Thursday, July 7, 2022

Germans invest in Taihape property

The one thousand Germans who have bought a piece of a hill country sheep farm east of Taihape for just over $8.5m are “in the real investment, real assets space”, a syndicator tells Tim Fulton.

From the other side of the world they have funded the Pukeokahu Farming Limited Partnership.

NMP Farm Investment GmbH and Oceania Agrar Investitions GmbH paid $8,672,300 for this Rangitikei hill country, including stock and plant.

MyFarm will manage it for a fee and is charged with increasing the 991 hectare property’s productivity by a minimum of 20%.

At his office in Feilding MyFarm director Andrew Watters sees the quirkiness in having Germans members of the public buy into our pastoral farming (most notably dairying in Southland) while Kiwis remain a tough catch.

Empty pockets aren’t entirely the answer. Wealthy New Zealanders collectively invest $40-$50 million a year in other MyFarm syndicates. That’s the core of the company’s business, Watters says.

“It’s just that when we go to the stockbroking and the traditional investment market, we continue to struggle.”

Watters explains international interest in New Zealand in terms of “mega-trends” like global population growth and demand for protein, but also factors such as friendly interest rates and production costs.

“We’re not competing with humans for food by feeding our livestock grain and our pasture-based system has a low cost structure to it,” he says.

There’s also Watters’ self-confessed hobby horse to consider, the lure of capital gain on property.

As he sees it, many Kiwis have gone offshore on the basis of lower-priced land but haven’t been able to replicate the high operating margins back home.

“Just looking at some data the other day, the average operating margin for NZ dairy farms in the last 10 years was 35%; in an area like Tasmania where it’s not too much different from us – 22%. So we think about prices but forget about margins.”

His reasoning is “land can be as cheap as you like but if you can’t make an acceptable operating profit, why buy it?”

In valuing Pukeokahu, MyFarm and its investors have used dairying as a guide. He wouldn’t disclose the expected return but said its calculations allowed for both the price – the capital cost of the farm and its plant – and an operating margin per kg of meat.

“So, just like you target a dairy farm at $30-$35kgMS, we’ve got a similar target for kilograms of meat production. We’re targeting cash returns very similar to dairying, around that 6-7% is our objective.”

The farm would be geared to lamb production, with beef complementary. Wool doesn’t register in the calculations, Watters said almost apologetically.

The meat will be supplied under a three-year contract, a step which offers predictable pricing even if there’s a risk of losing the “upside” of a booming market.

In that event he would expect property prices to rise in sympathy – and besides, Watters says, fixing a price on contracts gives processor more incentive to add value to the product.

MyFarm’s task as farm manager at Pukeokahu won’t differ from its other syndications around the country; meet production and profit targets.

Watters is well aware of criticism that corporate farm management for a fee can add more cost than value. His response, acknowledging the company isn’t perfect, is that MyFarm provides a lot more than basic book-keeping or farm consultancy.

Whereas a farm consultant might have 30-40 clients, a MyFarm supervisor was actually “the CEO of the business” with ultimate responsibility to the investors for a creating a sound and profitable business.

“Farm equity partnerships haven’t necessarily gone all that well over time and you find a lot of people say they’re no good. And some of the people have invested in the wrong areas, in our view. But another part of it is you’ve got to have good, strong business structures.”

Watters says one of its steps to achieving best practice is having proper lines of authority – a clear sense “who does what” – and using corporate purchasing power to reduce operating costs, for example.

Discounts from strong group procurement pay for at least half MyFarm’s annual management fee, Watters estimates.

He says from an investor point of view sheep and beef farming is slightly less attractive than dairy due to weaker cashflows. Supply contracts like the one at Pukeokahu help close the gap but it is still a challenge convincing people sheep and beef is in good shape.

“Yeah, when we pick up a newspaper we’re our own worst enemy, about downplaying the industry and complaining about it or whatever. And that’s a challenge when we come to raising money from NZ investors. They see a lot of negative press about the industry and that impedes investment into it, in my view.”

Despite that the company will continue to search for drystock investments.

“I don’t think it will be the volume as with dairy but will we continue to do sheep and beef investments in syndicates? Yes, we will.”

Academy to train staff

The German investors in Pukeokahu will have their funds managed by the Aquila Group in Hamburg.

Andrew Watters said with the purchase at Pukeokahu the MyFarm syndicate has committed to creating an “Aquila academy” which will contribute to the training of farm staff and will donate a minimum of $1500/annum to the “Ag in schools” programme.

Pukeokahu also offers the opportunity for a young farmer to co-invest by taking up to 25% of the equity in the business. Watters says this addresses the major issue in the sheep and beef industry of who will take on the family farm.

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