The "incredibly high" prices of New Zealand dairy farms have
prompted Aquila Capital to switch its investment drive to Australia, where the
dairy sector offers "the best risk-adjusted returns in global agriculture".
The alterative asset manager, which in all sectors has
assets approaching $10bn, said it was in agriculture keeping dairy as its
priority investment area, citing the support to the market from strong growth in
"[This] might lead to a potential demand overhang for dairy
products of as much as 5bn litres by 2020," said Detlef Schoen, head of farm
investments at German-based Aquila, citing analysis of OECD data.
But the group, which has directed primarily at New Zealand
the $500m it has raised since 2007, said it would direct at Australia the proceeds
of a fresh capital raise, of up to $400m, from institutions.
The appeal of New Zealand as an investment target "has
changed in the last 12 months", said Andrew Sliper, senior manager farm
investments at Aquila – and a New Zealander.
"As a result of the interest in New Zealand, land prices have
gone up incredibly high," Mr Sliper told Agrimoney.com.
New Zealand farm prices were worth a 20% premium to those in
Australia thanks to factors including a lack of stamp duty and capital gains
"But at the moment we are seeing prices in New Zealand more
than double those in Australia."
Price growth slowing?
Separately, the Real Estate Institute of New Zealand said
that the pace of growth in New Zealand dairy farm prices had slowed to 1.3%, year
on year, in the January-to-March period.
Mr Sliper termed the slowdown "surprising", and potentially
a reflection of the spread of the dairy sector into more "marginal" areas, where
profitability prospects are lower.
"From what we are hearing from the core area, prices are
pretty strong," he said.
Indeed, the price rises have supported a internal rate of
return from Aquila's realised agricultural investments of 14% so far.
The institute highlighted strong demand for dairy farms in
many regions, including in Canterbury, in the west of South Island, where a
1,284-hectare dairy unit sold for NZ$64.9m.
"Overseas interests remain active on larger units," Reinz
Australia vs Ukraine
Mr Sliper said that the group would, in Australia,
prioritise buying dairy properties in areas in the south east, including parts
of Tasmania and Victoria, with relatively favourable and predictable climates.
He also highlighted the benefits in Australia of operating
in a country which is a major producer of grain, at relatively favourable prices,
offering good prospects for feed supplies, besides having political stability.
"If you were in Ukraine, you would probably be having some sleepless
nights," he said.
"You might have had the prospect of a higher return, but you
are dealing with the risk of being in that country."