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Rich Lister Kahlbetzers enter new era after selling Argentina farms

The Kahlbetzer family is walking away from farming in Argentina after a record-breaking asset sale and will try to recapture some of its former glory in Australian agriculture when the time is right.

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The Kahlbetzer family is walking away from farming in Argentina after a record-breaking asset sale and will look to recapture some of its former glory in Australian agriculture when the time is right.

One of Australia’s most famous and wealthy farming families says Argentina, where it has operated for the past 40 years, is being dragged down by “bad policy and bad politicians”, and has indicated acquisitions here might have to wait until a run of good seasons ends.

BridgeLane founder and chief executive Markus Kahlbetzer. Louie Douvis

Markus Kahlbetzer said his BridgeLane Group would bide its time before re-investing after selling about 60,000 hectares of farmland in Argentina that his father John started accumulating after the Falklands war.

The $US201 million ($300.3 million) sale is the largest agricultural transaction in Argentina’s history and comes amid economic disarray and spiralling inflation in the country, where the president has accused farmers of hoarding produce.

Kahlbetzer family patriarch John, now aged 91, remains in Buenos Aires but will soon be on his way back to Australia, where the Rich List family made much of its billion dollar-plus fortune in farming but has since diversified into venture capital and other investments under Markus and his older brother, Johnny.

The family’s Twynam Agriculture Group was once one of Australia’s biggest owners and operators of broad-acre farmland, producing grains, oilseed, cattle, wool, cotton, rice and citrus as well as holding extensive water rights, but started selling off those assets in the 2000s.

Time to reallocate capital

LIAG Argentina, founded by John in 1982, continued as one of the biggest agricultural producers in Latin America with properties in Buenos Aires, Córdoba, San Luis, Formosa and Salta used to grow wheat, corn, soybean, chickpeas and cotton.

The Kahlbetzers are pleased to have sold LIAG to the family of Gerardo Bartolome, the founder of global soybean powerhouse GDM Seeds, given the small pool of potential buyers under Argentina’s heavy-handed foreign ownership restrictions and the country’s prolonged economic crisis.

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Markus said Argentina was at one of the lowest points in the past 40 years, making it the right time to reallocate capital back to Australia.

The cashed-up Kahlbetzers are in no rush to buy farmland in an Australian market where valuations have soared on the back of good seasons.

“We are excited about Australian agriculture. We will do something, and we will always continue to have agriculture in our blood,” Markus said.

“But I feel there will be better opportunities (in the future), whether it’s drought-induced or whether its institutions crystallising values.”

His comments come with prime NSW farmland awash and much of Australia’s grain-growing regions preparing for a third consecutive bumper harvest.

Strong commodities prices and a generous tax write off policy due to expire next year have helped farmers to rebuild herd and flock numbers after the last drought, and make record purchases of new machinery.

However, big price increases for fertiliser and other key farm inputs have increased the financial risks associated with a poor season.

The Kahlbetzers are mindful of the Millennium drought of the 2000s and its devastating impact on farming, and more recent droughts that saw grain shipped into east coast ports and forced cattle and sheep producers to de-stock.

The Millennium drought triggered a sell-down of the family’s once-vast network of Australian farms. It also led to a controversial $303 million deal whereby the Kahlbetzers sold water rights under a $3.1 billion Rudd government buyback scheme.

A mixed farming enterprise

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The deal, overseen by then-Water Minister Penny Wong and used by Labor to trumpet its commitment to the Murray-Darling Basin, was the biggest of its kind and seen as a windfall for the Kahlbetzers.

Markus said they would be content to grow from a low base in Australian agriculture – their last, big, rural property was sold in 2018 and his current assets are a small farm and Angus herd near Jugiong in NSW – and are likely to avoid irrigation-dependent assets like cotton despite Twynam’s history in irrigation.

“We would love to have a mixed farming enterprise,” he said.

“I’m not so sure about intense irrigation. Even though I do believe that Australian farmers are some of the most efficient in the world, I don’t know if I want to be in that space.”

Markus is definite about agriculture being part of a BridgeLane portfolio that now includes the venture capital arm, commercial property and until recently housing development.

The 41-year-old sees agriculture as a classic wealth preserver with less correlation to current equity market and global economic volatility than other asset classes.

“Ag is a classic example, and I think my father has probably demonstrated this, of a wealth preserver,” he said.

“We’ve been involved for over 40 years in both countries, Australia a little bit longer than Argentina, and we’ve been able to stay steady. We haven’t jumped over everybody else in terms of wealth, but we’ve been able to preserve it and grow it and still be here many, many years down the track.

“So I think it’s extremely important to have a substantial part of your portfolio invested in asset classes like ag if you can operate it because it’s kind of like a pub in a way. If you can’t operate it properly, it’s not worth as much.

