Liam Lenaghan set up goFarm five years ago to build investment-grade large commercial farming operations. GoFarm has 13 properties under its management, covering 23,000 hectares in Victoria and southern NSW. Almond production is a key investment, although it is not the only one. Of the 23,000ha currently under goFarm’s management, about half is suitable for almond production or permanent plantings. But the company also manages dryland and irrigated cropping and wine grape operations.
“We are driven by opportunity. If there is an outstanding opportunity in a commodity or a sector or a region, we’re not afraid to be ‘all in’,” Lenaghan says. “We are high conviction investors.” Lenaghan says all goFarm properties have the ability to be irrigated but having a water entitlement is not a driving factor in the purchase of a property. “We are not necessarily convinced buying water at the current price levels is the answer. We prefer to invest in the productive engine that generates the return on water, such as almond trees,” he says.
“Why tie capital up in something that is inefficient? The water market is becoming more sophisticated. You can lease entitlements, you can take long-term multi-year forward contracts. There are a range of derivative products being developed at the moment. “Then there is the spot market where you can buy allocation water. So you don’t have to own entitlement water to plant a crop.
“If you are at the high value end of the water curve, you can probably sit without water relatively comfortably. So if you are growing a crop that makes $20 a megalitre, you are in trouble if the water price goes to $200 a Ml. If you are growing a crop which produces $1000 a Ml, a water price of $200 a Ml is OK.”
Almond production has become a key part of goFarm’s investment strategy. Lenaghan says, with a global trend towards healthier eating, world demand for tree nuts is growing.
He says nut crops, particularly almonds, have shown double-digit compound annual demand growth for more than 20 years. And with about 80 per cent of the world’s production grown in California, there are risks associated with geographical concentration and a lack of water. A severe drought between 2011 and 2016 saw Californian almond production suffer, sending prices soaring in 2014-15 to more than $11 a kg.
California introduced the Sustainable Groundwater Management Act in 2014 to better manage underground aquifers used to sustain agricultural crops and city reservoirs, particularly during droughts. “This is going to restrict how much water is available for agriculture and it’s going to increase the cost of almond production,” Lenaghan says.
“There are very few environments in the world where almonds are suitable to grow. The Sunraysia and Riverland region of Australia is one of them.
“The whole permanent horticultural sector is in demand at the moment — citrus, table grapes, olives or tree crops. The attraction of almonds is that it is not a perishable crop and harvesting is highly mechanised.
“We took the view that if the demand is going to continue and supply constraints are going to exist in the US, then people will look elsewhere in the world and Australia is a logical destination. The Sunraysia region is A-plus horticultural land so we look to secure large sites suitable for housing institutional capital.”
GoFarm established its own tree nursery to propagate almond trees, plus it buys from existing nurseries to spread its risk. The company planted 1500ha of trees this year and plans to plant 1000ha next year.
At a cost of about $50,000 a hectare to buy the land and get almond trees to maturity and 12,000ha intended to be planted, the commitment ($600 million) by goFarm’s clients is substantial.
But, as Lenaghan says: “You have to spend money to make money.” Plus, he says, mature, fully-developed orchards are selling for about $75,000 to $80,000 a hectare with no water entitlement. GoFarm’s investors have to be patient for their returns: the oldest almond trees are now two years old and it is three or four years before the first harvest emerges and six to seven years before they reach maturity.
While goFarm produces other crops, such as grain crops, on the undeveloped land for cash flow, the big returns will come from almonds. By the time its 12,000ha come into full production, goFarm will be one of the largest almond producers in Australia. That opens up a whole new question of how the nuts will be processed — a decision that will be made down the track.
Lenaghan says goFarm will be judged by the return on its investment funds and tools such as the Australian Farm Index.
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