Australian Dairy Farms – Opportunities to be milked?
Australian Dairy Farms – Opportunities to be milked?
26 February 2014
Sydney, 26 February
Australian dairy sector has been in the headlines recently as the takeover
battle for dairy processor Warrnambool Cheese & Butler (WCB) played
won by Canada’s Saputo, the level of competition and premium price paid for WCB
is an early indicator as to the strategic positioning underway in the dairy
sector on the back of higher global demand and prices for dairy products.
Director of Agribusiness, Robin Gardiner, expects to see increased corporate or
large scale investment in Australian dairy farms over the next couple of years.
corporate investment in Australian dairy farms has been occurring over the past
10 years, only 3% of our dairy farms are actually owned by corporates,’ said Mr
Gardiner believes there are many factors at play in driving the increased
levels of investment.
has been a sharp increase in investing in Agribusiness assets across the board
in recent years. Dairy farms are particularly appealing to shareholders and
investors as they have a regular cash flow and the ability to lock in milk
prices, as opposed to many other agri-commodities having more erratic cash
drivers of investment include:
for processors to vertically integrate to secure milk supply - increases
competitive tension in the property market for strategic larger scale assets;
of management systems and professional managers to optimise and monitor
production and ensure quality control – strong appeal to corporate and offshore
to increase dairy efficiencies/production in a relatively short timeframe
through investment in technical and agronomic improvements – requires new
capital and expertise;
reputation as a supplier of consistently high quality dairy products - reduces
investment risk, with potential for price premiums for niche products;
to quickly upscale production through dairy acquisition or greenfield and brownfield development;
prospect of new free trade agreements benefiting the Australian dairy sector.
the ongoing success of the dairy sector in New Zealand (they supply about 32%
of manufactured milk product to the world market), and the strengthening of the
$NZ against the $AUD, we are likely to once again see more investment from New
Zealand investors in Australian dairy farms, competing against Asian and European
recent Australian – South Korean Fair Trade Agreement is a positive influence
on the dairy property market, with the elimination of tariffs (up to 36%) on
Australian cheese entering South Korea. Pending Free Trade Agreements are also
expected soon between Australia and China and Japan.
immediate influences on the dairy property market include:
farm gate prices and processor competition - a stark contrast to the negative
impact the Coles/Woolworths $1/litre campaign had on the market.
sharp increase in live dairy cattle exports which are up 34% to 87,300 head for
the year to 30 June 2013 –another revenue stream underwriting returns.
certainty around water policy for irrigation based businesses.
low interest rates.
seasonal conditions in most production areas.
range of vendors who are financially distressed or post retirement age.
Australia the rationalisation of the dairy production sector has been ongoing
over the past 30 years with some 15,600 dairies ceasing to exist since 1980.
Numbers are now down to 6,400. The average milking herd has increased
dramatically from about 90 (in 1982) to 260 head per dairy today. The national
dairy herd is currently at about 1.65million head, well below the peak of
2.17million head in 2001. CBRE
Agribusiness expects this rationalisation and up-scaling to continue, driven by
improved efficiency objectives and the deployment of new capital.
the relatively positive global dairy market sector settings at present, with
reports of Asian demand growing by at least 5% annually, and despite the
deteriorating seasonal conditions in many of the main dairying areas in
Australia at present, CBRE believe it is an opportune time to invest in
Australian dairies, whilst the dairy property market is near the bottom of the
cycle. The current seasonal challenges
favour buyers as vendor anxiety increases.
recent specific example of how values have changed in recent years is the
pending sale of a modern 60 unit rotary dairy with irrigated pastures located
in south west Victoria. The negotiated
sale price in late 2013 was nearly 50% below the sale price achieved in 2008,
just after the peak in the market. CBRE
do not expect this level of discounting to continue in the medium term.
dominates the dairy market with about 67% of all the dairies in Australia being
located in the state.
Agribusiness research of a large section of the Victorian dairy property market
(refer to the table below) confirms that overall the volume of dairy farm
transactions has been in decline since the peak of 2006/07 at about the time
when dairy property values also peaked.
dairy property market appears to have reached the bottom of the cycle and
offers potentially attractive returns.
In some cases dairy farms can be purchased at up to 50% of their current
replacement cost – it is an opportunistic time to invest,” Mr Gardiner concluded.
Agribusiness are aware of in excess of $135million (excludes cattle herd value)
worth of dairy farms with a combined production output of circa 120 million
litres, currently available for sale.
Given that dairy property values generally lag significant movements in
milk prices, there are currently some attractive investments opportunities in
the dairy property market.
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About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (in terms of 2013 revenue). The Company has approximately 44,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 350 offices (excluding affiliates) worldwide. CBRE offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. Please visit our website atwww.cbre.com.au.