LOCAL and foreign institutional investors in the Victorian agricultural sector will be able to better benchmark returns from farming investments following the launch today of a new index cataloguing land values over almost one quarter of a century.
The Victorian Farmland Value Index, a study of the value of Victorian agricultural land by the Rural Finance Corporation of Victoria, tracks the results of about 45,000 land sales across the state since 1990.
It shows Victorian farmland values have increased by an average of 4.2 per cent each year for the past 23 years.
The median value of Victorian farmland increased by 5 per cent in 2013, following an 8 per cent lift in 2012.
Rural Finance chief executive Rob Goudswaard said the index, which took two years to produce and will be launched in Melbourne this morning, was the first work of its kind in Victoria and demonstrated that farming land had proved to be a resilient asset class that delivered stable returns above inflation.
The launch comes at a critical time as more local and foreign funds consider investing in the rural sector to capitalise on projected increased demand for Australian agricultural products in Asia, especially China.
It also comes as the federal government considers a major drought assistance package being promoted by Agriculture Minister Barnaby Joyce.
Former Australian Securities & Investments Commission chairman Tony D'Aloisio recently questioned the lack of regular, reliable, benchmark and comparative data on returns from land and operating returns, and called for the creation of a farmland and agricultural infrastructure index for Australia.
He warned that agricultural investments too often remained grouped in the "alternative asset allocation" class by fund managers.
Mr Goudswaard said the new index could be a valuable tool to encourage more investment in the sector from big funds.
"This shows that land is a legitimate class of asset in a capital appreciation sense and this has been achieved despite the vagaries that regular hit agriculture," Mr Goudswaard said.
"Maybe this could be the first index they could use to justify them holding a proportion of rural assets in their portfolios?"
Rural Finance is a Victorian government entity that offers finance to the rural and administers funding schemes on behalf of the commonwealth and Victorian governments.
The new index shows that the value of land in Victoria's dairy regions dropped by 1 per cent in 2013. But in 2012 values increased by 14 per cent, against 10 per cent in 2011.
It also shows three distinct trends in farmland values since 1990. The 1990-2000 period was a decade of stagnant farmland values, while between 2000 and 2008 land values increased rapidly to reach a peak in 2008.
Between 2008-13 values plateaued coinciding with the global financial crisis before they increased again in 2012 as confidence returned to the sector
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