Reporter: Lauren Harte

First Published: 19/11/2006

SALLY SARA: The Federal Government is about to make a decision on whether the Tax Act is providing too much benefit to managed investment schemes (MIS). One sector that's eagerly awaiting the decision is the local olive industry, where MIS are growing in popularity. While MIS advocates say they bring money to the bush and boost exports, opponents say they're a tax rort for rich city investors that distort the agricultural climate.

LAUREN HARTE: Near the banks of the River Murray in the heart of central Victoria stand nearly 2,000 hectares of olive trees. This impressive broad-acre site is based in the tiny town of Boundary Bend. Olives thrive in these parts because of the dry, Mediterranean climate and its fertile red soil. Its scale and operation is one of a growing number in Australian agriculture that have been helped along by managed investment schemes, or MIS. On the ground is Rob McGavin, who heads up Boundary Bend Limited.

ROB MCGAVIN: Boundary Bend was first started in 1999 by Paul Riordan and myself, with some other investors. We put in 200 hectares for the first two years and another 100 hectares in 2001.

LAUREN HARTE: But significant expansion of the grove then hinged on raising more capital, which wasn't easy.

ROB MCGAVIN: We tried to raise the funds a different way, through super funds and high net-worth individuals. It's extremely difficult when you go and talk to them about raising money and tell them that they'll get some money back in 4.5 years' time. Usually their eyes glaze over and they show you the door.

LAUREN HARTE: So in 2004 Boundary Bend Limited became involved in managed investment schemes. Simply put, MIS bring people together to pool their money in a common enterprise. Each grower leases a separate portion of land and a responsible entity manages that part of the farm.

For Boundary Bend, the giant agribusiness investment manager, Timbercorp, was charged with raising the cash the company needed. It remained the manager of the operation. Now, BBL manages nearly 5,000 hectares of irrigated olives, and this year alone processed more than 22,000 tonnes of olives.

ROB MCGAVIN: We're a public, unlisted company and we produce about 40 per cent of Australia's production at the moment and we're fully vertically integrated from the nursery right through to selling to supermarkets.

LAUREN HARTE: According to the Australian Agribusiness Group, the amount of capital raised for agribusiness MIS in the last financial year was in excess of $1 billion. Of that, capital generated in olives was $73 million. That's a 114 per cent jump on the previous year. AAG estimates that based on the capital raised last year, 1,500 hectares of olives will be established in MIS around the country within the next 12 months.

PAUL MILLER: For the olive industry, managed investment schemes have given us scale that we really needed to support industry activities and also to start spearheading the move overseas with export. So in our case it's been quite a positive thing and, in fact, managed investment schemes have planted about 70 per cent of the olive trees in Australia right now, which sounds like a lot. But even with what we have in the ground now, we will only produce maybe 1 per cent of the world's production, perhaps 5 per cent of the high quality stuff, and we need more.

LAUREN HARTE: Global production of olive oil each year is around 2.5 million tonnes, but Australia is still a very small player, responsible for only 0.33 per cent of world production. The 2006 crop yielded just 8,000 tonnes, but there are plans in the pipeline to reach the 30,000-tonne mark after 2010 with the help of managed investment schemes.

PAUL MILLER: The Australian olive industry has the opportunity to at least treble its size, which will enhance its ability to replace imports, but really is needed to supply the domestic demand for our product, which is strong. If we don't do that, then we won't really achieve the scale that would support a lot of new innovation and advancement, and if we do do it then I'm sure we'll have just a stronger industry and a much better outcome.

LAUREN HARTE: Recently Boundary Bend Limited took over the management of Timbercorp's olive grove at Boort in the Murray outback. At nearly 3,000 hectares it claims to be the largest single olive grove in the world.

ROBERT HANCE: We've got roughly 1 million trees. Last year we produced over 15,000 tonnes of olives, and this year, hopefully, over 22,000 tonnes.

LAUREN HARTE: Timbercorp's CEO, Robert Hance, says the company spotted an opportunity in olives back in 1999. The rest, as they say, is history.

