The strong potential performance of agricultural businesses in coming years, driven by a looming global shortage of food and other raw goods, is pushing some institutional investors to closer examine investment options in the sector.
Some superannuation funds were becoming increasingly aware of the rising global demand for food, raw goods and other agricultural products, which was improving the investment case for agribusiness investments as the potential for greater returns grew, Frontier Investment Consulting senior consultant Jonathan Stagg said.
"Of the clients that we have, some of them have a small exposure to investments in agriculture via different fund managers, but they don't yet have a significant targeted exposure. To date, very few appropriate agribusiness products have been available," Stagg said.
"However, a wide range of super funds, including industry funds, are aware of the investment case for the agricultural sector in terms of the macro-economic factors and the rising demand for agricultural products around the globe.
"Frontier is investigating agribusiness investment products for our clients, including unlisted direct production opportunities and/or listed agribusiness and commodity futures products."
AMP Capital Investors multi-manager and investment solutions investment director Sean Henaghan said: "The commodity story is as much a soft commodity story as a hard commodity story.
"We've invested in agriculture because of the macro-economic themes, which include the rising demand for food and other commodities from Asia. We think Australia is in a great place to benefit from that rising demand.
"Our agricultural sector is sophisticated and we are world leaders in how we farm and the resources devoted to research and development."
AMP's Future Directions Opportunistic Fund, an alternative investment portfolio, has invested about $25 million in the Sustainable Agriculture Fund (SAF), an unlisted investment fund that owns and operates farms throughout Australia.
The SAF strategy is to buy existing farms, then aggregate them to take advantage of economies of scale, as well as introducing professional farm managers.
The fund has equity commitments of $145 million from other investors, including Auscoal Super, the Australian Catholic Superannuation and Retirement Fund, and Christian Super.
In line with expectations for greater returns from direct agricultural investments, returns from listed agribusiness companies are expected to outperform the overall share market this year.
Commonwealth Bank of Australia's (CBA) Agribusiness Index, which comprises 14 rural-dependent companies in the All Ordinaries Index that directly grow food or fibres, produce raw materials and fuels or provide agricultural services in Australia, returned 8.3 per cent for the December 2010 quarter compared to 4.4 per cent for the S&P/ASX 200 Index.
Based on consensus analyst forecasts, the forecast fundamental return indicator for the agribusiness sector is 21.7 per cent for the year to December 2011, above the 17.5 per cent forecast return for the S&P/ASX 200 Index.
While recent floods in Queensland, Victoria and New South Wales will dampen near-term returns, "strong agricultural commodity prices should persist over the next two years", CBA executive general manager of regional and agribusiness banking Brendan White said.
