Author: David McKenzie, Senior Director - Specialised Real Estate (Agriculture)

The Goulburn Valley is the food bowl of Australia. It’s traditionally been known for producing dairy and fruit, but the region is rapidly embracing the production of vegetables and new fruit varieties, as well as sophisticated irrigated cropping.

Market conditions

Overall strong market and seasonal conditions continue to see interest in sub-$25m agricultural assets from local farmers and private investors alike. Institutional investors also remain active in the aggregation space.

Seasonal conditions rarely affect investor appetite, unless there have been successive failed seasons. Fortunately, unlike many other food production regions in the country, the Goulburn Valley region has avoided drought in recent years.

Producers have recently faced market access volatility, particularly in the wake of US tariff announcements. However, agricultural producers are identifying new market opportunities as others wane. As market access volatility further subsides, investor confidence will be boosted.

Dairy assets – a trying trend is turning

For the past decade, the dairy industry in the Goulburn Valley has seen significant change thanks to challenging enterprise profitability conditions. Dairy farmers, who navigate prices set by broader market forces, have also contended with volatility in milk prices and rising input costs – including water, fertilizer, supplementary feed and genetics – that have outstripped the smaller gains in their commodity prices.

Those market conditions resulted in the sale of some dairy assets in which the expensive dairy infrastructure was often written off. Many of the divested farms were stripped of dairy sheds, feed pads, internal fences, lanes and stock water sources, and used as irrigated cropping holdings, including vegetable production and to a lesser extent the expansion of fruit production.

However, the dairy industry remains the top agriculture sector in the region, producing about 30% of Victoria’s milk (about 1.4 billion litres), with a gross value in the order of $1billion from more than 800 farms, and the trying market conditions are turning.

Dairy farmers with strong balance sheets and ownership of all or most of their water requirements are now well-placed to benefit from the renewed signs of stability and capital growth. This has been supported by factors including product innovation, higher retail demand and lower levels of supply from other drought-affected areas of the country. Importantly, dairy-specific infrastructure is once again adding significant value to these land assets.

There’s also renewed support for the sector, as shown in a new dairy strategic report for the region, which highlights the importance of dairy production and processing – and its deep supply chain in the Goulburn Valley.

The rise of irrigated cropping

Demand remains strong for well-developed irrigated cropping country that can support canola, fodder crops, wheat and other cereals, because of the production security that irrigation water provides.

Irrigation provides a buffer against seasonal conditions and offers a profitable option for intensive farming operations. This has seen a rise in product variety development, including a plethora of new fruit varieties, often produced specifically for international markets. Horticulture in the Goulburn & Murray Valleys generates more than $1.5 billion in gross regional product each year and continues to grow year on year.

Irrigation is also supporting the emergence of fibre cropping in the region. Notably, conditions to plant cotton have been moving further south through NSW over the past 20 years as the long-term hotter and dryer trend means ground temperatures now support sowing of this new crop to the region.

Climate change is also putting pressure on the water available for agriculture. This, combined with government policy returning water to the environment through the Murray Darling Basin Plan, means the outlook is generally for reduced water availability in the region. That’s likely to mean supply chain participants in irrigated agriculture will have to continue to find efficiencies in operation and scale, or consider land use change.

The attraction of aggregation

In recent years, cropping country has performed very well across northern Victoria and southern New South Wales. This has prompted some established local landholders to expand their holdings to achieve economies of scale.

In turn, these aggregations – once scale is achieved – are attracting institutional and corporate investors in Australia and from overseas, particularly Canadian and North American investment funds. Similarly, horticulture in the region has grown to a scale where international investors are active market participants.

This is occurring both in the Goulburn Valley and in other areas around regional Australia. A recent AFR article highlighted that the US-based Mormon Church had spent $500m on Australian farms in six months. This included the $350+ million sale of the privately-owned Worral Creek Aggregation in Queensland, which covers 27,000 hectares.

Currently, Macquarie Asset Management is about to embark on the most significant test of the Australian agricultural property market ever attempted, with the forthcoming sale of its Paraway Pastoral Company. With a total of 4.4 million hectares over 28 farms across three states, the enterprise is expected to realise more than $2 billion. Should the enterprise sell in one line, it will be the largest single deal ever transacted for Australian agricultural assets.

David McKenzie
Senior Director - Specialised Real Estate (Agriculture)

david.mckenzie@opteonsolutions.com

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