ROBERT HANCE: Timbercorp started in forestry, growing blue gums for wood chip. We then moved into olives, then into almonds - and you would have maybe seen the almonds as you flew over - citrus, avocados, table grapes, mangos.

LAUREN HARTE: Boundary Bend Limited's expansion has also continued. It's just taken over the site where the Geelong Wool Combers was based until it went broke in 2003. Now it's been transformed into an olive hub, made up of Australia's largest olive nursery, an accredited laboratory and a state-of-the-art storage and bottling facility.

ANDREW BURGESS: It's an olive oil filling line that we've just invested in. We've got two lines here. We put in a high-speed glass line, which will pack a lot of our standard glass lines. A lot of it's going to domestic, but we're also exporting overseas. The capability of that line's about 6,000 an hour, so it's a really efficient line.

LAUREN HARTE: Supporters of the MIS structure say that without it, Australia's olive industry wouldn't have the scale of operations, the export markets and the investment dollars for research and development that have helped everyone in the industry, including the smallest groves and family-owned farms.

LISA ROUNDTREE: We are about 2 hours’ drive off Adelaide, 21km north east of a town called Coonalpyn, which is on the Dukes Highway. There are around 7,200 trees on this property, which is around 20 hectares.

LAUREN HARTE: Lisa Roundtree is the president of the South Australian Olive Association and a board member of the Australian Olive Association. A city girl who married a dairy farmer nearly two decades ago, she was determined to make it on the land in a new industry. Olives appealed, with their suitability to the climate and potential in the marketplace.

LISA ROUNDTREE: Getting this property set up here would have been incredibly difficult if we hadn't had off-farm income. Investing in olives is a really big commitment; you don't see any return from your money for at least five or six years. So getting involved in a managed investment scheme, we became managers of a property that was close by to here. That gave us off-farm income to help support what we were doing here as well.

LAUREN HARTE: The property that the Roundtrees manage is funded by around 160 investors. Lisa Roundtree says that not only has MIS enabled the Australian olive industry to be more competitive against cheap imports, it's also funded expansion of her family's olive grove and boosted the local economy.

LISA ROUNDTREE: By having these big farms in this community that are going ahead and are quite successful, it means that we can share the money with the community, where we purchase as much as we can locally, we employ local people, and I think that's had a huge benefit on the community. We support both our footy teams, we lease out land for the local football team to crop, we donate guernseys to football clubs. So I think we're able to give a lot back because we are making a successful industry.

LAUREN HARTE: There's also, not surprisingly, support from local government. John McLinden is the CEO of Loddon Council that covers Victoria's Goldfields.

JOHN MCLINDEN: Those people live in surrounding towns, have bought in Wedderburn, Wycheproof, Charlton, Kerang, some even as far south as Bendigo, and so those funds then get distributed through those communities as the workers take their wages home and support their families in those communities.

LAUREN HARTE: Despite the drought, he reckons Timbercorp's Boort operation has actually brought water back into the area, bringing economies of scale and leading to a reduction in the cost of the precious resource. The local water manager, Goulburn Murray Water, which, of course, is selling more water, told Landline it fully supported the managed olives.

GORDON PARKER: The Parker family's been here since the late '50s, bought the property here and we're into broad-acre farming, had some irrigation, flood irrigation, as well, growing cereals, lucerne, canola, running sheep.

LAUREN HARTE: Gordon Parker is the irrigation manager at the Timbercorp Grove. He's from one of the five original farming families in the area that sold up to the company back in 2000. He reckons at least 95 per cent of locals back the MIS development.

GORDON PARKER: I don't think anybody would have foreseen this 20 years ago, that there would be an olive grove of this magnitude and also the vast area of drip irrigation in this area at all. Certainly I didn't foresee that.

LAUREN HARTE: Large-scale olive operations need large machinery for harvest and the current olive MIS expansion has, apparently, seen the machinery market boom.

