Horticulture in Australia

 

The future of horticulture production throughout South Eastern Australia is being reshaped following the extended drought period of the 2000's and current low commodity prices.

2011 prices placed increased pressure on all commodities due to the high value of the Australian dollar in comparison to the United States and world markets.  With the majority of export trade conducted via US dollars the returns to growers were limited. The returns in the export markets impact the amount of fruit on the domestic market and subsequent returns for these markets.

The cashflow pressure on horticulture growers through sale of water entitlement to fund temporary water purchases and to maintain operations during the drought have been exacerbated due to the low commodity returns.  Increased volumes of water, from September 2010, and the federal government's reduction in water buybacks for the environment, has resulted with a reduction in the water value and the downturn in the value of land. Financial institutions are looking closely at their books and lending structures.

The Sunraysia (Victoria), Riverland (South Australia) and Riverina (New South Wales) regions (Tristate) provide significant history of agricultural and horticultural production and enable diversification of commodities grown. These provide opportunity to maximise return on capital investment in the existing and other new commodities to the region.

Annual Dryland production risk is heavily dependant on climatic conditions and suitable rainfall.  Horticulture provides reduced risk in production with access to irrigation water. Major risks are associated with the commodity export market access requirements and the marketing of produce.

Current opportunities to invest in existing horticultural and dryland operations are available to investors as apposed to the establishment of Greenfield sites.  These opportunities provide cashflow in the short term reducing the initial capital and operational costs of a Greenfield site.

With the separation of water from land, the value of horticultural holdings is at its lowest for many years.  The value of permanent and temporary water has followed a similar trend. 

The following table from NSW Land and Property Management authority highlights the land value points, focusing on Citrus in Buronga and Griffith and Vines in Coomealla.  The Vines in Yenda appears to be a slight anomaly to other property values in the region.

Investment opportunities are currently focussed on land, equipment and production base utilising temporary water rather than constricting capital with the purchase of permanent water entitlements. This enables the investor to focus their capital with the purchase of land and equipment and as part of annual operating costs purchase water on the temporary market.

The capital base is utilised to purchase additional productive land to improve equipment and labour efficiencies.  The purchase of productive land, in general, may initially require additional inputs to maximise production due to recent restrictive practises because of drought and low cashflow.  Permanent horticultural plantings respond very quickly to improved conditions.

The investment of capital in agriculture is aimed at providing a return on the capital in the medium to long term. Annual returns on operations can vary significantly year to year.

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