Ben Waters on Investment in Australian Agriculture
27 July 2016
Special guest Ben Waters certainly woke everyone up at our recent YAPs Morning Metro Muster with fresh thinking around investment in Australian agriculture.
Ben drew on his wealth of experience from within the Ag sector and working as Senior Managing Director of the global business advisory firm FTI Consulting.
“We hear all this great hype around what agriculture could be and what it should be, and where all these great markets are coming from, but then you look at a family farming business and its showing 8 years of tax losses, and an investor just goes, ‘I can’t understand how this works’!”
Ben explained that the Australian taxation system encourages farmers to borrow heavily, allowing them to maximise their deductions – the higher the level of interest you have, the lower the amount of income tax you pay – and there is no incentive for farmers to pay down that debt. The result is farmers using debt to grow their business in situations where it is not sustainable.
The other consequence of this system is that all the financial information that farming businesses collect is to support borrowing debt.
“When we look at the information we gather around our financial aspects of our farm businesses, we do it for two reasons, one to keep the bank manager happy, and the second one is to defeat the tax man.
“No investor is going to look at a business and go, ‘you’re making losses, brilliant, that’s exactly what I’m looking for!’ People are investing in businesses to make money, and until Australian agriculture gets their mind around making a profit isn’t the worst thing in the world and having a tax problem is not the worst thing in the world (as long as you can pay for it), we are going to find that people are going to view our industry in a weird way, that doesn’t make sense.
“We’re all now interested in our food again. The response to the recent dairy crisis, where people deliberately shifted away from no-name branded milk to branded milk showed that people are reconnecting where their produce comes from and how it’s grown.
“We will see investment into horticulture under glass; we will see vertical farming, intensive agriculture start to pick up. But [our competitors] will never be able to solve for oil seeds, coarse grains, pasture fed dairy, and no one will ever substitute a petri dish beef burger for one that is grown in Australia on pasture.
“What we’ve got that they don’t have is this ability to produce high quality bulk produce, and in my view that is where I think we should be focusing our investment efforts, because that is a competitive advantage.”
The discussion came to a close with Ben highlighting that the task of capitalising on this competitive advantage will fall to the country’s young farmers and agribusiness professionals. “We need to make agriculture an investment destination, and that only comes from people shifting from what they’ve done in the past, and that invariably always comes to the younger generation coming through businesses.”