Harvesting returns: Why smart money is flowing into Agricultural Private Credit

What did you have for breakfast this morning? Perhaps it was toast with avocado, cereal with milk and berries, or a classic fry-up with eggs and bacon. Whatever was on your plate, it began its journey on an Australian farm. Rain, hail, or shine, breakfast was served and generations of farmers work the land to keep our nation and much of the world fed.

This consistent delivery of high-quality produce is the backbone of our food security. However, recent price shocks and availability of everyday items like eggs and meat serve as a reminder of the pressures facing the agricultural sector. Behind every meal is a story of resilience, hard work, and a mix of bank and non-bank finance fuelling the plate.

While Australia’s major banks play a significant role, currently funding approximately $130 billion in farm finance (Australian Banking Association report 2024), a considerable funding gap is emerging. This is where savvy investors are finding a unique and compelling opportunity: agricultural private credit.

The global breadbasket

Australia is an agricultural powerhouse. Our 145,000 farmers across Australia manage 55% of the nation's landmass, and a staggering 72% of our agricultural output is exported, representing 12% of Australia's total exports (Australian Agribusiness Association, Agribusiness report). The world relies on our reputation for clean, green, and traceable food.

This reliance is set to intensify. The global population is projected to reach 9.9 billion by 2050, increasing the demand for food by an estimated 70%. As a critical supplier, Australia's agricultural sector is poised for sustained growth, which in turn drives the value of the underlying asset: farmland.

Australian agricultural land has consistently outperformed other real estate sectors, with values demonstrating remarkable resilience even through drought years. This growth is fuelled by strong commodity prices, global food security demands, and now, emerging interest from corporate investments in clean energy projects on rural properties.

The widening funding gap

Despite the sector's strength and a low overall farm indebtedness of just 15% (ABARES Insights report), many farmers find themselves underserved by traditional lenders. In the wake of the 2019 Banking Royal Commission, banks face stricter regulations on capital adequacy and loan servicing requirements. Consequently, many viable farming operations will inevitably fall outside the box of mainstream lending parameters at one time or another and be required to secure alternative funding in a timely manner for a variety of purposes including refinance, additional working capital, expansion, or debt consolidation. Timing is of the essence with the seasonality nature of farming and patience dwindles when opportunities are missed.

This creates a structural gap in the market—a gap that niche specialist private credit is perfectly positioned to fill.

A modern take on an age-old practice

Private credit and private banking are hardly a new phenomenon; its origins are actually rooted in the timeless practice of lending money to farmers to plant and harvest crops hundreds of years ago. Once an asset class reserved for the ultra-wealthy, it is now more accessible than ever. Investors can now effectively ‘be the bank,’ participating in a diverse range of lending opportunities.

For the discerning investor, agricultural private credit offers a particularly attractive niche. By partnering with a boutique investment manager—one with deep sector expertise, proprietary deal flow, and a robust credit framework—investors can gain exposure to this underserved market.

The proposition is powerful: investors are not only helping to fuel the engine of Australian agriculture and bolster global food security, but they are also being served a diet of premium, uncorrelated returns, steady income with capital preservation and low volatility characteristics.

It seems that smart investors have realised that agricultural private credit isn't just ‘food for thought’ but rather it's a core ingredient for a healthy, diversified portfolio.

Gaining exposure

As a specialist firm uniquely positioned to bridge this funding gap, FarmCap provides wholesale investors with tailored access to this resilient asset class. FarmCap offers the flexibility to either invest in a diversified portfolio of mortgage-backed agricultural loans or the opportunity to participate directly in specific, curated transactions for more targeted returns.