Kathryn House
Hello and welcome to Talking Property with CBRE. I'm Kathryn House, your podcast host, and in this episode, we're switching gears to discuss the sector that was Australia's number one performing property asset class in the two decades leading up to 2023. Can you guess what it was? Well, it might surprise you that it was agriculture, following a massive 256% spike in property values over that period, according to a new Australian Property Institute report. This was driven by a combination of record commodity prices, plentiful rainfall, relatively low input prices and low interest rates, which underpinned surging farm prices. More recently, the sector has contended with a range of challenges, including adverse weather conditions and the recent US Tariff announcement. But future optimism has been fuelled by rate cuts and a growing realisation that Australia's natural capital assets, land and water, are undervalued. Agriculture is also in the spotlight given conversations around renewables, carbon farming and biodiversity projects. So, with some of the world's biggest institutional investors now viewing agriculture as a core rather than a fringe investment sector, we'll explore what's next in this latest Talking Property episode.
Brad Wheaton
If you look around the world at the allocations that are being made to agriculture from for example, some of the Canadian pension plans, North American, European, a lot of the Japanese, large investors, they are very material and increasing.
Kathryn House
That's Brad Wheaton, one of the co-founders of leading Australian farmland manager Gun Agri Partners, which has more than 1 million hectares of land under management spanning cattle, avocados, macadamias, queen garnet trees and water assets.
Andrew Loughnan
The renewable component with the natural capital component that is blowing the doors off, to be honest, in terms of what's happening in that space.
Kathryn House
And that's Andrew Loughnan, a CBRE Agribusiness Director who recently transitioned into the agency sector after a 15-year valuations career. I hope you enjoy our conversation. Brad, thanks so much for joining Talking Property.
Brad Wheaton
Thanks for having me, Kathryn.
Kathryn House
Andrew, I've been trying to twist your arm to come onto the podcast for some time, so thanks for taking the time out.
Andrew Loughnan
Pleasure to be here, Kathryn.
Kathryn House
Perhaps to start with, Brad, can you tell me what inspired you to pursue a career in agribusiness, and give us a little background about the genesis of Gunn Agri Partners.
Braad Wheaton
Yeah, I guess I was born into a career in agriculture. My father was an agriculture teacher. Both of my grandfathers were involved in agriculture in very different ways and so it was always a very natural path for me. But I think an interesting aspect is how attractive Agriculture has been as a career over my lifetime and when I finished school, the entrance mark to get into an ag science degree at Sydney Uni was in the 50s. Today it's in the 90s. So, I think it's a great indicator of demand for those sorts of career paths. And what we're seeing today is young people choosing to enter the industry not just through university, but through on-farm and progressing into management roles. And the sector is all the better for it. As we can win talent from other industries, we're performing better in terms of Gunn Agri. Yeah. The genesis of Gunn Agri is really the founders. Dan Huff, I, Alan Hoppe, Bill Gunn and Jim Sutcliffe, some of us worked together, and we largely saw an opportunity to service investment organisations who were trying to enter agriculture in a way that was better aligned to their interests. And so Gunn Agri was really founded on a platform of the investment manager, putting investment proposals forward that are timely, that strategies match the opportunity set, but as a manager that we look to really align the way that we are remunerated and the way that we are incentivised with the performance of our underlying strategies and that we establish platforms that are really highly transparent. And that has been the basis for establishment, but really the basis for our growth has just been track record. And I think in this space, without delivering a track record and not going to be a long-term manager. And we're very proud that we've been on the back of our very first strategy, which was the Gunn Agri Cattle Fund. We now manage five strategies and one company in the natural capital space. And that's largely on the back of being able to demonstrate performance and sticking to the principles on which we were founded.
Kathryn House
And double-digit returns in some of your funds.
