How PrimeAg will capture the growth in soft commodity prices
PrimeAg will own and operate quality Australian agricultural land and water entitlements with a view to producing income and long-term capital growth through the production of soft commodities.
In doing so, PrimeAg's objective is to consistently achieve investment returns in the top 20% in Australia for the agricultural enterprises undertaken by the Company as measured by industry recognised benchmarking firms, presently including Holmes Sackett and Boyce & Co.
The land and water rights that underpin PrimeAg
PrimeAg properties stretch from the Liverpool Plains of NSW to Central Queensland 1,200 kilometres to the north. By positioning properties over a 1200km zone, PrimeAg is able to mitigate climatic risks, most importantly those risks associated with rainfall and drought.
Production is further secured through the ownership of irrigation water entitlements. PrimeAg will own irrigation water entitlements in the Upper Darling and the Fitzroy river systems. These entitlements mitigate climatic risk and increase production and financial returns from PrimeAg's cropping enterprises, subject to the availability of water for irrigation.
The "hub" structure
A "hub" is a collection of irrigated and dryland farms within close proximity of each other that can be managed in an integrated manner. PrimeAg will implement a multiple "hub" strategy for the management of its properties which focuses on achieving economies of scale. By creating hubs of sufficient scale, lower production costs can be achieved through improved utilization of labour and machinery. The economies of scale captured through the hub structure allow for greater purchasing and marketing power further reducing the cost of production. The geographic spread and production diversity achieved by the multiple hub structure mitigates the risk associated with rainfall variability and commodity price movements.
Crop diversity
Price risk will be mitigated through the production of a diverse range of commodities and having the ability to switch between these commodities in response to price movements or climatic changes. Being located in regions that can produce both winter and summer crops, and having access to irrigation water, affords PrimeAg great flexibility.
Development opportunities
Several opportunities exist to create substantial value through further development, including:
Upgrading irrigation systems
Most irrigation systems in northern NSW and Qld are furrow systems. Efficiency of these systems can be enhanced by laser levelling on a regular basis, using appropriate reticulation systems,
efficient irrigation timing and application methods. PrimeAg will further evaluate opportunities to install new or upgrade existing irrigation systems to subsurface drip or sprinkler systems to improve water use efficiency where this offers an effective return on investment and improves water use efficiency.
Irrigation development
Opportunities may arise to purchase undeveloped or partly developed irrigation properties that
either have unused water entitlements available or where water entitlements may be available
for purchase. The value of these properties may be enhanced by establishing efficient irrigation
systems, an area in which PrimeAg management has many years of relevant experience.
Grazing to farming
Some properties or parts thereof have been farmed in the past and in recent years returned to grazing. With current higher grain prices, there may be opportunities once again to farm these areas, increasing returns and adding capital value.
Satellite navigation
Opportunities exist to implement satellite navigation and controlled traffic systems on many farming lands, reducing soil compaction and improving yields.
Pasture improvement and stock watering development
While grazing is planned to be a minor component of PrimeAg's operations, many of the properties will have a small percentage of land that is best suited to grazing activities. PrimeAg will upgrade stock watering systems on grazing operations if current systems are inadequate. Profitability and capital values will improve and, importantly, it will add to the welfare of grazing cattle or sheep.
Water entitlements
Further value may be derived by the purchase of additional water entitlements, subject to due diligence on the history of reliability, current allocation and water type.