Michael Pascoe, associate editor of Eureka Report, writes:
Yesterday we read of the National Farmers
Federation attack on the rural managed investment schemes
for “allegedly distorting agricultural markets and undermining agriculture’s
Today the financial pages are full of the
takeover bid for Chiquita Brands by MIS giant Timbercorp and family company
Costa Group (Oz, Smage). It’s another case of your tax dollars working to make someone else rich.
The joint-venturers don’t spell out just
what they would end up doing with Chiquita, but there’s a fair chance
Timbercorp’s MIS financial engineering experience would be brought to bear on
the banana, blueberry and grape company.
Most MIS schemes work by the promoters
buying some sort of agricultural enterprise for X dollars, retaining ownership
of the land but selling off rights to the produce over a limited period for a
multiple of X. The mug “investors” who buy these schemes are lured by a fat
up-front tax deduction that tends to make them overlook total returns that are
generally pedestrian or worse. No prize for guessing who ends up paying for the
tax deduction – the rest of us.
Only a fraction of the money paid by
“investors” actually goes into agriculture – most disappears in the promoters’
profits, marketing expenses and a sales commission structure that makes Westpoint
look tight. The likes of Timbercorp, Great Southern and Gunns have done very nicely indeed for their own
shareholders, but not as nicely for the MIS investors.
The AFR earlier this month did a solid
feature on the MIS industry, including an example of how the
taxpayer-subsidised magic works. In February a genuine listed agribusiness
company, Tandou, sold its Millewa vineyard to Great Southern for $10 million:
got about $45,000 a hectare for the property, which included 178 hectares of
developed vineyard and valuable water rights, a pretty good price in the
In June, Great Southern took Millewa and
three other vineyards and sold the package to the public for about $78,000 a
hectare as the 2006 Wine Grape Income Project…..The $78,000 doesn’t buy
investors any land, but covers the cost of running the vineyard for the next 20
years plus a profit margin.
And it’s a hefty profit margin even after
the big commissions Great Southern pays its sales force. And Great Southern
keeps the land. And this is during that grape glut, when vineyards are starting
to fold and should be available rather cheaply via mortgagee auctions.
In Eureka Report last week,
we had a look at an economic study of tax and the MIS model financed by the Rural Industries Research and
Development. In small part, the study noted that MIS have accounted for about $300
million a year in investment in rural industries – but MIS have been pulling $1
billion a year plus from the punters.
There’s an obvious discrepancy there, but
it all works because the “investors” in the top tax bracket are immediately
given about half their punt back by you – the taxpayer.
Yes, it is a racket. All legal, of course,
but the NFF is right. And watch out for a MIS banana plantation project to be
marketed heavily just before the end of this financial year.