Australian Pastoral Funds Management Pty Ltd ("APFM"), a fund management entity, has been formed to assemble investor capital and acquire and operate large scale livestock (cattle and sheep) properties producing mainstream pastoral products for both the domestic and export markets of Australia. This company is an association between Alan Hayes and his family, Pitt Capital Partners, (a subsidiary of the ASX listed Washington H Soul Pattinson Group with a capitalisation in excess of A$3.0bn), Equilibrium Capital LLC, and a number of private individuals. APFM is based in Brisbane, Queensland, Australia.
The situation in the world today is one of fast growing demand for food products, due primarily to world population growth and growing disposable incomes in developing countries, along with changing tastes from grain based, to meat or protein based diets in those countries.
In addition, industrialisation and environmental concerns are encroaching on, or constraining the supply of, arable land in many parts of the world at this time of rising demand. Whereas the green revolution associated with increasing agricultural productivity over the last 50 years has reached the unfortunate stage of declining marginal returns, and rates of productivity growth in agriculture have consequently slowed.
Also, alternative use of grains for mandated ethanol production and of biofuels has created a new market for these grains and oil seeds and their cost has risen. This market is diverting grains away from the feeding of livestock and is thus increasing the cost competitiveness of grass fed, or rangeland production of livestock, which is the dominant form of livestock production in Australia.
Freeing up of trade around the world is providing the stimulus for countries to focus on those industries where their locations, resources and populations can provide them with the best comparative economic advantages, and this trend is expected to substantially benefit Australia. In Australia, production of livestock is unsubsidised, and unit costs of production, due to large scale operations and large herds and flocks, are competitive.
Australia is the smallest continent and the largest island in the world with a population of around 22m, and has many opportunities presently available to acquire land, and in many areas to re-aggregate farms that have been reduced to less than viable sizes due to generational succession and the inevitable subdivisions that have occurred as a consequence.
Land for livestock production in Australia is spread over monsoonal summer rainfall regions in the north of the country progressing through mixed summer and winter rainfall zones to winter dominant rainfall areas as you move south.
Australia's moderate climate, and livestock health status as a result of the extensive grazing systems in place are of great advantage to large scale livestock operations in Australia, where cold winters and shelter of animals are not the issue that they are in many parts of the world.
The spread of seasons, soils and climatic zones, provide the diversity of geography and rainfall that in turn underwrite the diversity of sheep and cattle types, ages, weights and grades that are able to be produced for domestic and world markets across a widespread portfolio of selected landholdings.
Livestock production in Australia is focused on breeding, growing and fattening for sale. In a larger portfolio of properties that are managed on an integrated basis, this can be achieved with the acquisition of properties structured in such a way as to establish "pathways to market" for the sheep and cattle over each stage of their progression to the point of sale.
Flexibility of operations and mobility of livestock across different regions with differing seasonal conditions, and with the help of sophisticated transport systems, can greatly assist in the profitable production of livestock in Australia.
Australia has substantial proven markets for its livestock, with between 50% and 60% of production being surplus to domestic requirements and exported each year. It has sophisticated marketing, slaughter and distribution facilities for sheep and cattle, and has long been recognised as a reliable supplier of high quality and healthy, "clean and green", grass fed beef and sheep meat to the world.
Returns achievable are a composition of yields (cash surpluses) from operations, and capital growth in both land and livestock values. A never-ending focus on cost control and cost reduction is essential to maintain a competitive return on investment, especially in relation to other more traditional asset classes, as asset values increase.
In conclusion, the opportunities for investment in livestock production for food in Australia are excellent at present, with demand rather than supply driving production and prices for beef, lamb and sheep meat in both the domestic and export market sectors.
The cost advantages of grass fed livestock production in a temperate climate with an enviable health status and a market location advantage, when coupled with experienced property identification and selection of management and staff, can provide sound returns in a world growing ever more conscious of food security and supply.