“If you look around the world and what’s happened in the market in the last few years, ag has held its value. In Australia, it increased its value substantially. Hence, why I’m reluctant to enter in hard now.”

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Although he was born in California and spent much of his early life in Argentina where John once pictured him living and running LIAG, Markus has called Sydney home since 2001.

If you look around the world and what’s happened in the market in the last few years, ag has held its value.

Markus Kahlbetzer

The Kahlbetzer sons were each given a piece of the family’s business empire under a succession plan, with Johnny in charge of Twynam and Markus receiving his father’s backing to start up BridgeLane with LIAG as a key asset in 2009.

The brothers operate their businesses independently and their father has had no operational involvement for several years. John, who is set to return to Sydney where he will be closer to his sons and grandchildren, still plays golf and until recently tennis, but his polo days are well behind him.

John made his fortune after arriving in Australia in 1954 from Germany and starting out in steel imports and exports. The agriculture business grew from a hobby farm called Razorback to the point where Twynam owned more than 440,000 hectares of NSW and was Australia’s biggest irrigator with about 260,000 megalitres of river water and 38,000 megalitres of bore water entitlements.

LIAG is still a big player in irrigation in Argentina where president Alberto Fernandez last month accused farmers of hoarding soybean and other produce worth billions of dollars.

The government desperately wants the export income as Argentina’s US dollar reserves dwindle, but farmers are seeking some protection from the economic meltdown amid warnings inflation could hit 90 per cent this year.

Argentina’s been tough forever

The ruling, centre-left, Peronist coalition tried unsuccessfully to get more soy exports flowing by making it slightly easier for farmers to get their hands on US dollars.

“Argentina’s been tough forever,” Markus said. “I mean in those 40 years (since LIAG was founded) there’s been better times and not so good times, but it’s definitely not as easy as operating in a country like Australia.

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“There’s been moments of bad politicians, but they have made things relatively easier to run a business. Now you just have a combination of bad policy, bad politicians.”

Farmers must pay a 35 per cent sales tax on soybean, Argentina’s biggest crop, as well as other taxes.

“Those export taxes, sales taxes, are the ones that kill the industry, but that’s the heroin of the country, and they can’t survive without it,” Markus said.

“Even if a capital-friendly government comes into place, they have to be very careful on how to unwind that because the country’s become so dependent on those revenue lines.”

Under the circumstances, the Kahlbetzers were fortunate to find a willing buyer for LIAG in the Bartolome family, whose GDM Seeds founded in Buenos Aires was also celebrating its 40th anniversary.

The Argentine family is going through its own succession process with Gerardo Bartolome, 66, handing over the reins at GDM to his son Ignacio. GDM is also a big supplier of seed to LIAG.

The Kahlbetzers acquired their farmland in Argentina before the introduction of curbs on foreign ownership more than a decade ago that grandfathered their assets. Up until the restrictions came into force, they had been developing farmland and converting grazing land to cropping as their business grew.

Pushing foreigners out

Markus said there was no comparison between what happened in Argentina and Australia’s Foreign Investment Review Board.

“I think we do complain too much about it (FIRB),” he said. “I think Australia has a process in place, and it is predominately black and white,

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“Whereas in Argentina even if there was a FIRB approval process that was black and white, I think there’d be a lot of questions raised anyway ... who would get something and who wouldn’t get something,” he said. “Corruption is something I think is rife there.”

Markus said foreign investment was dead in Argentina.

“In a way, they push foreigners out and make it quite difficult to grow and expand,” he said.

“The pool of buyers is very small in Argentina because you have those foreign ownership restrictions.”

The sale of LIAG will free up capital for BridgeLane, which is eying growth opportunities in venture capital and commercial real estate as well as agriculture.

The venture capital arm has racked up investments in Airtasker, Amaysim, Sprout Stack and Flare since 2010.

Markus said BridgeLane was sector-agnostic but stage specific in venture capital and only focused on opportunities in Australia and New Zealand.

“We will invest in almost any category but at certain stages, which could be anywhere from pre-seed to say series A, series B,” he said.

BridgeLane tends to favour software businesses or businesses that don’t have a long prototyping phase where they have to sink a lot of capital to get to market.

There are a few investments in its portfolio that don’t fit that description, but they haven’t been successful.

Twynam, under Johnny, has also evolved into a major player in venture capital with a portfolio that includes non-traditional protein businesses, seaweed farming and green energy technology.

Businessman John Kahlbetzer pictured in the Financial Review in November 1961. 

Markus said the brothers got along well and sometimes shared deal flow, especially in the venture capital space.

“We still have similar interests even though we allocate differently,” he said. “We like looking at the same things, and we are doing some things together.”

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Brad ThompsonReporterBrad Thompson writes across business and politics from Western Australia for The Australian Financial Review. Brad is based in our Perth bureau. Connect with Brad on Twitter. Email Brad at [email protected]

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