I am a regular viewer of ABC's Four Corners program. Last night's edition had a story relevant to investors across Australia, that of agricultural managed investment schemes.
These schemes have covered a variety of agricultural products in recent times including wine grapes, olives and forest plantations to name a few. Basically these schemes have been given encouragement by the federal government through favourable tax treatments. This has encouraged investors to invest in the planting of crops. Without the favourable tax treatment, investors would not receive any benefits until the crops or plantations bore fruit (for want of a better term). This could be up to 20 years in some cases.
The federal government has however made recent changes to this industry by announcing the removal of favourable tax treatment for many of the schemes except forest plantations.
The Four Corners program raised a number of investment issues regarding some of the remaining forestry schemes including:
High commissions (up to 10%) for financial planners to ?sell' the products
Over-supply risk - so much money is being pumped in that there is a significant risk of over-supply (as seen in the wine grape industry) to further reduce possible returns
Agricultural risks, some schemes are planting in regions where the climate is not sufficient to meet growth expectations
(Not to mention some of the socio-economic issues that are being debated.)
It also became clear that the promoters of the schemes had a fairly risk-free business model, their job was to encourage investors into the scheme helped along by favourable tax deductions. The investors bore the risk of the actual returns to be gained from selling the end product.
We treat these types of schemes as highly speculative and not something that we have ever used in our recommendations to clients.