With the drought continuing to put pressure on Australia’s farmers and agriculture industry, investing in water might seem counter-intuitive.
But as Alister Walsh, director of water assets at ASX-listed agribusiness company Duxton Water, told Trading Day, banking on falling water levels can be good for both investors and our farmers.
Water will always be a necessity, so as water levels drop during a drought, prices must go up.
“Prices are higher, so there’s a natural hedge within the asset class around water availability versus price,” Walsh said. “That’s reflected in our capacity to earn revenue.”
A time of drought is the most important time to invest in water stocks, according to him, because it means farmers can lock in water security.
“Ultimately, we see ourselves in these sorts of conditions as potentially a hedge against existing [agriculture] exposure, because we have a portfolio of water rights and higher security rights,” he said.
Farmers are always in need of capital to expand and develop production.
But in many cases, up to half of their capital is put towards water assets and facilities, according to him.
Walsh said farmers would do better to invest their capital in production and land assets instead.
“We can take those water assets off their hands but provide the long-term security they need back in a capital light way to help further develop their land and business.”