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Mecardo Blog

Getting the farm enterprise investor ready.

Posted by Robert Herrmann and Olivia Agar on 7 April 2017
Robert Herrmann and Olivia Agar

Australian farm enterprises have much going for them; management skills honed to the local conditions, robust and transparent markets, constant new technology and innovation upgrades and a relatively stable political climate.

The challenge is capital funding, especially funding to grow the business. The good news is that there is plenty of capital around; the challenge is how do farmers access this capital.

Portfolio managers are recognising that agriculture is an important asset. Stories about increasing population, greater wealth in developing countries and speculation about a “food boom” to follow the mining boom are incentives for investors to consider agriculture.

The challenge for a fund manager to invest in agriculture though is to figure out how to go about it? Do they buy a farm, do they buy shares in a listed agriculture company, or do they find successful farmers to partner with?

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We need to make these questions easy to answer. By having an attractive and detailed brief prepared you can improve investor interest and be ready to jump on any opportunities that present themselves.

Existing service providers like accountants, farm advisors and agents can assist in pulling together much of the information required, as well as presenting it in an attractive format. But there are a few key challenges Agribusinesses face in connecting with investors.

 Attraction

Often, we hear from investors that agriculture doesn’t provide the kind of returns they expect. Investment decisions are made around “risk & return”, that is the greater the risk the greater the return expected, and vice versa.

Australian agriculture has unique risks, which can unfortunately deter some investors. But it also has unique risk managers – that is the farmer. The experience, skill and decision making capability of the farmer is a valuable asset and should be clearly promoted. This is the space where you can do some “selling” of the investment around the special management skills the potential investor is tapping into.

 Laying it all on the table

While we need to talk it up, at this point we should also have procedures and policies that detail what happens when the inevitable production or price challenges emerge.

So, in looking to attract investors, it is important that the risk to the business is well documented. If the risks are identified, then as an investor I would want to know what risk management will be implemented in the business.

Investment decisions are also made based on the expected return. While agriculture returns of the future can be impacted both positively and/or negatively by a whole range of variables, none-the-less a forecast needs to be made. If this forecast is robust, that is, it is based on factual information, and it is clear what the basis of the forecast is, then a potential investor has the information to make an informed decision.

 Get investor ready – but what does it mean?

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Firstly, think about the issue from the perspective of the investor – if you were looking to invest in a farm business what would you need to know? What information would you need to make an informed decision?

Consider what would give you comfort that the risks to farming are addressed, what financial reports would you need? When looking at buying stocks or shares on a listed exchange, there is a huge amount of financial data provided, not only on the performance of the business to date, but also the forecast for future returns.

This takes time and effort, but any potential investor will consider favourably a well prepared investment brief over an adhoc offer to buy into the family farm.

 

Topics: financing, crowdfunding, agriculture debt, p2p lending, peer to peer lending, disruptive finance

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