PAUL RIORDAN: What we're doing here is, we're building a Colossus olive harvester, built by Maqtec. There's about 15 operating in Australia at the moment and we're building another five for this coming season, so, they've got to be out the door by April.

LAUREN HARTE: Further up the Murray, in Mildura, Paul Riordan's business is trying to keep up with demand. Half of the brains behind Boundary Bend Limited, he also set up Maqtec three years ago.

PAUL RIORDAN: It would be fair to say, over the last four years we've probably had a tenfold increase, at least, in our business and the operation due to the positive influence of the MIS because it's really given us the scale to invest in our business with the future plantings that are going to come on-stream.

LAUREN HARTE: But managed investment schemes have their critics, plenty of them.

SAM PATON: I come from a farming background in the north east of Victoria, in the Mitta Valley, so we still have fourth generation relatives involved.

LAUREN HARTE: Sam Paton has more than two decades' experience as an agricultural economist and certified practising valuer. He believes the MIS-olive combination is fraught with danger, saying many city-based investors are only involved because of a potential 100 per cent tax deduction in the first few years of a project, as opposed to a long-term profit like your average farmer.

SAM PATON: The whole philosophy of the MIS product is not to necessarily - it might pay lip-service to the fact they're looking to achieve best practice, but there are enough disclaimers in those documents to say, "If you don't achieve best practice, well, we warned you." Now, that, in the whole scheme of things ultimately, probably, leads to a second-best outcome.

LAUREN HARTE: There are also concerns of a serious oversupply problem down the track.

SAM PATON: Yes, I think the huge grape supply overhang we now have is a very large wake-up call that the olive industry needs to heed, because the magnitude of that grape supply overhang caught the industry by surprise. They did know they were playing on a world stage in trying to get rid of that surplus, and the olive industry faces the same thing, that domestic production will probably only grow - as I understand it, it'll keep growing as olive oil's a preferred commodity for health reasons, but the absorption is overtaken by the increasing greenfielding of projects. So if it's not managed and wound back, I think there's huge price shock going to come in the farm gate price of olive oil before too long.

LAUREN HARTE: The National Farmers’ Federation hasn't minced its words on managed investment schemes, saying they distort land values, water prices and commodity markets. Last month its Victorian member went to Canberra to lobby Federal politicians on the issue.

SIMON RAMSAY: We don't believe the present schemes - the MIS schemes and also the tax deductibility surrounding them - provides a fair and equitable trading system for land use right across Australia. Certainly we believe those investors are investing, they're getting an up-front tax deduction, which, consequently, is inflating both the land price, and also the water prices they're prepared to pay for, for their different schemes.

LAUREN HARTE: Earlier this year the Federal Government embarked on a review of the Tax Act to see whether it advantaged managed investment schemes in forestry. During that process submissions were made about non-forestry MIS, including olives. As a result, it, too, was also on the table for discussion. A government spokesman has told Landline that no decision has yet been made. In the meantime, those in the olive industry with a lot at stake are eagerly awaiting a decision.

UNIDENTIFIED MALE: We built the facility in May, with anticipation of some large orders coming through, but with all the uncertainties surrounding MIS, the customers are too nervous about making a decision, a big financial commitment. So we can't fill it unless we've got orders, so there's only a small amount of trees in here because there's only a small amount of orders in the book for 2008.

LISA ROUNDTREE: I think the criticism has been quite unfounded. I don't know that they've done anywhere near enough industry consultation before making such big decisions about not only our industry, but this is going to affect many other agricultural industries. I'm really surprised that government can make such big claims and make such big decisions without consulting industry players to see what the impact is this is going to have on them. It’s quite bizarre.

SALLY SARA: Lauren Harte reporting on the olive industry and the part being played by managed investment schemes.

FARM FACT:LAST YEAR AUSTRALIA IMPORTED MORE THAN 29 THOUSAND TONNES OF OLIVE OIL WORTH MORE THAN 146 MILLION DOLLARS.