The Federal Government has launched an inquiry into the barriers to increased superannuation fund investment in Australia’s agricultural sector. The inquiry, to be conducted by the House Standing Committee on Agriculture and Water Reforms, will focus on whether:
- any regulatory requirements are currently imposed on superannuation funds by the Australian Securities and Investments Commission, the Australian Prudential Regulation Authority and other relevant regulators which are acting as a barrier to superannuation fund investment in the sector;
- the information required by superannuation funds in order to invest in the sector is readily available, and if not, what statistical performance reporting of the sector is necessary; and
- there are any other practical barriers to superannuation fund investment in the sector.
David Littleproud, Australia’s Federal Minister for Agriculture and Water Resources, has previously confirmed his support for the National Farmers’ Federation’s goal of growing farm production to A$100 billion by 2030. As we commented in January 2018, this goal will not be achieved without significant additional investment in the sector and we expect that an important source of such investment will be superannuation funds.
In a recent survey of MySuper accounts, it was found that the aggregate exposure of such accounts to the sector was only 0.3% of the A$364 billion available for investment, even though the sector represents 12% of Australia’s GDP.
There is no doubt that investing in the sector provides strategic benefits and opportunities for investors. For example, the sector provides investors with an investment that can act as a hedge against inflation, historically has had low correlations to traditional asset classes and is less impacted by economic slowdowns.
To date the experiences of superannuation funds in investing in the sector have been varied. A number of reasons for this have been suggested, including the following:
- businesses in the sector are riskier due to climatic conditions, pests, disease and fire which make general farming conditions in Australia tougher and less predictable relative to North America and some other global locales;
- a lack of understanding of the sector and reliable publicly-available data sources showing the performance of agricultural investments; and
- the fragmented nature of businesses in the sector, with most businesses being held privately or in small parcels.
The Committee will be accepting submissions until 22 June 2018.
We will be keeping a close eye on the inquiry and will report on the findings of the Committee in the due course.