Brad Wheaton
Yeah, absolutely. And that's kind of what investors need to take risks to invest in agriculture. And so, you've got to be able to deliver those, which is in certain cycles and certain parts of our space. It's challenging at times and that's why you need to be able to put forward strategies that are timely, that are reflective of the opportunity set and that can deliver on those cash and capital growth return elements that investors want to see.
Kathryn House
So, Andrew, agriculture is also in your family bloodlines. Can you share why you're so passionate about the sector and what prompted your shift from valuations to agency side?
Andrew Loughnan
That is Right. Son of a Bush lawyer. Mum and dad had some country south of Mitchell towards Bowen not too far from Gun's inaugural acquisition asset for their cattle fund. For the last 15 years I've been operating as a valuer and had the absolute pleasure of getting under the hood of a few of our clients' companies, understanding, you know, what drives them, why they're looking at certain parts of the world. And off the back of that, the shift to agency part came as just serviceability. So, I've built a wonderful valuation team here at CBRE and it's about handing that off to that next generation. And the clients are craving, craving for a good quality agent. In short, that can bring a robust discussion a bit more credibility to the numbers and to the conclusions and to the strategy.
Kathryn House
So, you were one of the authors of the recent API report which spiked out agriculture as the country's top property performer. Can you expand a little more on why agriculture topped the list? And on the converse side, what some of the more recent challenges have been.
Andrew Loughnan
Author may be a stretch, but I got quoted in it. I'll take that one. But you know, it's interesting, that agriculture has been historically short on capital and a few advisors, be it the lawyers, the accountants, the valuers, whoever, they've been screaming out to Australian super funds for the last 20 plus years to come and invest in agriculture. So, I'm really hoping this report sort of lands on the desks of a number of those sorts of organisations just to make sure it takes agriculture out of the alternative class and make it more mainstream and form part of their overall portfolio.
Kathryn House
So, Brad, why do you think the superannuation funds haven't been investing in agriculture?
Brad Wheaton
I think the first point to note on that question is that some have but the generalisation is correct, the bulk of capital that sits in industry super funds in Australia hasn't got a material agriculture exposure. Some of them do and some of them have had positive experiences. And this is public information. But you could look at groups like REST who have continued to invest in the sector. You can look at groups like going all the way back to Vicsuper that have then been involved in several consolidations but have had long-term exposure to agriculture and water. So, they're just two examples. There are several others that have. But the essence of your question is I think why we haven’t seen more and why haven't we seen a more consistent allocation to agriculture like we do in a lot of North American pension plans and like we do in a lot of Europeans. And it's a question, we talk about this a lot in the Industry and I think there are a few contributing factors. One, the investment decision makers in these organisations have been around a long time and one of the things that they have is good memories. And so often there are decision makers who will go back and reflect on certain periods of volatility in the agricultural industry and put that forward as a reason. And I think some of those notable events were quite a long time ago. So whether it be particularly severe drought period and the exposure that they may have had. So for example, if you look at AMPs experience, some of their exposures historically they didn't perform. But the exposure set, what investors can have exposure to, in terms of what is agricultural investment exposure, has really evolved since then. So, largely those investments were in northern pastoral systems with quite concentrated risk. And there are very different ways of getting exposure to agriculture now. You know, row cropping or broad acre cropping, different livestock industries. But really what we've seen a proliferation of is exposure in water and horticulture and water in different parts of Australia. And I think that's an interesting opportunity set to look at now because whilst an institutional exposure going back 40 years, 50 years might have been producing beef in northern Australia, the opportunity set today that we're seeing investors looking for is quite innovative irrigation industries in northern Australia in sort of those similar areas. And this is on the cusp of institutional investment today, but it's a great example of how diversified agricultural investment has become. So really there are some other reasons why the industry super funds haven't taken up exposure and they get quite technical and it's around how their needs for liquidity and their measures of performance. But if you look around the world at the allocations that are being made to agriculture from, for example, some of the Canadian pension plans, North American, European, a lot of the Japanese large investors, they are very material and increasing. So I think as Australian investors progress, they will be more of a convergence with what is typical in those overseas institutions. We have a view that we are going to see increasing allocations. And I think some of those investors that we named at the beginning of my response here, their positive experiences will encourage others to increasingly allocate.
