At Afterbefore we agree with this summary from a paper on Australian broadacre farming by commodity finance specialist David Thomas
A growing global population and increased demand for high-quality product creates a strong demand which we are well positioned to fill. Australian agriculture is highly efficient, and at present Australia has a comparative advantage in primary production. Low average returns disguise the reality that many farms are poorly run or minimally viable – the clear majority of total Australian agricultural output derives from a tiny minority of top-performing farms with excellent and reliable annual returns, which at scale is potentially highly attractive to international investors.
This has been a theme of ours too. Demand for food and food security will grow and Australia as a stable, mature economy with a strong agricultural sector is in great shape to benefit. It is even possible for Australian agriculture to return to its heydey of delivering 20%+ to national GDP; an order of magnitude greater than its current contribution.
Except that, as in many things, the Pareto principle applies. As David Thomas points out, a minority of producers supply the majority of the product. And this is a high-risk outcome in a continent of drought and flood. If just a relatively small number of locations deliver the lion’s share of output then it’s a problem if they fail or their production efficiency declines or their risks are correlated.
We understand why high-end opportunities in the large, intensive producers are attractive to investors. The current production efficiency and the immediate returns are a big draw. But if there really is to be an agricultural renaissance, then the “poorly run and minimally viable’ farms must improve too.
And they will need help.
This is why we think the current financing of agriculture needs a shake up, that a return to understanding the potential and limits of natural capital is key, and that technology solutions are not just about making production intensive.