Issue link: https://viewer.e-digitaleditions.com/i/122153
agribusiness Age of transition In these troubled times for farmers, Baldeep S. Gill looks at options for the future. In the past five years the agriculture sector has experienced drought, the rising Australian dollar, volatile commodity prices, floods, cyclones, higher input costs and a scorching summer. All these events have encouraged a number of farmers to leave the industry, but how does this attrition compare with other industries? Industry-wide comparison According to the Australian Bureau of Statistics, agriculture does not have the highest attrition rate of all industries. Between 2007 and 2011, agriculture enterprises reduced by five per cent. Over the same period, manufacturing businesses reduced by seven per cent, while healthcare businesses grew by 13 per cent. The average across all industries was a growth of three per cent. While agriculture may seem more resilient than manufacturing, the result is masked by the fact that agriculture enterprises contain a home as well as a business. Residential mortgage industry default rates show that people will do anything rather than give up their home. This bond to the family home keeps the agriculture attrition statistics from plummeting. Exiting the industry Leaving the agriculture industry is not as straightforward as you might think. Vendors are still expecting the high prices that we saw a few years ago. Buyers are more judicious and are also constrained by credit availability. An added complexity is the source of investment. There is low domestic appetite for outright purchase, with many properties remaining on the market for months. Overseas investors have a longer time horizon and are willing to invest with acquisition capital, as well as develop the enterprise to full capacity. Selling to an overseas investor can be a difficult decision, but with no alternative we should not blame the vendors. the Outlook For a range of reasons, the number of agriculture enterprises will continue to reduce over time. By comparison, agriculture output will increase – dramatically in some industries. Farming will polarise around fewer larger enterprises that have an economy of scale that is fundamentally different to today. Today's large farms will survive. Small farms will disappear or become hobby farms. The real challenge is what business model should be adopted by mediumsize farms. A different approach The traditional family-owned equity model will not work in the long-term because of the increasing investment required. Farmers must be proactive and seek out equity partners rather than wait for them to come knocking. It may also be worth considering localised cooperative consolidation opportunities. Another approach is to create specialised 'corridors' that attract investment; for example, IT corridors in the US and Israel, renewable energy corridors in Malaysia and Scandinavia, or aerospace corridors in France and Ireland. The international nature of industry means value chains can be built on a global level, and Australian farmers should take their rightful place in this. to conclude Agriculture faces a bright future where there will be more people with more money and a need for more food. Australia is well placed to take advantage of this. However, the traditional medium-size family farm may struggle to capitalise. Make 2013 the year to think differently. Baldeep S. Gill is an independent financial consultant with 21 years of experience in financial services throughout Australia and the Asia-Pacific region. Email: baldeep.gill@theapcg.com 73