October 6, 2008

Financial Product

Product: St Ronan's Pastoral Ltd

Offerer: MyFarm

How it works: New Zealand's economy relies a lot on farming, but there are not many investment opportunities in the sector. MyFarm offers some, in the form of equity partnerships in farms, but they are not for everybody. In fact they are for the unusually wealthy (assets of more than $2 million or $200,000 per year income for the past two years) or for those with farming knowledge, as there are no investment statements or prospectuses for this kind of investment. Currently the firm is seeking investors to buy into St Ronan's Pastoral Ltd, a flat 281ha dairy farm on State Highway 1 just outside Invercargill. The purchase price of the farm is $11.75m, and investors are expected to stump up around $250,000 each. That buys investors a share in a business and the land to be managed by South Island farm investment firm AgInvest, which says it can increase milk- solid production by 38% within five years. Add that to predicted land-value rises (AgInvest says these will be less spectacular than in the past five years), and it expects a cash and capital return of around 10.6% a year. That assumes a lower-than- predicted Fonterra payout. It is being sold as a low-risk investment.

What we like: Farming investments are no sure thing. Returns of 10%-plus do not come without risk, but the risks are different from investing in the share market. A rising world population, increasing consumption of dairy and a long, historical trend for rising land prices underpin well-run farm investments.

What we don't like: Farm prices are high, and that needs thinking about, but it's a shame there isn't more like this for those with humbler means and less in the way of farming knowledge. For them an option is the NZ Rural Properties Trust, which recently posted a record return, though it is listed on the Unlisted trading facility rather than the NZX, which doesn't do much to boost its tradeability. Units with net asset backing of $4.60 are changing hands for $3.10 to $3.20.

Conclusion: Follow the smart money. Two-thirds of those buying into MyFarm investments will be farmers, or those in the know. Half of the remainder will be their lawyers and accountants.

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