesting their interest.

“At this point in time, there appears to be an appetite to expand.”

Boosting the bottom line of the fund has been the project at its Blanchetown farm which turns 20,000 tonnes per annum of spent litter from a waste product into composted organic fertiliser which is sold to a local vineyard.

“We’ve taken a traditional expense line and changed it into an income line.

“There are significant costs in getting something like that up and running, but when you’ve got scale, those opportunities exist.”

Balanced with grazing

AAMIG kicked off its AAM Diversified Agriculture Fund (DAF) in January last year with $175M to complement SCPF and its two other funds which centre on softwood in New South Wales, and the northern Australian pastoral industry.

DAF’s investments are 25-30 per cent poultry, with the balance being beef, lamb and grains.

“Poultry is one of three pillars inside our diversified ag fund, because together with cattle, and sheep and lamb, it’s one of the three proteins that represents the largest portion of the domestic diet.”

“Poultry has its focus on the domestic market, and both beef and lamb have a domestic focus and an export element too.”

Mr Edwards said poultry provided a relatively stable cash yield, but broadacre enterprises provided capital growth and scope for land development.

“Poultry gives stability, and the others have volatility to give exposure to capital growth.

“We’re intentionally trying to create a blended return, and we manage risk by being across industries and locations.”

Mr Edwards said the AAMIG funds have averaged a cash yield of around 7-8pc, and 5-6pc in capital growth.

“We would expect that our diversified fund would grow by $160-$200M every year for the next two to three years.”

AAM describes itself as a business with its DNA entrenched firmly in family farming, and Mr Edwards said that selling poultry or other farms to AAMIG funds could form part of a family’s succession planning.

“Some have chosen to become investors in our funds so as to remain involved in agriculture by having an investment in a larger-scaled opportunity.”

Different view from offshore

Agriculture is a long game, and one could argue Australia’s institutional investors are at a disadvantage to their overseas equivalents.

This is because Australian law requires retail super funds to have an unusually high level of liquidity by global standards to ensure money is available to those wishing to withdraw.

It goes a long way to explaining why numerous European super funds, and the likes of PSP Investments from Canada and Nuveen from the United States, own sizeable chunks of Australian agricultural land.

Rather than being owner-operators like AAMIG, they either lease to an operator, or partner in a joint venture with a domestic entity which drives operations.

Mr Edwards said Australia’s changing investment landscape was offering some new opportunities through funds like AAMIG’s.

“Investing in agriculture isn’t new, but the way it’s done now is far more open.”

“People can invest in a vehicle without buying a farm.”

AAMIG invests money on behalf of wholesale investors, self-managed super funds and individuals, and Mr Edwards said COVID highlighted the appeal of agriculture as an investment class.

“When people saw food disappear off shelves, and the way agricultural supply chains coped with that, it showed itself to be the most resilient of industries.”

Single focus for ProTen

ProTen is the biggest producer of broilers in Australia, and annually produces close to 130 million birds, or roughly 20pc of Australia’s requirement.

Owned since 2018 by Australia’s second-biggest superannuation fund, Aware Super, it sits in the funds’ infrastructure and real asset portfolio.

Started in New Zealand in 1987, ProTen expanded into Australia in 2002, and now owns and operates more than 50 farms in total in every mainland state of Australia.

“We’ve more than doubled in six-and-a-half years, and it’s our mission to be Australia’s best chicken grower,” ProTen CEO Bill Williams said.

“Traditionally we have been solely Baiada suppliers, and we now have business with most other processors.

“It gives us more potential for growth.”

Operating poultry farms are so highly improved that their land footprint is small compared with unimproved agricultural land, but their operating profit is much higher driven by capital investment in that land.

“Our investment class is much more like an infrastructure investment.”

ProTen builds, redevelops and acquires existing assets on poultry farms to supply major processors.

Mr Williams said the expense of building sheds in larger farms or complexes needed to achieve economies of scale, and the rigours of compliance, have made it difficult for small family operations to invest and reinvest in new farms.

However, he said vehicles like ProTen allowed Australians to invest in poultry farming through superfunds such as Aware.

Tamworth rising

Baiada recently gained approval to triple its processing capacity at Tamworth to 3 million birds per week.

It is expected to replicate Baiada’s recently completed expansion at Hanwood in southern NSW, which has numerous suppliers including ProTen.

“One of our next direct developments in new farms over the next 5-10 years will be around Tamworth in supporting the Baiada expansion,” Mr Williams said.

“Tamworth requires new capacity to support expected growth; those sheds don’t currently exist in Tamworth, and we will be part of that bigger supply base.”

Mr Williams said the recent NSW drought was an initial inhibitor of ProTen’s expansion around Tamworth, where the company already has three farms.

These relied heavily on water from the Peel River, and Mr Williams said the building of on-farm storages, and potential access to bore water, have improved their water security.

“We prefer to have a dual source of water; that’s been a long slow process.”

ProTen in April last year received NSW Government approval to develop a poultry farm on its land at Rushes Creek in the Upper Namoi catchment to boost its production capacity in the Tamworth hub.

“This growth for Tamworth through Baiada is very exciting.”

It reflects confidence in the ability of chickens to efficiently convert a grain-heavy feed ration to meat, and into a market which has been expanding steadily for decades.

“The big efficiency in poultry meat production we’re seeing is due to the genetic improvement process worldwide that looks to continuously breed a better chicken.”

“It’s about feed conversion.”

“The cost per kilogram of meat to the consumer versus any other meat class is why we’re seeing significant growth.”

Fairglen Farms is a private poultry investor of significance.

Owned by John B. Fairfax and his family, last year the family purchased a mixed farm south of Manilla from the Russell family, and is seeking approval to increase the number of poultry sheds on that farm.

Fairglen CEO Janelle Cashin said that expansion will supply Baiada, while the farms it owns at Aratula and Rosevale south-west of Ipswich are supplying the Ingham’s plant at Murarrie in Brisbane.

“We have a few opportunities in the pipeline we are assessing, but we are not in any hurry,” Ms Cashin said.

“We intend to be best in class in all we do, so making the right investments at the right time is critical to our success.

Ms Cashin has been involved in the poultry industry since the 1990s, and spent years 14 years with Ingham’s in senior management.

Ms Cashin is also a non-executive director of SunPork, so is well across intensive animal production.

“It requires investment to get efficiency, and efficiency to attract investment.”

“The size of the poultry market is determined by domestic consumption and consumer trends.

“The processors determine the requirements and the timing of the capacity required; there isn’t a great deal of room for further consolidation in the sector at the moment.”

Australia’s per-capita chicken consumption overtook pig meat in the mid-1970s, sheep meat in the late 1980s and beef by 2008.

“It is an exciting time for Australia and all intensive agricultural industries.

“While water security will always be top of mind for investors, it is great to see some relief for locals in terms of the water situation around the Tamworth area.”

Rationalisation in broiler production was outlined in this Grain Central article published last month.

 

 

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