week 10 - rural

Question 1

define agribusiness

Answer 1

is the business of agricultural production.

includes: 
agrichemicales
breeding
crop production
distribution
farm mahinery
processing 
seed supply

as well as marketing and retail sales.

Question 2

types of agribusiness

Answer 2

Pastoral Dairy, beef, sheep

Cropping Grains, legumes, oils

Mixed Farming Combines the first two

Irrigated Horticulture, viticulture, cropping

Intensive Eggs, broilers, pigs, feedlots, protected cropping

Question 3

trends over past 10 years

Answer 3

Number of farm businesses has decreased from 153,000 to 85,000

Businesses with turnover between $1m & $5m increased by 74%

Businesses with turnover greater $5m increased by 140%

Question 4

what are common units of comparison

same as units of productivity

Answer 4

Dollars per hectare ($/ha)
Cleared, fenced & watered
Sometimes includes a property’s water entitlement & is referred to as a “green hectare”

Productivity measures
Traditional measure – DSE (the amount of feed required by a two year old, 45 kg Merino wether to maintain its weight)
Cropping (tonnes/ha)
Dairy (kilograms of butterfat / protein/total milk solids)
Grazing ($/DSE OR $/beast OR $/sheep or $/AE)
Pitfalls of productivity measures

Question 5

explain macro factors of rural property

Answer 5

driven by similar macro drivers (the exchange rate, general health of the economy, taxation, commodity prices) they will be driven by very different micro drivers (climatic cycles, geological and topographical variability, distance to processing/ports/markets, urban population influences

Continued global demand for food (driving soft commodity prices)
World population expected to increase from six billion to nine billion people by 2050 – the next GFC will be the Global Food Crisis
Urbanisation of water resources
The world is becoming drier & more people are living in cities
More water needs to be removed from agriculture for urban households & industry
This paradigm is Circular

foreign investment

Question 6

explain micro factors affecting rurual properties

Answer 6

access to water - dam on property - access to utilities (water rights)

climate
soil
drainage
access to particular natural resources
altitude and topograhy 
fertilizer history

Question 7

common valuation methods for rurals

Answer 7

Direct Comparison (like for like – not always applicable)

Summation (various units of comparison)

Discounted Cash Flow (suitable for intensive agricultural uses)

Question 8

explain direct comparision

Answer 8

Where the properties are at a similar stage of development and comparable in all respects, then they may be compared directly without analysis.

In practice this is not a common occurrence.

This value includes all improvements on the property.

Question 9

explain summation and how to undertake

Answer 9

Summation approach is the adding together of the value of the various components being part of the subject property.

The first component to ascertain is the land value and this is on the basis of the land’s highest and best use, as if vacant.

Then the added value of the structures / improvements is added

Question 10

exlain dcf

Answer 10

Forecasts the estimated cash flows which a property will generate over a pre-determined time frame (generally ten years) and discounts these future cash flows at a market derived Discount Rate.

Allows for fluctuations of income streams, and in most investment properties these vary from year to year due to increasing yields to maturity, rent reviews, lease terminations, market forces etc.

also can account for capital gains