Farm land global hot property

08-09-2010 | Sandra Taylor

If you believe in population growth you have got to believe in investment in agriculture.

This is according to Warren Taylor, director of Greenfields Rural Investment and recent FAME scholar who believes now is an excellent time to be investing in agriculture.

Globally, farm land is hot property and has become particularly attractive to global investors as was evident by the large number at a recent agricultural investment conference in New York.

China, for example, is looking beyond its borders to buy agricultural land and Taylor believes New Zealand has to be careful or it will be left behind in terms of investment in the sector.

While farming is the oldest profession in the world, Taylor says it has been the last to become professional and until now has not been considered a punt by investors.

At a Beef + Lamb New Zealand Sheep and Beef Council seminar in Christchurch, Taylor described this country as an attractive proposition to investors in agriculture because of its water security, political stability, world-class infrastructure, disease-free status and efficient and sustainable production systems which are not supported by subsidies.

He urged farmers to look to the Chinese and other outside investors as partners rather than the competition, and said several partnership opportunities were being laid at NZ's table.

"They are not coming to take over, he said.

"The free-trade agreements that are popping up are giving us a lot of opportunities."

In order for farmers to remain profitable, economies of scale have to be realised and Taylor predicts farms will get bigger and there will be more corporate farms, syndicates and joint ventures.

"That's what will make us powerful."

He was critical of the short-term trading mentality prevalent in NZ agriculture and said this, along with a lack of leadership, was preventing the industry from coming up with a long-term strategy.

In a pointed reference to the meat industry, he said unity of NZ companies was not happening and farmers needed to take some responsibility and stop jumping between companies for the sake of 10c/kg.

He also criticised meat companies for being procurement rather than market driven, saying they had teams of hundreds working on procuring stock while only a handful were working at the marketing end of the supply chain.

"If we are not the lowest-cost producers we need to have a ‘Plan B'.

"We need to define NZ lamb and beef and tell our story - and we have a fantastic story to tell."

He urged the industry to listen and engage with this country's export markets and build a product or brand.

As NZ is not ever going to be able to feed the world, Taylor believes it needs to focus on a huge, rapidly expanding, middle class in emerging economies such as China.

This middle-class, he said, demanded traceability and food security and it concerned him to see industry groups lobbying against traceability schemes.

Taylor defined middle-class as a household with a mobile phone, colour television and which was also likely to own a washing machine, computer and possibly a car. In emerging countries this shift from rural poor to middle-class had been a rapid one; Taylor said that in many cases people had moved overnight from yelling out the window to using 3G mobile networks.

Diets had changed rapidly; meat consumption in China, for example, increased by a factor of 14 between 1961 and 2005, while milk consumption increased seven-fold.

The World Bank predicts that this rapid increase in meat consumption could continue for the next 20 years.

The fact that a new Kentucky Fried Chicken store was opened every day in China and a new Pizza Hut was opened every week illustrated the level of dietary change in the new middle class, Taylor said.

"The whole global food industry is reinventing itself and NZ has to find its place."

Brazil has the world's fastest-growing agricultural sector and while in the short-term it will dominate its own market, Taylor predicts it will then go on to export product and displace existing suppliers on the world market.

By 2019, the World Bank expects global sheep meat consumption to lift by 23% while beef consumption looks set to increase by 31%, with Brazil picking up much of this increase in demand.

This demand is indicative of a rapidly growing population; it has been predicted that the world will need to produce more food in the next 40 years than it has in the past 10,000 years combined.

This has to be done on declining land stocks due to factors such as urbanisation, desertification and erosion. In China topsoil is being lost at 57 times the rate it could be replaced under natural processes while in Australia it is five times the rate.

Added to this is pressure on water resources with 44% of the world already under severe water stress. Taylor pointed out that this water stress was happening in westernised nations as well as in less developed economies. Even in cities such as London, poor water infrastructure was resulting in massive losses.

This country, he said, was well-positioned in terms of water resources, although he added that users had to be more efficient in the way they used it.

In many parts of the world farming was increasingly being pushed out to more marginal regions and this was likely to result in erratic yields and increased price volatility.

China was particularly aware of the need for social stability and the potential for social unrest when food was short, hence China's desire to secure agricultural land in areas where production was more assured.

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