Just six months on from Prime Value’s acquisition of 11 dairy farms in North West Tasmania, there have been significant works undertaken to improve the environmental management, animal welfare and productivity on these farms.
Elizabeth Blackhurst, Portfolio Manager for the Prime Value Dairy Trust, said: “We saw this acquisition as a significant turnaround opportunity as well as an opportunity to draw together a substantial land holding in one of the most productive parts of the world, secured by exceptional rainfall and irrigation opportunities.
“Since the farms settled in May, we have been working closely with the regulators while we remediated the effluent systems and raised the standards of operating. We’re very pleased with progress.”
The Tasmanian Dairy Industry Authority and the Environment Protection Authority (EPA) have both approved Prime Value’s farm remediation works.
On 22 October, Circular Head Council, acting for the EPA, had this to say about Prime Value’s management of the dairy farms:
“Council can confirm there are no outstanding effluent management issues associated with the above-mentioned dairy premises.”
“Council recognises and appreciates the extensive works Prime Value has undertaken to achieve compliance with the Environmental Protection Notices issued on the previous landowner, with the risk of environmental harm being mitigated.”
Early steps to optimise the investment have involved selling off two non-core farms from the portfolio, contracting to purchase two other properties to create a more contiguous land holding, acquiring a ‘support block’ at nearby Seven Mile Beach to provide for winter grazing and rearing young stock, and leasing another large dairy farm and ancillary land to further increase milk production.
By December 2021, Prime Value Dairy Trust will own over 3,000 hectares of land across 12 farms in North West Tasmania and two in South West Victoria. The company will be milking approximately 6,000 cows producing an estimated 32 million litres of milk/2.5 million kilograms of milk solids in FY2021/22. Production will rise in FY22/23 as they take the farms towards full production.
Some of the best dairy farms in the world
Kirsti Keightley, Dairy Investments Manager, says the Togari farms in northwest Tasmania are some of the best dairy farms in the world due to their reliable rainfall, quality water, and excellent pasture growth.
She says Prime Value is in the process of consolidating the Togari farm holdings, with plans to de-commission five smaller dairies and build two larger dairies. “The new dairies will run more than 1,000 cows each and create greater efficiencies.” The new equipment and dairy producing capacity from these farms will also be positive for capital growth, according to Ms Keightley.
She said the Seven Mile Beach farm, which settled in September 2021, was a strategic purchase allowing the cows to be ‘wintered’ there, while the leased dairy farms will also be used to winter cows and raise young stock. “The cows are off the farms during winter as the ground becomes very wet. Taking them off allows the grass to grow in spring for the peak dairy period.”
She also said the Trust was investigating opportunities to add further value via dairy beef. “There is high demand for grass-fed, traceable animals, which secure a premium sales price. People want to know where their animals come from and we can meet some of this demand.”
Main drivers of returns
James Everist, Portfolio Manager for the Prime Value Dairy Trust, said the main drivers of profitability are: milk prices; water availability to grow pasture; and capital appreciation.
He said North West Tasmanian farm values rose 26.7% during 2020. The theme is similar in South West Victoria, where values climbed 14.3% in 2020.
“There is strong demand for agricultural land, and growing demand particularly from mainland beef producers. The northern beef and sheep farmers are looking for properties with higher rainfall and cheaper irrigation to secure their businesses.”
Climate change is also making these properties attractive. Climate Futures Tasmania forecasts that Tasmania will remain globally competitive for perennial rye grass production (the main grass for pasture) into the future.
“Tasmania has a temperate maritime climate and no point in the island is more than 115 kilometres from the coast. Tasmania offers a lot of protection from the extremes of climate change.”
“Growth is expected to be stronger for larger properties, which is why Prime Value is building its portfolio of collective farms.”
While it is a very high rainfall region – the Togari region currently averages 1,300mm rainfall per annum – Prime Value still intends to future-proof the dairy farms by accessing irrigation water.
Several macro fundamentals support our investment in Australian dairy including:
- Global dynamics of food and water scarcity;
- Growing demand for dairy, including from the rapidly growing Asian middle class;
- Dairy prices continue to be firm both domestically and internationally;
- Falling domestic milk supply as farmers in climatically marginal locations continue to exit the industry;
- Rising farmland values particularly in areas of high rainfall;
- Regular distributions from milk production plus strong potential for capital growth;
- Minimal impact from COVID-19 and trade tensions with China
Strong milk prices are supporting cash flows as well as farmland values, and we are delivering consistent yields in a low interest rate environment. There are also great opportunities to add value and benefit from the strong ‘turnaround’ potential of the farms we have acquired.
The opportunity to diversify into real assets is compelling particularly in an inflationary landscape.
Prime Value Dairy Trust’s return since inception in December 2019 to 30 June 2021 is 15.8% (10.1% annualised) and they believe their target of 12% p.a. split across income and capital gain over the holding period is very achievable.
There are limited opportunities for new investors in the Prime Value Dairy Trust – for enquiries on how to invest in these high quality dairy farms, please contact please contact our Client Services Team at info@primevalue.com.au and 61 3 9098 8088.