Kathryn House
Andrew, where are you seeing the bulk of the capital coming from now?
Andrew Loughnan
It's been quite interesting. We've probably had a harder year last year where everyone sort of just took a breath in the market after, you know, significant growth the last seven years. And so, you know, across the board it was probably hard to get genuine money engaged, but we saw it predominantly coming from overseas family offices. Those were the ones that were still more active. A lot of the corporates, they will probably sit and wait and see over the last 12, 18 months. But as of December into this year, it's changed again. So there's renewed optimism, there's renewed engagement and that's across all asset classes. From the grazing, the horticulture again has started to get a significant amount of interest and you know, the renewable component with the natural capital component that has blown the doors off to be honest, in terms of what's happening in that space.
Kathryn House
Well, it's a good segue from there. Brad, to ask you about one of your deals that you did two years ago with the Federal government's Clean Energy Finance Corporation and the Canadian based global investment group CDPQ. So effectively that created a new sustainable agricultural platform to drive down emissions and improve sustainability across the sector. How's that playing out?
Brad Wheaton
Yeah, it's been a transformative investment, I think not just for Gun Agri, but also the industry in terms of CDPQ having a long-term appetite to invest in what they frame as sustainable land management, which covers agriculture, timber and natural capital investments. And coming together with CFC who have really helped capitalise that investment by being the local boots on the ground and their unique position in having very strong insight into the opportunity set in the natural capital space in Australia. So the partnership between Gunn Agri, CFC and CDPQ have enabled one investment which was the Wilga farming platform and we're fully deployed in that strategy. Now our portfolio spans the northern cropping area in New South Wales, central New South Wales and southern WA. So we've got a diversified exposure. We produce winter and summer crops and optimise livestock. But one of the interesting things that we do in that platform as well is we also look for natural capital opportunities to add to the revenue and diversify the revenue streams and to also contribute to the decarbonisation pathway. So an example of that is implementation of an environmental plantings project that we have underway in our central New South Wales hub. And now that we are fully deployed, we systematically go through and look at what those opportunity sets are. One of those interesting opportunity sets which Andrew's touched upon is scope for integration of agriculture, natural capital, as I mentioned, but also looking for opportunities for renewable energy as well. And so that's one of the things that we do as a business. When we pull an aggregation together, we're obviously assessing its agriculture capability, its natural capital capability. And, we also look at 'is there an opportunity here for whether it be solar, whether it be wind, whether it be batteries'. And we haven't found any of those opportunities that are a fit yet, but it's a part of our process.
Kathryn House
So, Andrew, as an Agri industry, do you think that we're moving the needle yet when it comes to capturing the economic opportunities of the clean energy transition?
Andrew Loughnan
Frustratingly, from the sidelines, you'll always say it's not happening as fast as you'd like to see it. But yes, in short, yes, we are seeing it. We're seeing the change of use, we're seeing significant investment coming in. We talked about horticulture being a massive play, whether it's the almonds, the macadamias, the pecans, avocados which have had its run for a bit. So yeah, I'm looking forward to the next 20 years, however that looks like. And we'll add value hopefully where we can.
Kathryn House
So it's a much different landscape now, Brad, not just looking after managing income or capital growth, but you're managing carbon credits and biodiversity. It makes for a very different sector.
