Agribusiness has always been an iconic part of ASX’s history and identity. From the origins of our derivatives market as the Sydney Greasy Wool Futures Exchange through to today’s capital markets, ASX’s involvement in the agribusiness sector is broad and deep.
Over the coming decades, primary industries, such as food and fibre will be shaped by multiple interacting changes and challenges. In a recent ABARE report, five megatrends were identified that are shaping the primary industry sector in Australia and globally. These are:
1. Accelerating planetary climate risks. Climate and commodity prices will become more volatile, while emerging markets for carbon and ecosystem services could transform landscapes and business models;
2. Booming consumer growth and demand. A growing, empowered middle class in Asia will demand higher volumes and quality of food and fibre, incl. more protein – with rising expectations for health, provenance, sustainability, and ethics;
3. Conflict complexity and competition. International trade and geo-political relations – along with food and fibre markets, supply chains and relationships – will all become more complex as nations compete for dominance and security;
4. Exponential advances in technology. Exponential advances in digital technology, automation, genetics, and synthetics will disrupt and change how food and fibre products are made, marketed, and delivered. E.g. – source to table tracking; and
5. Demand for capital. Maintaining profitable and competitive food and fibre enterprises will require innovation and change leading to increased demand for capital in all stages in the value chain.
Financing this dramatic transformation in primary production will necessitate and drive increasing demand for capital and investment. Indices play an important role in attracting investment capital and enabling market performance to be measured and monitored. Most people are familiar with ASX’s key market indices – such as the S&P/ASX 200 Index or one of the many sector specific indices such as the S&P/ASX Resources Index or the S&P/ASX All Technology Index which was launched in February 2020. Inclusion in an index means greater profile for the index constituents and importantly attracts investment from passive and active index tracking managed and exchange traded funds. Given the prominence of the Agribusiness sector in Australia, it is perhaps surprising that until now, there hasn’t been a benchmark representative of the sector.
In partnership with S&P Dow Jones Indices, ASX has launched the S&P/ASX Agribusiness Index (or AgBiz Index for short), setting a new benchmark for monitoring the performance of ASX-listed primary production companies across a range of different subindustries. The AgBiz Index constituents are drawn from the top 1,000 ASX listed companies (by free float adjusted market capitalisation) and not only contains agricultural product producers, but will also contain constituents from fertilizer and agricultural chemicals, paper products, food distributers, brewers, distillers and vintners, packaged foods and meats, pharmaceuticals (including medicinal cannabis), water utilities and rural land REITs. The Index has a single index constituent cap of 10% to ensure no single company dominates. Launched as an end of day index on 31 May 2022, it converted to a real-time index on 1 July enabling fund managers to track performance accurately to market moves during the trading day.
As at the May 2022 rebalance, there were twenty five constituents – the largest five being Treasury Wine Estates, A2 Milk Co, Nufarm, Graincorp, and Elders. The AgBiz index also contains other familiar household names such as Costa Group, Bega Cheese, Australian Agricultural Company, Inghams, Tassal, Bubs Australia and Lark Distilling.
An interesting aspect to the Index is its performance during periods of market stress. For example, take the period February 2020 to March 2020 – the beginning of the COVID pandemic, which saw a sudden and broad market correction. From the market peak of 20 February to the trough of 23 March 2020, the Index had one of the smallest falls of all sectors on the ASX (See the graph below).
Through the S&P/ASX Agribusiness Index, ASX is bringing greater awareness to this important sector and supporting agribusinesses to grow and prosper by enabling them to tap into one of the deepest pools of investment capital worldwide.
Additionally, the Index provides new and exciting opportunities for investors to build long-term wealth by assisting companies grow to meet the future challenges of feeding a hungry planet.
Ken Chapman is Head of Strategic Delivery, Capital Markets for The Australian Securities Exchange (ASX), www2.asx.com.au.