A View of Corporate Agriculture – Performance and Prospects Australian Farm Institute Conference Canberra June 2014 David Sackett – Growth Farms David Scammell – Pitt Capital Partners James Moreton – Pitt Capital Partners

What is “corporate” agriculture? Agriculture where the capital is provided by someone other than the operator.

A range of models……. Listed v unlisted Retail v wholesale Direct v fund Operate v lease Wholly owned v J-V

A range of motivations……. Financial o returns o inflation hedge o low correlation with equities Food security Low risk (capital preservation) Marketing Romance/ego/emotion

Advantages of corporate agriculture…… Access to capital Access to expertise (specialisation)

What is the track record? Entity Operating Return % p.a. Total Investor Return % p.a. (*) 1 5.4% % % % % 65.8% % 8 0.5% 9 ~6.0% * From commencement or 1st of January 2000.

Good performance of any investment requires: To buy well To manage well

The successful family farm (culture) Long term view Flexible, adaptable and responsive Flat management and accountable Lean and mean

Why have results been so variable? 0veremphasis on size to bring cost reduction & efficiencies o Scale benefits are mythical at farm level o Often compromises portfolio diversity (sector & regional) o Makes it harder to buy well

Variable results (cont)…… Poor alignment between managers and investors Fee structures not appropriate o Returns typically 4-6% EBIT, 6-8% capital appreciation Conflicts such as rolling assets in.

Time frames are too short o Short time frame to deploy large amounts o Year to year variability o Lumpy capital appreciation Variable results (cont)……..

Variable results (cont)……. A tendency to take on new and often unproven opportunities: o New industries o Tax driven (forestry, vineyards, sandalwood etc)

Key issues for the future….. Thematic of food is widely accepted o Must work at current prices Capital is mobile so we need to compete o Sovereign risk (Aust, NZ, Nth America) o Productivity (at farm level and to port) Sources of capital o High net worth individuals o Family offices o Institutions ($1,800 B in super funds) o Retail v wholesale? A range of models o Capital is mobile and glob

Key issues for the future….. A range of models o Large scale investors preferring direct v funds o Operate v lease v hybrid Lift the knowledge in both agriculture and the investment communities. Better performance and transparency o Index?