 27 years ago I attended my first A-Bear Outlet Conference and have been lucky to attend several since. While much has changed, especially when it comes to technology, much has stayed the same. In fact, I would argue that what makes a good agricultural investment then still makes a good agricultural investment today. However, as was the case then, it is easy to get sidetracked by fads and trends which often result in disastrous outcomes for the investor. As such, what I hope today is to discuss how to avoid many of these issues. The problem when given a topic like this is not what to discuss but what to leave out. However, for those who need to catch up on some sleep over the next 15 minutes, as I appreciate it is after lunch, here are the main messages. One, do your homework. Two, if they are offering double-digit, high returns year on year, then avoid. And three, if their claims can't be credibly picked back up with true independent evidence, avoid like the plague. Not hard, is it? Yet for some reasons, we have seen billions, I'm talking about billions lost in agricultural investment. I write scams here, maybe that's been a bit rough over the last couple of decades, but maybe not. For those who don't need to catch up on their beauty sleep, I will now explore this in a bit more depth and hopefully pass on some lessons I have learned on how to avoid some of the potential hand grenades. Every so often, I'll pick up an article on why agriculture is an ex-best thing and the argument goes something like this. The main premise is the world is running out of food. It's simple mass. More mouths to feed, less country to plow, means demand will outstrip supply. It's so facto this leads to price pressures and therefore improve returns. Economics 101. The family farm is a shot duck. It can't keep up with increasing capital requirements, technology advancements and scrawl required to be a profitable business. Corporate farming, given its ability to better access capital and the best expertise money can buy, is better positioned to take agriculture into the future. Its size advantages also means it can take up positions up and down the supply chain, thereby capturing more of the profit taken by the middlemen and therefore ensuring a more profitable outcome than the family farm will ever be able to achieve. Finally, given the access to the best expertise money can buy, they have a better understanding of where markets are going and therefore can pick winners and ensuring that investor capital will outperform the average. What I hope to show with the rest of this presentation is why most of what I have just said should be viewed with a large dose of skepticism. Firstly, the world is running out of food. Since the 18th century, it has been predicted the world will run out of food. As Thomas Malthius stated in 1798, the power of population is definitely greater than the power in the earth to produce substance for man. In 1968, Professor Paul Healick wrote the population bomb and declared that the battle to feed humanity had been lost and there would be a major food shortage in the US. In the 1970s, as he has quoted saying, hundreds of millions are going to starve to death. Again in 1972, the problem was brought to our attention by the club of Rome which stated that there will be a desperate arable land shortage before the land year 2000. Another of my favourite doomsayers is a bloke called Lester Brown who stated in 1995 that, in addition to raising food prices, the failure to arrest the deterioration of our basic life support system could bring economic growth to a halt, dropping incomes and food purchasing power through the world. And then finally, the economist in 2015 made the statement, in the next 40 years humans will need to produce more food than they did in the previous 10,000 put together. But with broadling cities gobbling up arable land, agricultural productivity gains decreasing and demand for biofuels increasing, supply is not keeping up with demand, the economist Jan 2015. According to these futurists, and don't you love that term, things are cooking talerook if you're a consumer and looking up if you're a producer of food, but are they? First, as history has shown us, contrary to these projections made by these eminent people, we haven't run out of food. Here are some of the facts. The latest FAO estimates indicated that global hunger reduction continues. About 795 million people are estimated to be chronically undernourished in 2014 and 2015. Just one in every nine people. This is 216 million fewer, and I say fewer, than in 1990-92. In the same period, the prevalence of undernourishment has fallen from 18.6% to 10.8% globally FAO 2015. Growth of the world population is almost in freefall. It is expected to decline to 1% in 2020, adding 76 million people to the 7.6 million people. The lowest rate since the 1950s. Moreover, this trend is set to continue. By 2050, the global population growth rate will be 0.5%, bringing us back to the 17th and 18th century figures, World Bank 2014. Current crop land could be more than doubled by adding 1.6 billion hectares without impinging on land needed for forests, protected areas or urbanisation. FAO 2009. To add to this, the UK Institute of Mechanical Engineers report global food waste not whatnot found that between 30 to 50% or 1.2 to 2 billion tonnes of food produced around the world never makes it to the plate, the Guardian 2013. Who do we believe? The Futurists or FOA, World Bank, OECD and let's not forget the UK Institute of Mechanical Engineers. From my perspective as a producer, it shouldn't matter who you believe. What is important is what's happening in regards to world demand and supply balances, therefore on farm prices that I receive as a producer, that is important. So let's look at these. If we look at wheat, we get the following picture. The graph shows that closing stocks have grown over the last three years to record, and I repeat record levels. More importantly, if we look at the stock to use ratio, the USDA has estimated that closing stock levels for this financial year will finish at 33%. So what does this mean? Related to other years since 1970, according