The company that hopes to be growing 10 per cent of the Australian winter grain crop in five years time is going offshore to fund its growth.
WA-based AACL is already Australia’s biggest grain producer, thanks to the success of its "co-production" model, which channels investor money through to farmers to help them grow a crop and then shares out the harvest returns.
The company already has far loftier ambitions, though, and they stand partly on the desire of resource-poor countries to lock in food security.
Robert Melville, the director of AACL’s investor finance arm Macro, on Tuesday told the Agricultural Outlook Australia 2009 conference in Sydney that by about 2014 the company hopes to be growing two million tonnes of grain, or 10pc of the nation’s winter crop.
If achieved, AACL will be a global force in grain marketing, which gives it some confidence that it will be able to pick up offshore funding to help it grow its already fast-expanding business.
Since starting in 1997 with 20 farmers in WA, AACL’s annual program has grown to 250 farmers who will this year produce an estimated 400,000t of wheat, 100,000t of barley and 50,000t of canola.
Participating farmers tend to commit 30-50pc of their crop to AACL’s co-production program, Mr Melville said, and in return get an individually-negotiated contract that supplies them with non-recourse capital for seed, fuel or fertiliser.
The farmer’s expertise goes into producing the crop, and if he exceeds a pre-determined tonnage, he shares in the returns.
AACL pools its annual grain returns before returning dividends, which for investors means that the climatic risk associated with grain production is spread across all the grain-growing areas of the southern States.
The company contracts farmers first, and then seeks investors to fund their crops.
At the present rate of farmer adoption of co-production, Mr Melville can "see that unless we get larger pools of capital, the investor side will fail to keep up with the farmers coming on board".
Mr Melville believes AACL’s unique model, which draws on the existing skills and land base of profitable farmers rather than trying to recreate the same assets within a corporate structure, will become increasingly attractive to countries trying to lock in a secure food supply.
He told the conference that Saudi Arabia has been self-sufficient in grain for 20 years, but at an unsustainable cost: two-thirds of its underground water reserves have now been depeleted.
With the United Arab Emirates (UAE)s, Saudi Arabia is attempting to secure long-term food supplies by buying or leasing land across northern Africa and central Asia.
While the land is accessible, Mr Melville said, it tends to be in countries with poor agricultural infrastructure that are often already unable to feed their own populations.
Other nations with an imbalance between resources and population are heading down the same track.
South Korea has taken up about half the arable land of Madagascar on a 99-year lease; China has made major land investments in central Africa.
"Australia to me stands out as a country with huge credentials," Mr Melville told Rural Press.
"We’re an export-focused country, we’ve got transparent legal frameworks, we’ve got good transport and infrastructure, we’re pro-inbound investment.
"For those countries looking to invest in food security, Australia may not present as the cheapest option, but I think it’s one of the most efficient and secure investment destinations."
That presents a big opportunity for AACL and its farmer-partners: particularly, Mr Melville admitted, because the domestic appetite for agricultural investment is limited.
How big can the "co-production" model grow?
Mr Melville said the company hasn’t given that a lot of thought, partly because it doesn’t know to what extent competing sources of crop finance will become available to farmers.
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