By Gareth Vaughan
The New Zealand Superannuation Fund has appointed FarmRight, a South Island-based dairy farming management and consultancy company, as an investment manager.
The Super Fund has also bought a dairy farm in West Otago, about 100 kilometres west of Dunedin, as it moves to execute its rural land strategy, outlined by Super Fund CEO Adrian Orr in this Double Shot interview.
FarmRight, which has offices in Lumsden, Lincoln and Otorohanga, has a portfolio of 42 dairy farms covering more than 12,000 hectares and 34,000 cows.
Matt Whineray, the Super Fund's general manager for investments, said that FarmRight was chosen because of its experience, track record and strengths in risk management and in adding investment value through making operational improvements to dairy farms.
“We have appointed FarmRight after an extensive due diligence process, which included assessments of their ability to manage, among other things, profitable pasture-based farming systems, costs, health and safety, animal welfare, environmental compliance, and financial budgeting and reporting to the standard we require,” Whineray said.
FarmRight CEO Jim Lee said the Super Fund's long-term investment approach was well suited to dairy farming. Lee said the first purchase was a quality farm acquired for a good price.
Lee told interest.co.nz the farm was being bought from an individual or family but he wouldn't provide any specific detail on the seller, location or price being paid. The unconditional deal is due to settle on June 1.
FarmRight, whose website says it has converted 17 properties into dairy farms since June 2007, expects that once under Super Fund ownership the 250 hectare farm will milk about 630 cows.
More farms in sights
Lee said FarmRight was also already looking at other potential purchases on behalf of the Super Fund.
"We have got offers in on two more properties at the moment and we are looking pretty seriously at another three," said Lee. "That doesn't necessarily mean those deals will complete."
FarmRight was looking for properties with a good return on assets plus the potential for capital appreciation through "either improving the property or if and when the market picks up again in the near future."
FarmRight was founded in 2000 and has about 35 client groups invested in farms. Lee said the firm has about NZ$500 million of assets under management. Existing and retired farmers plus rural professionals comprise about 80% of FarmRight's investors, Lee added, with some offshore individual investors. The firm has no major institutional investors.
He said it was "particularly pleasing" to be helping a local institutional investor buy substantial pieces of New Zealand rural land with the returns set to ultimately assist in meeting the future cost of New Zealand Superannuation.
FarmRight’s mandate will eventually see the Super Fund own or part-own a portfolio of New Zealand farms, as part of its globally focused rural land strategy. This calls for the Super Fund to potentially partner in the buy up of clusters of farms as it moves to invest between NZ$300 million and NZ$500 million over three to five years.
Although this rural push is a global rather than merely New Zealand one, Orr told interest.co.nz in the Double Shot interview that New Zealand was one of the best farms in the world so should "get a slice" of the investment.
Key welcomes Super Fund move
Prime Minister John Key welcomed the Super Fund's move into dairy farm ownership.
"I think it reflects the fact that the dairy sector is a very powerful and fast growing area for the New Zealand economy," Key said.
"We saw the Fonterra (internet) auction up 7% last night, those commodity prices are extremely strong. The outlook, providing everything holds together in China, is a very rosy one so I'm not surprised they're investing. It's an area where there's real potential gains."
The Super Fund's dairy push comes as China's Pengxin International Group strikes a deal conditional on Overseas Investment Office approval to buy 16 central North Island Crafar dairy farms from receiver KordaMentha and as German interests buy 3314 hectares of dairy and dairy-conversion land.
Meanwhile, the Super Fund has been touted as a potential buyer of a controlling stake in Fonterra's biggest supplier Dairy Holdings, which is on the block after the demise of South Canterbury Finance.
(Updates add comments from interview with FarmRight's Jim Lee, comments from PM John Key, paragraph on Chinese and German interest in New Zealand dairy farms and sentence on Dairy Holdings).