MOST agribusiness companies are not giving investors a decent return, a leading analyst has said.
The head of Austock Group's agriculture and chemicals research team, Paul Jensz, said 10¢ in the dollar was the bare minimum return on investment investors aimed for.
Most agribusiness companies were not achieving this.
Mr Jensz, who presented his analysis to the Australian Grains Conference, said ABB Grain and CBH Group in Western Australia had been the most consistent performers.
From 2003-09, ABB Grain had averaged a return on investment (ROI) of 8.6 per cent, compared with CBH’s 9.2 per cent, while AWB was 6.7 per cent and GrainCorp 4.6 per cent.
The projected ROIs for next year were ABB 13.1 per cent, AWB 8.2 per cent and GrainCorp 10.2 per cent.
ABB had an ROI of almost 16 per cent in 2003-04 when grain production reached a record 43.4 million tonnes.
CBH inthat year was about 13 per cent, AWB about 7 per cent and Graincorp about 7 per cent.
Mr Jensz said investors preferred a three to five-year period of steady returns but volatility meant they had to watch agribusiness companies' performance constantly.
He said deregulation and consolidation had widened the definition of a "grain company", and those farm-input companies were generally outperforming the main grain groups.
Incitec Pivot had had a very strong ROI, averaging well above 10 per cent and reaching more than 25 per cent in 2006-07.
Nufarm had averaged a constant ROI of 15 per cent, while Ridley Corp was close to 10 per cent, sometimes dipping below.
Elders, formerly Futuris Corp, averaged an ROI of less than 10 per cent, falling to almost zero in 2008-09.
"Ridley and Elders have improvement to do," Mr Jensz said.
He said agribusiness investors also had the choice of putting their money into overseas companies and these were generally outperforming their Australian counterparts.
Since 2006, Monsanto's ROI had risen from 15 per cent to a projected 35 per cent in 2011.
Similarly, Potash Corp, a Canadian fertiliser producer, had had a volatile but high ROI ride, ranging from 20 per cent to almost 50 per cent in 2008 to an estimated 35 per cent in 2011.
Viterra, the Canadian grains suitor of ABB Grain, had an average ROI of about 15 per cent.
Mr Jensz said agribusiness also had to be seen in the broader context of global and Australian non-agriculture benchmarks.
"Investment funds are very transportable," he said.
The ROI of the Australian Securities Exchange had averaged 20 per cent from 2006-08, while Indian chemical company Reliance had gone from almost 40 per cent to just under 20 per cent.
Interestingly, Vodafone, which everybody knew and used, averaged an ROI of about 10 per cent.
"That's as good as a grains company," Mr Jensz said.
Agriculture companies' future financial performance depended on two key issues, he said: food prices must rise, but consumers must be able to afford the food.
"A major issue is that consumers still expect cheap food," he said, but "must pay more for food over the next 20 years, otherwise they [the companies] will have more difficult issues".
Mr Jensz said carbon costs associated with emissions trading were part of the sustainability issue.
Email a friend