China to invest in farm-rich Australia

Mainland will increasingly seek to secure food production assets overseas - especially Down Under - given rising food prices at home

PUBLISHED : Wednesday, 12 December, 2012, 12:00am
UPDATED : Wednesday, 12 December, 2012, 3:44am

China, haunted by famines throughout its thousands of years of history, is hungry for food in farming rich Australia.

National Australia Bank chief economist Alan Oster forecasts there will be big growth in Chinese investment in Australian agriculture over the next few years as Beijing seeks to avoid rising domestic food prices.

"They don't want food inflation like in 2007. China doesn't want to be relying on limited sources when prices go through the roof," Oster said.

He said that by 2050, world demand for food will rise 70 per cent from today and the mainland would be clearly interested in Australian agriculture.

In 2011, China overtook the US as the world's largest importer of food, after China's food imports rose 34 per cent that year, said Cristelle Maurin, a visiting research fellow at the Centre for Chinese Studies, Stellenbosch University, South Africa. "China will increasingly seek to secure food production assets overseas in the face of rising food prices and food security. Chinese firms will most probably increase their international investments in Australia and elsewhere."

In May last year, Australian Trade and Competitiveness Minister Craig Emerson launched a joint study with the Chinese government led by Commerce Minister Chen Deming on how to encourage substantial Chinese investments in agriculture in Australia. In October, the Australian government released its white paper on "Australia in the Asian Century" which recognised Asia's rising food demand offered an opportunity for Australia to supply food to Asia and encourage Asian investment in Australian agricultural assets.

China's sovereign wealth fund, China Investment Corporation (CIC), is looking to make its first significant investment in the Australian dairy industry, wrote Maurin in a commentary. In September 2012, CIC executives inspected two large dairy operations in Tasmania, Australia, which have a combined value of more than A$200 million (HK$1.6 billion), namely the Little Lion dairy operation and Australia's largest diary farm at Woolnorth. Tasmanian Premier Lara Giddings met CIC president Gao Xiqing in Beijing and declared: "We would welcome Chinese investment in our dairy industry."

On November 20, the state government of Western Australia announced Kimberley Agricultural Investment (KAI), a subsidiary of Chinese company Shanghai Zhongfu, was the preferred bidder to lease and develop 13,400 hectares of farmland in the state. In this project, KAI will invest A$700 million over the next six years to establish a sugar production base to export 500,000 tonnes of sugar crystal every year.

On November 29, CK Life Sciences International, a Hong Kong-listed firm controlled by the city's richest man, Li Ka-shing, signed an agreement to fully acquire Cheetham Salt from Australian-listed Ridley Corporation for A$150 million. With this acquisition, CK Life will become the largest producer of domestic salt in Australia, said the company's press release.

On August 31, Australian Deputy Prime Minister Wayne Swan announced he had approved the joint proposal by Shandong Ruyi Scientific & Technological Group, a non-listed Chinese textile manufacturer, and Lempriere, an Australian firm, to acquire Cubbie Group, Australia's biggest cotton producer. Ruyi will initially acquire 80 per cent of Cubbie, but is required to sell down its stake to 51 per cent or less within three years, said Swan, who is also Australian Treasurer.

Ruyi and Cubbie would not comment on the acquisition price, but Cubbie's assets, including 1,000 square kilometres of cotton fields, are estimated to be worth A$500 million, according to Australian media.

"The government welcomes foreign investment in Australia and continues to ensure that investments are consistent with Australia's national interest," Swan said.

David Thorn, global head of consumer sectors, National Australia Bank, said, "We expect Chinese investment in Australian agriculture to increase over the next 12 months. The government's recent approval of the Ruyi-Cubbie transaction and comments by Swan add to our confidence that further Chinese investment will occur."

However, the Chinese investment in Cubbie has generated controversy within Australia. In September, shadow treasurer Joe Hockey said he disapproved of the Chinese investment in Cubbie, according to Australian media reports. The deal would create complications over local water licenses, said the politician.

"The major holder of the licence becomes Shandong Ruyi, an enterprise chaired by someone appointed by the Chinese Politburo."

Chinese interest in Australian agriculture is recent, with the first major investments dating from last year, said Maurin.

In July 2011, Cofco, a Chinese state-controlled agricultural conglomerate, increased its stake in Australian sugar producer Tully Sugar from 61.25 per cent to 99 per cent for 938 million yuan.

In August 2011, Bright Food Group, China's second biggest food company, bought Australian food company Manassen Foods for A$400 million.

With the accelerated pace of urbanisation on the mainland, China's farmland is expected to decline from 135 million hectares in 2003 to 129 million hectares in 2050, Thorn added. "Australia is well placed to capture this demand gap."