A profitable green alternative right under our noses

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An investment that offers security, regular income, the potential for capital growth and value-add opportunities, sounds like a pretty attractive idea in the current environment, for all the obvious reasons. But here's a question for you: Where would you find such a rare gem to meet that sort of profile, and in which asset class?

For those of you who answered alternatives, nice work. For those of you who also nominated Dairy Trusts, you must have been looking over my shoulder. But there it is. 

According to Prime Value's Elizabeth Blackhurst (Portfolio Manager, alternative assets) and Kirsti Keightly (General Manager, Dairy Investments) the lush pastures of Southwest Victoria and Northwest Tasmania, and their high rainfall, irrigation security and rich soils make for a dependable foundation for profitable scalable dairy. 

To get all the detail please watch the video, or read the transcript below, in which they explain:

  • What Dairy Trusts are all about
  • What to look for in dairy assets
  • The main drivers of dairy profitability
  • The key attributes of farms that make up their portfolio
  • How they develop underdeveloped farms 

Edited transcript

What are dairy trusts about? 

Elizabeth Blackhurst: 

We ventured into the dairy market for several reasons. One of the key macro themes in the market for us is food and water scarcity. And that's certainly playing out now, in front of us. With dairy assets, we were looking for an investment that offered security, regular income, the potential for capital growth and value-add opportunities. And that's really what dairy trusts are all about.

What do you look for in your dairy assets?

Kirsti Keightley: 

What we look for in our dairy assets is we've targeted areas with high rainfall, security of irrigation, water, and good quality soils. Based on that, we've invested in Southwest Victoria and Northwest Tasmania because they reach those goals. 

Southwest Victoria is a large dairy area. So is Northwest Tasmania. 

Northwest Tasmania is probably the only region in Australia that's actually growing. And the reason it is growing is because of the water security in Tasmania, the quality of the soils and the mild and the mild temp temperature there,

What are the main drivers of dairy profitability?

Elizabeth Blackhurst: Dairy profitability is really based on the milk prices that you can achieve. And they're set every year. So we know at the outset of the season, what our revenue will be, we're really about our cost and production. 

That's what we focus on. Keeping that as low as possible, we need to get. And, and we do that by ensuring the locations that we've selected, are in  high rainfall areas with access to inexpensive irrigation. 

That allows us to grow as much feed as we can on our farms - and certainly the situation right now with grain prices, rallying strongly, if you can grow as much food on-farm, then you are in a position to keep your costs down, and your soil productivity. So can actually grow your pastures. They're the key elements to our profitability.

What are the attributes of the farms that make up your portfolio?

Kirsti Keightley: The first farm we brought was back in December, 2019, and that's when Southwest Victoria, it was an established farm, had milking about 650 cows with irrigation. 

Not long after that, we bought another property in Southwest Victoria, which was probably underdeveloped, but had the opportunity to really be developed.

That was a great pickup. Now I'm looking at about 550 cows. And then we, because we were looking for high rainfall area and irrigation, I was a little bit limited to what I could find in Southwest Victoria. And we went to Northwest Tasmania and picked up our first farm there in 2020 in July. In May 2020, we'd bought a large portfolio of 12 farms and we've just, just ticked over 12 months of those.

So they were sort of an underdeveloped asset. So picked them up at a good price, sort of like buying the best house on the worst at the best, the worst house on the best street sort of thing.

That was a really exciting opportunity. We've now been running those for 12 months and since then we've added three or four more farms after. So we have sort of something like 13 farms in Tasmania. We'll be milking close to 7,000 cows in Tasmania this year when with the sort of 1200 in Southwest Victoria as well. 

How do you go about developing underdeveloped farms? 

So when I say underdeveloped, I'm talking about mainly the infrastructure on the farms. They'd been in some corporate hands, they were older cow sheds, smaller farms, but on great soil. And to be quite honest, they're in the best location, probably in the world for dairy farming. So you just had to look past that.

And so what we've done is we've combined smaller farms into larger farms. So basically two, 400-cow farms sitting next to each other. We joined them together and building new infrastructure. It's about economies of scale, improving, the size of the laneways, just making it more efficient so that we can really maximise that pasture growth in those regions.

One of Australia’s most trusted managed funds

Founded in 1998, Prime Value was established to meet a growing demand by investors for a privately owned managed fund that would exclusively manage investments on their behalf and not be driven by typical institutional shareholder demands. Click here to find out more. 

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