By Marian Macdonald, National rural property writer, Writing for farmers in the Stock & Land, The Land, Queensland Country Life, Stock Journal and FarmWeekly, farming in Gippsland.
Carbon sequestration and regenerative agriculture are central to a strategy that’s netted an Australian farming group $104 million under management in less than 12 months, and it says technology is about to change the game again.
Packhorse Pastoral has just bought the 10,029-hectare Moolan Downs Aggregation in south-east Queensland and expects to raise another $47m in the next couple of months for two NSW properties.
Agriculture has become the darling of investors looking for a hedge against inflation but, when the hot farmland market inevitably cools, the self- described agricultural real estate investment company will have an ace up its sleeve.
Packhouse Pastoral chief executive Geoff Murrell said the agistment model it calls the Grass Motel, which is run using regenerative agriculture principles, reduced volatility and brought an entirely new income stream. “Soil carbon sequestration is the by-product of our regenerative practices,” he said.
“Basically, 90 per cent of Moolan Downs is suited to soil carbon sequestration projects and most of the assets we look at are circa 50-80pc. “Definitely, a big component of the opportunity we saw here for investors down the track was for us to be able to leverage what we believe is definitely going to be an accretive revenue stream for our investor base in future.”
Carbon credits might be a by-product of regenerative grazing but the returns Packhorse Pastoral chairman Tim Samway is expecting are anything but chicken feed.
“If everything works well, then you can actually get numbers like half a tonne to 0.7t/ha of soil organic carbon sequestered per annum,” he said. That meant good rainfall combined with the right soil types and the proper implementation of regenerative farming practices.
When the price of an Australian carbon credit unit (ACCU) reached $100, Mr Samway said carbon farming returns for a property like Moolan Downs could be as high as 3-4pc a year.
ACCUs reached a high of $57 in January before plummeting around 40pc in March and were now $28-29 but Mr Samway said Packhorse Pastoral would be in no hurry to sell credits.
Carbon for 50 years
The properties Packhorse acquired had been carefully selected for their soil types, which he said could sequester carbon quickly for the first 25 years and then more slowly for another 25 years.
“These places we’re buying are registered in 25-year projects and there’s just not that much land you can do it with,” Mr Samway said.
“The government took a plan to COP26 to have soil organic carbon projects implemented on 28 million hectares, but a lot of that’s owned by small farmers with 500ha for whom the cost of doing this is just prohibitive. “Their average age is 62, so what are they going to do: spend all this money on baselining and measuring to deliver returns over the next 25 years? I mean, I doubt they’re thinking that far out.
“They are more likely to be thinking about how we dispose of property or succession and so we’re going to need a number of businesses like Packhorse that can actually bring scale to this opportunity.”
Larger scale, Mr Samway said, meant lower cost sequestration and regenerative practices.
A “game changing” technological breakthrough Packhorse Pastoral had trialled would also be announced in the next few weeks, he said. A permanently-installed measuring system would allow the carbon content of a pasture to be measured in real time.
“It’s designed to not only increase transparency, but reduce costs very substantially,” Mr Samway said.
That’s just negative (government) rhetoric as though somehow businesses that are commercial – Tim Samway, chairman, Packhorse
While Packhorse Pastoral was enjoying the kind of early success needed to reach Australia’s emission targets, he said the response from local institutional investors and government rhetoric was disappointing. “Parts of the government tend from time to time to make businesses like Packhorse look bad, but the reality is they’re not going to achieve their targets unless there’s more businesses like us who are prepared to do this at scale,” Mr Samway said.
“That’s just negative rhetoric as though somehow businesses that are commercial farming operations are somehow evil when, in fact, they’re actually very aligned with doing exactly what the government wants us to do, which is sequester carbon.”
That rhetoric hadn’t yet had affected Packhorse Pastoral directly but he was concerned about its long-term impact. “If you keep it up for long enough, people start to believe stuff and sooner or later, we’ll come to farmers who will look at us and have a negative view of what we’re doing before we start,” Mr Samway said.
Aussie investors lag
International investors have been overwhelmingly supportive, he said, but Australian institutional investors had been largely silent on agriculture. Mr Samway said Canadian investors were the most enthusiastic about agriculture and carbon farming, having already heavily invested in everything from cropping to trees.
“Now they’re looking very carefully at soil organic carbon around the world and the feedback is that we, Packhorse, are as advanced as anybody else in the world,” he said.
“The Americans are probably one step behind and then the Europeans, probably another step behind that, but certainly all three are ahead of where we are institutionally in Australia.”
Mr Samway said he thought the problem was a lack of understanding of agriculture and Packhorse Pastoral would continue to work towards educating Australian institutional investors.
Raising another $47m
Packhorse is on track to accumulate 2m hectares within 5-10 years, planning to acquire land from Cloncurry, Qld, south to the Victorian border.
It was launched in May 2021 at a share price of $1.00 but the current offer price aimed at raising another $47m is $1.17, which Mr Samway said was an exceptional result for investors.
It will use the funds to purchase two properties near Coonamble and Inverell, NSW.
Mr Murrell said the properties met the company’s strict acquisition criteria, with regional average annual rainfall in excess of 487mm and 690mm respectively and a high percentage of clay-based soils.
The latest addition, Moolan Downs, comprises four properties, Moolan Downs, Cressy, Allambee and Old Southwood, 200 kilometres southeast of Roma.
Mr Murrell said the aggregation was purchased off-market for a confidential sum from the Youngberry family.
The 10,029ha property was already broken into 60 paddocks running 5000 cattle but Packhorse Pastoral would lift the carrying capacity to 8000 head by 2027.
“Our goal is to basically have paddocks here no bigger than 50ha, so you’re talking another 140 paddocks to implement in this asset and the first key parts of our strategy here are wire and water,” Mr Murrell said.
Off-market best
Packhorse Pastoral preferred to acquire properties off-market, he said, and the relationship with vendors was all-important.
“We don’t like competing in the marketplace because we want to be able to get a win-win for both parties,” Mr Murrell said.
“Most of the vendors are generational people on their land, so it’s like taking over their baby.
“You want them to understand that their asset is going to be treated as good, if not better, than how they treated it and they feel comfortable and confident about handing it over to you.
“We hope to create raving fans for Packhorse so that when they’re talking about us, their experiences have been very positive along the way.” Packhorse worked with vendors, he said, to develop a memorandum of understanding that allowed both parties to instruct lawyers on how the transaction should be run.
“When we do that, yes, the legal representatives have to act in the best interest of each party but both the vendor and the purchaser have a clear communication on how they want this to happen and that is the key to getting the right outcome for both parties,” Mr Murrell said.
In January, Packhorse made its first move into NSW with the purchase of the 8654ha Ottley Station, while the 8360ha Stuart’s Creek west of Roma, was bought in July 2021.