Brad Wheaton
Absolutely. And you think through the impact for landholders. So if you look for example at carbon credit streams, so they tend to be very different from agricultural revenues. So if you're a livestock producer or a grain producer, the revenues that you receive from a successfully implemented carbon credit project are very different, very consistent. They're able to be monetised at the discretion of the landholder. This is a hugely powerful tool for managing businesses in our sector and obviously help smooth volatility that might come due to climatic volatility, which we are seeing more of. So we think they really go hand in glove. But there are some important considerations as well and that is how it is done, how sympathetic to a sustainable long term use for that land these projects are. And like most new industries, what we've seen has been some challenges encountered with the rollout of certain, for example, carbon credit methods. And they're well documented. And what we've seen is a review and improvement of different carbon project methods that have been implemented. And we're in a period now where the methods that are in place are very robust. They've been in place for a length of time now where they have been subject to review and there have been continual changes and improvements to the regulation. So we've got really, strong methods that Gunn Agri is particularly focused, focused on implementing, such as savannah burning in our northern properties, environmental plantings in the Wilga platform and in other platforms. That we manage the transforming farming platform that we manage with the CFC and Van Lanschot Kempen, a Dutch agriculture and sustainable agriculture manager, and other platforms that we're in the process of rolling out as well.
Kathryn House
So, about these Alternatives opportunities for agriculture, Andrew, you recently marketed part of a Queensland site for a renowned Darling Downs landowner for the development of a renewable energy park. Without giving away too many secrets, what was the interest like in that opportunity?
Andrew Loughnan
Yeah, that was/is a wonderful opportunity. It's interesting. The renewables industry had several flippers, people driving down the driveways, you know, knocking on the door and saying, let me build a solar farm on your property. And that just doesn't cut it with a farmer whose largest asset they will normally own is the farm and they've got to live there. So they're, you know, deeply passionate about and deeply protective. So I had the benefit of that landowner who was happy to go on a journey with me, which was to flip the script and go to market and say, you know, here's the blank canvas. Let's find the most a calibre tenant. That's effectively what we're doing. Who's going to lease a portion of this property for the next 30 years that we're happy to coexist with and pay a good return. And exactly as Bradley said, you know, diversification of income. So being backed by that landholder who has taken a more commercial approach, other than just thinking about what I can grow, be it the cattle or the farming, that's been great and we'll see more of this, to be honest. I've got a suite of alternative landholders that are looking to do exactly this rollout, find who's the best to coexist with. And the farmer no longer that owns the land and operates the land, that's something that's materially changed over the last 10, 20 years. Whoever owns the land might not be the operator, might not be the carbon proponent, might not be the developer of the solar farm. You've got several entities and some of them are competing in terms of that use of that land. But it's about overall, and this is the part that I think the natural capital part is. It's trying to find the highest and best use of that asset across a hunt like all the land, in short, not just your primary agricultural income.
Kathryn House
I mean, it has been a contentious rural battle line. I think some farmers are seeing it as, you know, a potential windfall and others are seeing the renewables rollout as a threat to their existence. What are your thoughts, Brad?
Brad Wheaton
Yeah, look, I think you've got localised issues and overall what we're seeing is new revenue streams, new industries, wins for local areas where these developments are and that they're flowing through to local economies, local towns. Overall, supportive localised issues, such as certain, you know, visual amenity being affected, that do flare up for certain landholders and those issues need to be worked through with, on a project-by-project basis. You can't ignore that they don't exist. And largely what you're seeing is economic upside for the areas in which, whether it be solar, wind, battery, these projects being introduced and the impact that that's having on local towns is quite significant. So I think there's certainly been some growing pains, but on the whole you're seeing a win. And I think if you just think about the fundamentals where project developers are looking for sites that are well suited. And it's not that everywhere in agricultural Australia has suitable sites. It's those sites that stack up from access to the grid or the location, go through filters of topography, vegetation, et cetera. So it's a small part of the agricultural land area. But if you're a landholder of that land, then you've got a great opportunity and economic incentive as well. So, on the whole you're seeing a really positive reaction, I think.
Kathryn House
So outside of the renewables space, Brad, are you seeing any other new trends emerging? I have heard you talk about a new ownership model potentially emerging, where cattle and land are decoupled effectively.
