Buying a business is a major step, and it’s always important to get as much advice and information as possible before making your decision. But buying an agribusiness has its own set of additional considerations. We offer these important five tips to help you plan for the purchase of your next Australian farming enterprise.
1. Your reasons for buying
The most important step in this journey is to reach clarity about your reasons for buying an agricultural asset. Understanding why you want to buy will help you to reach a decision about what you want to buy.
For example, do you currently own and operate an agricultural asset? Are you looking to expand, diversify or relocate? Or are you new to agribusiness, perhaps aiming to start on a smaller scale to find your feet? In this latter case you’ll need to be sure that you understand the demands of the rural lifestyle – physical labour, long hours, special skills and knowledge – as well as its advantages in terms of health, wide-open spaces and peace and quiet.
2. An overview of Australian agriculture in 2021
If you’re already successful in agribusiness you probably have a good understanding of the Australian agricultural market. But if you’re new, it’s essential to grasp the overall economic and geographic aspects of the industry you are planning to enter. This could have an impact on your choice of specialisation, location, and proposed markets for your products.
Agriculture in Australia is responsible for 55% of land use, 11% of goods and services exports, around 2% of GDP and 2.6% of national employment. Cropping occurs mainly on the eastern and southwestern seaboards, which also support grazing of modified pastures and horticulture. Grazing of native vegetation takes place mainly in Queensland, the Northern Territory, inland and northern areas of Western Australia, and inland areas of New South Wales and South Australia.
Australian agricultural production has increased by 7% in real terms in the last 20 years. Volume growth and new technology have offset falling prices in cropping, while price increases have driven growth in the livestock market. About 70% of agricultural output is exported.
3. A good time to buy
It’s important to consider when will be the best time for you to buy an agribusiness. Here you should take both the environmental and economic conditions into account, and also consider the sustainability of current conditions.
Interest rates in Australia are historically low right now, in tune with the rest of the world. This makes borrowing to buy a rural asset less expensive in the short term, and also positions agribusiness as an investment with a much better potential return than cash. But, even though the Reserve Bank says that no interest rate rise is likely in Australia before 2024, buyers should ensure that they will be able to continue servicing their loan in the event of an interest rate rise down the track.
Rain has returned to eastern Australia after a prolonged drought, and the local agricultural industry has proved remarkably resilient in the face of challenges posed by COVID-19.
Demand for Australian beef, lamb, wool, cotton, grains, fruit and vegetables is currently high, as are prices for many agricultural commodities. This situation looks set to continue as populations in Asian nations continue to grow and to develop a taste for superior agricultural products.
4. Due diligence is vital
Research is crucial before proceeding with any major asset purchase, but it’s particularly important when buying an agribusiness. Be thorough. Make sure that the information you obtain, from the property’s current owner and from other sources, includes:
- Financial records of the business for the last five years at least
- Production records for the same period
- Information about farm infrastructure (roads, buildings, irrigation, power supply, water supply, fencing)
- Pasture reports, soil acidity and nutrients, drainage, topology
- Livestock information and carrying capacity, where applicable
- Local rainfall statistics
- Access to resources such as water, electricity, internet, mobile phone reception
- Information about any mineral and mining rights on the land
- Distance to nearest major road (for haulage considerations)
- Distance to nearest town, distributors and markets for your agricultural products
- Details of any licences and relevant state legislation or local regulations
- Information about neighbouring properties
5. Inspect the property personally if possible
If you live in Australia, a personal inspection of the property is a must (snap state border closures permitting). Nothing beats the information you get from being there on the ground. Newcomers to agribusiness may want to ask an experienced farmer to accompany them, to cast a trained eye over the asset. This will also give you an opportunity to take soil samples for testing if you need to.
Buyers located overseas will have more problems in conducting a personal inspection, given the current restrictions on overseas visitors entering Australia. Do aim to come if restrictions allow it, or if you can get an exemption, but otherwise engage the services of an Australian agribusiness expert to check out the property for you.
Expert help is at hand
Bentleys has played a significant role in many agribusiness sale transactions, including the Queensland team’s role as key sell-side advisors on the recent sale of a renowned Northern Territory property. Bentleys has agribusiness experts with broad experience in providing advice on rural property purchases & sales, and negotiating on behalf of buyers and sellers. For overseas buyers, Bentleys can help with your plans for investment in Australian agribusiness. Contact us today to explore how we can assist you.
We can help you take the first step in this significant journey of purchasing an Agribusiness. Contact your local Bentleys advisor for more information.
Disclaimer: This information is general in nature and should not be relied on as advice. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs and seek professional advice before making any decisions based on this information.