to Abares, that places current closing stocks in the top 25% of all years. I'd really question if high closing world stocks is really conducive to booming prices. However, you may argue that David has picked only one commodity to support his argument, Faircore. If we accept that premises that tightening food stocks and improvement in disposal income should lead to increasing commodity prices, then let's look at what happened to real prices for wheat, lamb, cattle from 2003 to June 2015 in real terms. By real, I mean removing the effect of inflation. Now you can get these numbers yourself off the grain and graze website. As the slide identifies, for most of our broad acre commodities, prices have roughly kept up with inflation, but certainly not exceeded it to any great extent. So on my mind, this price relationship would suggest there is no new paradigm. I'm not going to have to unpack anything, and we don't need to start a new discussion on food when it comes to commodity prices. So hopefully, you can now put to one side that investing in agriculture is some kind of cold mine due to the fact that it is inevitable that substantial price rises are just around the corner. Now you might ask why I've spent so much time on that point. If you ever look at investment IMs, time and time again I see reams of IMs that focus on that one point. As I said, hopefully, if you look at the facts, you'll agree that it's very questionable. I'm certainly not seen as a producer that we're seeing food demand resulting in higher prices for my commodity, which happens to be lamb. Okay, so in my opinion, investment in agriculture does make sense, but in Australia, how you make it and more importantly, with whom you make it, will be far more important than what commodity you invest in. So this is where the homework needs to be done. So the first thing you need to get right is whom you get into bed with. As I believe this is the biggest factor that will affect your returns. Often agricultural investments are seen as asset plays. In my experience, you're investing in people first and other assets second. What surprises me is how so-called sophisticated investors and institutional investors let their guard down when it comes to agricultural investments. From my own experience with working with institutional investors, I constantly came across the three characters that need to be avoided. Being, one, the agri cowboy, that's a new term, apparently I googled it, it's not there. Two, the snake or salesman and three, the used car salesman. So let's start with the agri cowboy. Firstly, he, and I use the term he on purpose, oozes confidence. Usually located in Sydney or Melbourne, is there nothing they don't know or people they don't know. Is there nothing they can't do? The problem is once you take the RM Williams boots and hats off and scrape away the anecdotes and get over the helicopter rides, the reality doesn't always live up to the height. What you're often fine is you're left with the following. One, over burdensome and expensive administration systems. You have excessive promotional administration costs making them uncompetitive except for their tax advantages, maybe. Poor operational management. Running an agricultural business and ensuring optimal financial performance requires significant management skills as you are managing a biological system in a risky environment. Local knowledge, and I repeat local knowledge and the ability to do this quickly is essential. Very hard to do when you're sitting in an office a thousand kilometres away. They ignore the fundamentals of an agricultural investment. The critical issue is that profitable operations can be identified by their cost structure. Cost-efficient producers will make sustainable long-term profits, while inefficient producers will not. In summary on the evidence available, time and time again these corporate operations significantly underperform family farm operations when it comes to the returns to investors. Kate, there's always an exception to the rule, wherever you are. Number two, the snake oil, salesman or zealot. These are easily identified by the passion for their way of farming. They're excited to be around and usually offer an investment which will change farming practices for the better. Plus, based on their Excel spreadsheet, superior returns. Again, these should be avoided like the Agri Cowboy because, again, once you work through the hype and media pizzazz, there's no substance to the form of true evidence base facts which can be independently verified. And finally, the used car salesman. These guys usually don't know much about Ag but, boy, do they know people who do. What you usually find out about these people is they end up with the deals that have already done the circuit. They find it hard to understand the meaning of no and always out to do a deal. The problem is no amount of wheeling and dealing can turn a pig's ear into a silk purse. You enter these deals at your peril. So what to look for? Track record. Have they made a dollar or are they just talk? Evidence base. This is their system based on fact, not fiction. Skin in the game. And this is probably one of my critical points. Skin in games. Are these fellows just clippet tickets? Ticket clippers or do they actually have equity at risk? While most of those following risks can be mitigated by avoiding the above mentioned fellows, believe the following are still worth mentioning just in case. Sizes in everything or the curse of the Y chromosome? I am being a bit nasty to blokes, aren't I? I'm sorry. Is that allowed? I reckon this is a male thing, but for some reason we've been males or want to be the next to Sydney Kidman. The bigger the better. Just look at any Excel spreadsheet, that's what it will tell you. The problem with this is just as their economies of scale, there are also diseconomies of scale as the graph highlights, and I thank David for letting me borrow this graph. All farming operations have a tipping point where profitability declines. This is only magnified in a corporate model where administration costs and HR costs magnify this problem. The difference between a top 25% return and average