“Yes, it’s pretty grim out there today for dairy, but agriculture has an amazing ability to self-correct very quickly,” says Nick Tapp, head of client advisory at Craigmore Farming, the New Zealand dairy farmland fund manager. With dairy prices at 12-year lows, it could seem bold to be launching a new investment fund at this time. But investors are looking through the cycle and to the appealing fundamentals of New Zealand’s dairy market, argues Tapp.
“When there is too much supply and prices go down, farmers stop producing it,” he tells AgFunderNews. “They cull cows and buy fewer inputs to reduce costs and do what they can in terms of farm management to keep cash on the farm. Farmers in New Zealand are resilient and change their behaviours to accommodate low prices; the result will almost certainly be a reduction in production this year, which can be expected to bring the beginnings of price recovery.”
Craigmore is a UK-based fund management firm that has successfully raised and deployed a NZ$225 million ($147 million) fund over the past couple of years, after attracting capital from pension funds, family offices and high net worth individuals. The firm is now fundraising for a bigger, and more focused, dairy fund, to target NZ$300 million to NZ$350 million.
Fund I, which closed last October, focused primarily on dairy, but also invested into permanent crops and horticulture (8 percent) and sheep and beef (7 percent) as opportunities arose. But the investors interested in Craigmore Farming Partnership II have requested a pure play exposure to dairy, according to Tapp.
“They are coming to New Zealand for its dairy, as a global low cost player,” he says. “Investors want to be able to make their own choice of allocation between agricultural commodities. There is a significant opportunity for permanent crop investment in New Zealand, but we are now looking closely at that on a separate basis.”
New Zealand has long been heralded as one of the world’s lowest cost producers of milk as cows feed on pasture and the climate recommends itself to year round production in many parts of the country, without the need for housing the cows in barns during winter.
The export of 97 percent of all milk produced, secure demand thanks to processor and cooperative Fonterra, and relatively cheap and experienced labour compared to other markets in the region, can create an appealing return environment, NZ dairy fund managers argue.
And it’s these fundamentals, and an understanding about the cyclical nature of agriculture, that is bringing a mix of existing and new investors to Fund II discussions, according to Tapp.
In fact, with a larger target, and much-needed track record at hand, Fund II is going to target institutional investors only, and will preclude some of the smaller, private wealth capital investors that were present in Fund I, according to Tapp.
“While the core dairy strategy for this Partnership remains much the same, we are targeting larger investors for Fund II,” he says.
Fund I is a seven-year private equity fund with a variety of options to extend the term for longer, but after noticing increasing demand from pension funds and other institutions for much longer-dated assets, Craigmore is open to a different structure for Fund II, according to Tapp.
Considering the cyclical nature of dairy farming and other agriculture sectors, and the need for pension funds and other institutions to match their liabilities, this request to push out the maturity of a fund is increasingly popular in the farmland investment market.
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