AGInvest was established in 1990 and specialises in asset management of farm properties for investors and providing consultancy advice to leading New Zealand agribusinesses.
We historically generate total shareholder returns greater than 13.5% per annum (after fees and tax) and aim to make at least 5% per annum more than the market average.
AGInvest Holdings Ltd is the parent company of the New Zealand syndication and asset management company, MyFarm Ltd, which promotes and manages farm investments in New Zealand.
AGInvest has refined its business model over its lifetime. In the 1990s, an investment group could make a return converting a sheep farm to dairy. At that time, there was a gap in value between buying an existing dairy farm or buying a sheep farm and converting. Consequently, our investments during this period were all dairy conversions.
In the mid 2000s, we realised there was the opportunity to add value by also increasing a farm’s production levels. Farms generally sold at a multiple of their milksolids production. That is, a 20% production gain resulted in 20% capital gain.
Then, from 2009 to 2013, following the global financial crises, farms were available at below their long-term value. AGInvest (through its New Zealand subsidiary, MyFarm Ltd and its relationship with Aquila Capital) built up the number of farms under its management significantly during this time.
Economist John Savage independently analysed New Zealand MyFarm dairy farm data from the period 1992-2012 and found that – over the 20 years – MyFarm investments generated an unrealised return higher than other comparable asset classes.
Savage compared the returns based on the scenario of an investor putting $1000 into blue chip shares (the NZX50), the All Ordinaries index, 10-year government bonds, an average dairy farm (based on Dairy NZ statistics) and a MyFarm investment (based on an average of all MyFarm properties).
The $1000 invested in Government bonds would have realised $3500 over the 20 years, the NZX 50 shares $2900, all ordinary shares $6700, and an average dairy farm $8500. The MyFarm investment would have realised $11,800.
The MyFarm returns are also less variable. When the standard deviation of returns is measured, they vary by +/- 3.8%, compared to NZX ordinary shares, which have a variance of 15.5%.
The correlation of MyFarm returns versus the sharemarket and other investment types is close to nil (at 0.075). This means that when the sharemarket drops, an investment in a MyFarm farm would most likely be unaffected.
Comparative returns (1992 = 100)*
Why invest in New Zealand dairy farming?
Internationally, New Zealand is the powerhouse of the world dairy industry. It is home to one of the world’s largest dairy cooperatives – a cooperative which is also one of the world’s leading innovators of dairy products - Fonterra.
In recent years, New Zealand pastoral dairy farms have outperformed the wider farmland market and operating profits have been at record levels. This is primarily because of the superior milk-to-feed-price ratio New Zealand is able to achieve by feeding cows on pasture. As a country, it is less reliant on alternative feed sources and therefore less susceptible to global fluctuations in feed prices. Grazing cows directly on pasture means the cost of production is significantly lower, because there is no need to double-handle grass from the field to the cows. This also means less capital infrastructure is required to “house” cows or deal with effluent.
While land prices in New Zealand are relatively high, investors can afford to pay more because of the high profit margins possible. A New Zealand dairy farm can earn an operating profit margin (measured as operating profit over total sales) of 40%, compared to 15% for a containment dairy farm overseas. This percentage represents the difference between selling product, versus what it costs to produce.
Learn more about the NZ dairy industry here
*Not included are two Tararua dairy farms, a Northland dairy farm and three Waikato dairy farms. These are farms where MyFarm Ltd has not retained the management contract for the operation of the property and therefore is not in a position to assess its value or performance. In general terms, the initial purchase price and several difficult seasons (summer droughts) have impacted on some of these farms’ investment performance.