Chinese appetite grows for Australia
Safety scandals are prompting even non-food firms in China to size up agricultural prospects Down Under, with deals expected to flourish
Fears over food safety in China are spurring a growing number and variety of Chinese investments in Australian agriculture.
"Chinese food scandals are a key driver of Chinese investment in Australian agriculture because of Australia's brand [reputation] as safe food," said Meredith Paynter, agribusiness leader of international law firm King & Wood Mallesons.
Tough biosecurity laws and quarantine procedures gave Australia the comparative advantage of clean, safe and plentiful supplies of agricultural assets, said National Australia Bank's David Thorn.
China has been rocked by a series of food safety scandals in recent years, from milk contamination to recycled "gutter" oil. After the death of several children, fears about the quality of infant formula became so great that mainland visitors began buying large quantities of the product in Hong Kong.
Dairy products are one area that offers great prospects. Thorn said many executives of Chinese state-owned food firms expressed interest in investing in Australian dairy production. "The opportunity for Australian dairy producers is massive," he said.
Chinese investment in Australian agriculture has leapt from US$3 million in 2010 to US$20 million in 2011, while US$700 million of potential Chinese investments in Australian agriculture were under discussion in 2011, according to a paper jointly published by the Chinese and Australian governments in December.
"Chinese investment in Australian agriculture is increasing exponentially," PricewaterhouseCoopers partner Gabriel Wong said.
"China has 18 per cent of the world's population but only 8.5 per cent of the world's agricultural land, so China wants to invest in Australian agriculture."
In the past, most investments were by state-owned food companies, such as Cofco's US$145.15 million acquisition of Tully Sugar, and Bright Food's acquisition of Manassen Foods for about A$500 million (HK$4 billion) in 2011, Wong said.
"The significant change is a lot of private enterprises that are not food companies now want to participate in this sector. The volume of Chinese deals in Australian agriculture will increase significantly. Everybody can do it. Toy companies can do it. Property companies can do it," Wong said.
Chinese private property developer Shanghai Zhongfu won the rights in November to lease and develop 13,400 hectares for sugar cane in Western Australia, with a projected investment of A$700 million over six years.
The deal aroused criticism from some Australian politicians and newspapers. "If you are a Chinese private company with piles of cash, you ask where do you put your money? The Chinese companies see the food scandals in China, so they invest in Australian agriculture," Wong said.
Last year, the Australian government announced a policy to fast-track approvals of permanent residency for foreigners who invested at least A$5 million in certain sectors, including agriculture. This would open the door to many private Chinese investors to invest in Australian agriculture, Wong said.
"Chinese investors appear to be particularly interested in beef and dairy products, including milk powder," Paynter said.
China is the biggest buyer of Australian agricultural exports, accounting for 19 per cent of the total, according to Australian government data. Australia is the second-biggest beef exporter in the world behind Brazil and exports A$2.4 billion of dairy products annually, or 45 per cent of its milk production.
China is the second-largest importer of Australian dairy products at A$229 million annually, behind Japan.
However, many Australian farms are small and privately held, making it more difficult to assess the farming operations.
Farming is also a greying industry in Australia, raising questions about any long-term investment in the sector. Thorn said the average age of an Australian farmer was 59 and many children were reluctant to take up life on the land.