Brad Wheaton
Yeah. I think that one of the things that Australian agriculture does differently to, let's say, North America is the structuring of capital. And so, you know, traditionally Australian agriculture has pretty low lease rates when you look at, let's say, the U.S. so it's not just livestock, it's really the scope for innovation where long term patient capital owns land and operators are able to apply their expertise in operating businesses that are able to generate cash, to generate a return for them and also to be able to pay lease rates. And that's a strategy that we undertake in our horticulture and water business, Wollemi, where we work with long-term operators, whether it be clean garnet plums or whether it be avocados to produce. And we partner with them to improve assets to ensure that those assets are being operated sustainably. But we're really providing an opportunity for really good operators to extract an optimised return stream from the assets and in a sustainable way.
Kathryn House
What are you seeing, Andrew? Any new trends emerging?
Andrew Loughnan
I've got to echo that for Brad. But I can see the operator having a key part to play going forward. Like we've got an aging demographic of farmers. I think it's now in its 60s. The average age of a farmer now mid-60s. Whilst we are getting this young talent to come back to the industry, labor is an absolute issue. But we've got technology advances that are coming with that. So, we've got to do more with less people. So, yeah, I agree with what Bradley's saying there. I don't know what the silver bullet is, in terms of finding that a calibre operator every time, that's the problem.
Kathryn House
So, Brad, this is a final bit of out of left field question. I was listening to a recent Landline episode which featured Gunn Agri, and it focused on the role that the Queen Garnet plum, which you mentioned earlier and you're growing, could play in preventing dementia. It's an interesting story. I think that flags Agri isn't just about food supply and carbon but could have a much greater role to play. Give us your thoughts.
Brad Wheaton
Yeah, the Queen Garnet investment that we've made is really exciting because our investors in that particular platform, Van Landshot, Kempen, they've said to us we want to build out a portfolio that meets certain attributes and agriculture and water investments in that platform, a focus on permanent crops, but we really want to operate these assets with a focus on sustainability. And we want to invest in the production of products or commodities that really have a value. And the Queen Garnet investment does all of those immensely. So, one of the things about that particular investment is that it was developed by the current operator. And the way in which they've developed that asset has been a deep and genuine focus on regenerative agriculture practices. So, a real focus on soil biology, a real focus on inputs that generate production in a sustainable way. And that's one of the things that attracted us to that investment. And then of course, as you mentioned, Kathryn, the. The benefits of the product itself, Queen Garnets, and if you don't know, they're very high in antioxidants, they're higher than blueberries, and it's an emerging industry. You may not see too many Queen Garnets in your local supermarket, but as that industry grows, we will, and as the health benefits become more widely appreciated, then we'll see demand pulling through that production. So, yeah, it's an exciting investment for us. And I'm glad to hear you also watch Landline religiously, as does my whole house.
Kathryn House
I think you're a Landline fan too, aren't you, Andrew?
Andrew Loughnan
Pips got an effect on all of us.
Kathryn House
So, Andrew, any final takeaways from you?
Andrew Loughnan
Key takeaways. It's an exciting industry still, like, even after the last 20 years, if what we've seen, if we replicate half of that again, it's going to be an exciting industry. So, I still want to see a call to arms of, you know, people that are coming on or off the land that want to play in this sector going forward. It's an exciting opportunity. We've got a massive country that. With very interesting projects happening all over. That's mainly what I want to get is a call out to others.
Kathryn House
Well, it's been great to have you both join Talking Property. Brad, thanks for all your insights.
Brad Wheaton
Thanks, Kathryn. Thanks, Andrew.
Andrew Loughnan
Thanks, Bradley. Thanks, Kathryn.
Kathryn House
And I'm so glad that I was finally able to twist your arm. Andrew.
Andrew Loughnan
You're welcome.
Kathryn House
So, thanks to all our listeners. I hope you enjoyed this episode, and we'd love it if you could rate or review the show to help other people find us. If you have any ideas for future episodes, please contact me at
[email protected] until next time.
