For an original way to play emerging market growth, Australian dairy farmers are ideally placed as global demand for dairy products increases, Aquila Capital says.
The alternative asset management firm says there is “outstanding potential” offered by Australian dairy farms as global demand rises, especially from emerging markets in Asia.
The internal rate of return from the Australian dairy sector is between 11-16% per annum, says Aquila, which offers access to pastoral dairy farms in Australia though a Luxembourg Sicav range called Aquila Capital Farms.
The surge in global demand, especially from Australia’s regional neighbours in southeast and eastern Asia, runs parallel to an Australia Bureau of Agriculture and Resource Economics and Sciences forecast that milk prices will at least remain unchanged over the next four years at 50 Australian cents (33 euro cents) per litre. Pirces could head upward to 52.5 cents per litre between 2018/2019.
Detlef Schoen, group head of farm investments at Aquila Capital says: “The acceleration in demand has already caused the spread between supply and demand for dairy products to widen in recent years and this development is expected to continue.”
Schoen says the OECD forecasts growth rates for milk and dairy products from emerging markets of between 1.6% and 2.8%, which might lead to a potential demand overhang for dairy products of as much as five billion litres by 2020.
Dairy Australia, the national services body for the dairy industry expects production of all domestic dairy products to climb up to 2% in the 2013/14 season to more than nine million tons.
Aquila Capital believes that the best opportunities for institutional and family office investors over the next decade lies in farms in OECD/investment grade countries with secure land titles.
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