May 22, 2017

The Public Sector Pension Investment Board (PSP Investments), one of the largest pension funds in Canada, is reportedly in the midst of structuring a deal with private agricultural group Australian Food & Fibre (AFF), through which AFF would transfer its 14.9 percent stake in listed Australian agricultural company Webster Limited into a joint venture between the two parties.

So far, a non-disposal agreement is in place between PSP Investments and AFF as the deal is being finalized reports AFR, which states that the two parties noted to the Australian Securities Exchange that discussions were ongoing “…regarding the establishment of a joint venture investment platform in Australia to invest in certain agricultural asset operations focused on cotton growing and other agricultural and farming products.”

AFF and Webster

AFF produces and markets cotton, wheat, barley, sunflower, sorghum, citrus, canola, and mangoes, and is the largest tenant of U.S.-based TIAA Westchester in Australia, reports Australian Financial Review. In 2016 the company posted a full-year net loss of $9.7 million, after seeing  profits of $13.3 million in 2015 – however, despite the company’s balance sheet, it saw a successful season, with cotton crop yields as high as 15 bales per hectare, placing the operation high in the top 20 percent of the country’s producers.

In February of this year, AFF announced that it had agreed to acquire the Koramba cotton farm near Goondiwindi, Queensland, from Dean Phillips, owner of the U.S.-based HNB National Bank, and president and chairman of T&C Bancorp, in a deal reported to be valued at more than $100 million.

Webster, which could soon have the backing of one of Canada’s largest pension funds, has grown through acquisitions over the past 180 years to become the largest producer of walnuts, and one of the largest irrigated farming operations in the southern hemisphere with more than 35,000 hectares of cotton, corn, and cereals cropland, livestock production, and more than 200,000 megaliters of water rights.

Last year saw the company post a 158 percent increase in operating profits before tax of $14.9 million after acquiring 220,000 hectares of farmland and 150,000 megaliters of water rights between Queensland and New South Wales the year before. Despite achieving this scale, the company has been looking to expand further.

Meanwhile, in February of this year the company posted interim profits of $4.1 million and expressed its intention to expand its cotton, cropping and sheep operations. Expansion in nut production is evidently also in the cards for Webster, as just in April of this year the company announced its agreement to acquire the 250-hectare Motspur Park walnut orchards in Tabbita, New South Wales for a total consideration of A$23.1 million (US$17.5 million).

Commenting on the strategy, Jonathan Snape, analyst with Bell Potter, told AFR that higher cotton prices and steady walnut prices indicate that there is reason to expect positive returns.

“A reasonable near-term outlook should be complemented by asset development over the next five years that should see Webster significantly lift the productive capacity of its cotton assets,” he said.

PSP Steps up where Australian Supers Won’t

The news of PSP’s emerging deal with AFF comes only mere weeks after PSP announced its acquisition of a majority stake in Stahmann Farms Enterprises (SFE) – the largest pecan grower and processor and fourth largest macadamia processor in Australia.

Headquartered in Toowoomba, Queensland, SFE is a vertically integrated nut business that was originally established in Australia in 1971 as the Australian arm of the U.S.-based Stahmann pecan farming business located in New Mexico. Later in 2006, the Australian business became independent of its U.S. parent, and has since seen rapid growth due in large part to demand from Asian markets.

The capital from the PSP Investments deal will help fund SFE’s plans to double the size of its orchards reports The Land. With 800 hectares and nearly 100,000 trees, SFE is looking to plant an additional 650 hectares of irrigated land.

Another foreign pension-based major Australian farming operation – The North Australian Pastoral Company (NAPCo) also just reported a staggering $72 million profit this week prompting Deputy Prime Minister Barnaby Joyce to once again call out the country’s superannuation funds for their lack of investment in Australia’s agricultural space.

Joyce has called on Australian supers to provide explanations to their boards regarding their lack of capital being deployed in the industry, reports AFR.

“The investment managers of super funds should hold a meeting this Monday and ask what their investment in agriculture is and they will find themselves saying ‘Are you telling me that we have bonds with negative yields and yet we don’t have any exposure to agriculture in Australia?'” Joyce said.

“There are farmers who are making very good money – the smart money has moved in with Gina Rinehart, Andrew Forrest, Kerry Stokes, and overseas pension funds but the people walking down Pitt Street and Collins Street are missing out.”

-Lynda Kiernan

Lynda Kiernan is Editor with GAI Media and daily contributor to GAI News. If you would like to submit a contribution for consideration, please contact Ms. Kiernan at lkiernan@globalaginvesting.com.