return can simply be a matter of days. Precision and speed can get lost as operations get too big. Show me the numbers. This is a big issue for me. The number of IEMs I have looked through that spend most of the time talking about the value of agricultural investments, less than actually on performance, staggers me. Avoid like a plague any investment that can't justify projected performance with past performance. Value add versus added costs, expertise and risk. What I'm trying to say here is quite simply is that people who often induce you into an investment because of their ability to add value to the product down the supply chain. In my experience, only about one in 10 of any value add project actually works. In most cases, what happens is that you add costs and the return is not, you don't get the return, you only get the risk. Projections with straight lines. It's slightly amusing me or makes me cry depending on how I feel when I talk to fun gatekeepers. That we need fun gatekeepers and they're the people you have to actually talk to until you actually get to the fund. It's a bizarre world. That we need to keep it so when they're helping you try to talk to a fun, what they'll do is they'll try and brief you on how you do it. What they'll often say to me is you've got to keep it simple or you will confuse them. So if you present risk and return, grass like I have here, and what I've got there is oh, I'll get that right. There we go. That's here is a co-investment model that we use which allows a investor and farmer to work out what their actual return and risk return profiles are going to be like. So it gives them, as we were talking before, about a full spectrum of what their likely potential returns are and the risks they're taking on. The second one that annoys me in agriculture is we often use as averages or mean when we're looking at things. The second is an example of when I was looking at dairy returns across different areas of Australia and New Zealand. As you can see, some of those returns are quite close, but if you actually look at the variability by the box and whisker graphs, you can see quite a bit of variability depending on where you want to go daring. Okay, I'm very conscious that this talk might sound like I'm pointing the bone at others and that I'm perfect. Nothing could be further than the truth and I have made my fair share of stuff ups. However, what I've learned from these is that you cannot underestimate the importance of the six ds of ag investors and these are simply anyone can buy a farming property, but buying the wrong one or paying too much for one will mean no matter how well you run it, you will never make a commercial return. Be careful what you outsource to third parties to do and remember those who's left holding the baby when the experts ride out of town. Skin in the game. Contrary to recent reports in the media, the death of the family farm is grossly exaggerated. In my experience of investing along corporate lines and joint venture with family farming operations, the JV has delivered significant superior returns with significantly less hassle especially around HR. In delivering of the results, no structure works better than a family operation. There are many reasons for this, but the most critical is the concept of skin in the game. My anecdotal example of this is a dairy operation that I'm involved with. They run both a corporate style and a JV with a young married couple. The difference in performance and hassle is staggering. I experienced this being the case with other co-investment models that we have set up in the borrachic industry with overseas investors and family farming operations. Costs. Costs efficiency is critical. Hopefully the takeaway message from the first couple of slides is that prizes will do what prizes will do. They will go up, they will go down, but over the long term they will revert to the mean. This means high cost operations over the long run will run at a loss and low cost will run at a profit. The Australian context systems that require high inputs of labour and energy will always be at a disadvantage to those that don't. Flexible farming options and realistic exit options. Again to quote the great farming consultant Dorothy McKellar, we farm in a country of droughts and flooding rains. Add to this fire, frost, locus, plagues and other vermin, adaptability of our farming system is essential to success. The value of adaptability farming systems born out in some work done in the 1990s by Abere that looked at the coefficient of variation of operating profits in broad acre regions of Australia was not surprising the farms in the wheat sheep zone had the best coefficient variation to give them ability to vary farming operations depending on climate conditions and equivalent profitability of livestock versus grain. With regards to exit options and I can't reiterate how important this is and is so often over is missed is the ability to get out of the investment. It is often assumed that the end of the investment period we just put it on the market and Bob's your uncle comes in comes the money as per the Excel spreadsheet. I love Excel farming. As my colleague continues to remind me buying a farm is easy, running a farm is hard, selling a farm is harder still. If you do want to be Sydney Kidman then when you get bored of it remember the market demand for these large lumpy operations are small and it can take years to sell the operation. So in summary, yep, in summary. Some of you may think I'm down on investment in agriculture. Nothing could be further from the truth. In fact I want people to invest with both eyes open and avoid the spin and ticket clippers that populate the space. In my opinion agriculture can provide a return that has commenced through it with other investment classes. An example, here are the returns from my superannuation fund for the nine years from 2006 to 2015 and this is an industry fund. Australian shares total returns 5.53, international shares 4.79%, property 5.4, fixed interest 5, cash 3.82 and alternatives 2%. Done properly, ag investment can easily out do these returns done badly, even 2% will look good. Thank you.