Bengalla Agribusiness asked:
Agribusiness is basically the business feature of agriculture - growing crops for human utilization and use. In spite of the fact that agribusiness accounts for 12.1% of our Gross Domestic Product (GDP) in the six years to 03-04, it accounts for almost 25% of national merchandise exports ($26.1 billion in 03-04), is our biggest manufacturing sector and accounts for 46% of total retail spending.
A stimulating economic shift has occurred over the past ten to fifteen years, in which agriculture has opened up for retail investment by investors. Anybody can now invest in agribusiness, bringing the benefits of Diversification, wealth accumulation and tax savings.
WHY IS AGRIBUSINESS AN ALTERNATIVE ASSET CLASS?
The rising complexity of Australian investment markets means that individual investors are no longer limited to the traditional asset classes of shares, property, fixed interest and cash.
Investors now want a diversified Portfolio so that investments are across a range of asset classes, to level out market fluctuations. In particular, they want investments whose performance is not connected - in terms of movements in market prices and returns - with the other asset classes. The Australian Agribusiness Group (MG) confirms that agribusiness is negatively correlated to other asset classes and the addition of agribusiness to a Portfolio can increase returns and reduce Risk.
The returns from agribusiness investments do not depend on the share market, property market or existing levels of interest rates. They depend on the market for the particular product being grown. With the right project, backed by a sound convincing manager who has established the market for the produce before releasing a project for investment, investors can feel confident that they have bought a wealth-creating asset.
WHY INVEST IN AGRIBUSINESS?
The chief benefits of agribusiness investment are:
* Enhanced returns: An agribusiness investment will usually offer higher after-tax returns than can be gained from traditional asset classes, such as cash, fixed interest, property or shares.
* Tax-effectiveness: Where Australian Taxation Office (ATO) product rulings apply, agribusiness investments allows legitimate business costs, such as management and leasing fees, to be deductible providing extra flexibility in cash flow, debt management and taxation planning.
* Diversification: Being an “alternative” asset class, agribusiness investments offer an additional level of Diversification to a Portfolio spread across the traditional asset classes.
* Longterm returns: By definition, agribusiness projects are longterm investments. For example, bluegum forestry projects offer superannuation-style returns with a one-off lump sum in just about ten years; horticultural projects take five to six years to produce business Annuity income that exceed expenses, and can continue to pay income for a further 18 to 20 years.
HOW DO AGRIBUSINESS INVESTMENTS WORK?
An investor becomes a grower of a crop and the investment costs are usually treated as business expenses and are tax-deductible besides other income. Proceeds from the sale of the crop are treated as assessable income, when received. Thus, these managed agribusiness investments offer potentially high after tax returns while generating long term income streams.
More than 15,000 grower investors - people from all walks of life - have invested in various Timbercorp projects. This compares to more than $1.2 billion in funds under management and will produce more than $6 billion in crop proceeds over the next 20 years. Investors in these projects have invested for a number of reasons - to diversify their portfolios, increase their investment returns, to obtain an income stream and to make the best use of tax dollars.
ARIEL
