Over the last few weeks it appears that Gina Rinehart’s Australian Outback Beef (67% Hancock Prospecting/33% China’s Shanghai CRED) has won the bidding war for the Adelaide-based pastoral company S.Kidman & Co Ltd. If this $365 million deal is approved by the Foreign Investment Review Board (FIRB), the combined pastoral empire will own 11.9 million hectares or 1.5% of Australia. Food production/agriculture is an area in which Australia possesses a global comparative advantage in production, unlike car manufacturing where taxpayers may have trouble discerning the benefit they have received from the billions “co-invested” in the production of motor vehicles which will cease in 2017 with the closure of Holden’s factory at Elizabeth in South Australia.
In this note we look at the extent to which opportunities for investors in getting exposure to listed agricultural companies has diminished over the last ten years by takeovers, and the depth of foreign interest in ASX-listed agricultural companies.
Time Horizons
We see that the biggest factor in the reduction in the number of listed agricultural companies is the mismatch in investment horizons between equity owners such as institutional fund managers and foreign buyers like sovereign wealth funds. Fund managers (including the author of this piece) spend too much energy focusing in on delivering quarterly returns ahead of their peers to retain funds under management, whereas foreign buyers can often take a longer view that the value of food or the supply of arable land servicing the growing urban populations of Asia will be worth more in coming decades.
Read more here.