January 13, 2015

By Shahnaz Mahmud

In September, China’s Yuhu Group and the government-owned Beijing Agricultural Investment Fund co-invested in a $3 billion fund aimed at the Australian agriculture industry. The move further positions Australia as a major destination for agricultural investment. Australia’s grasslands and livestock production are heralded throughout the world, and its political and economic stability makes a strong case for investment as food security continues to be a global issue. This has led to increased foreign direct investments into the country designed to cater to growing food supply demands.

The Beijing Australian Agriculture Resource Cooperative Development Fund will invest in cattle, lamb, seafood and milk formula, according to an article by The Global Panorama.

Announcement of the fund came just two months prior to the completion of the China-Australia Free Trade Agreement, which was formally established on November 17.

“China is Australia’s largest export market for both goods and services, accounting for nearly a third of total exports, and a growing source of foreign investment,” says Julianne Davis, Acting Manager, Agribusiness and Food Investment at the Australian Trade Commission. “As well as attracting greater investment in Australia, the China-Australia Free Trade Agreement will continue to reduce barriers to Australian agricultural exports over time between our two markets, across a range of products including beef, dairy, lamb, wine, hides and skins, horticulture, barley and seafood.”

Growing Interest from International Markets

Davis emphasizes that there is growing interest from international markets in Australia’s agribusiness and food sector – as a source of product, as a destination for investment and a source of knowledge and expertise.

Australia has remained one of the top 10 global destinations for Foreign Direct Investment (FDI) for three consecutive years, she says, citing the UN Conference on Trade and Development’s (UNCTAD) World Investment Report 2014. The report indicates that over the three years prior to 2013, Australia attracted a total of US$171 billion in FDI flows, up nearly 55 percent from US$110 billion over the previous three years.

“The diverse nature of this interest is important because it reflects the way global food markets are changing and informs the way Australia sees the challenges and opportunities facing the agribusiness and food sector,” says Davis. “Foreign direct investment contributes to opportunities that will allow Australia to expand the sector and take advantage of the demand, including that coming from the rapidly growing markets in Asia.”

The strongest interest from foreign investors is focused on meat, dairy, grains and horticulture. Davis points to two deals as example. The first is the $70 million acquisition of United Diary Power (UDP) by Hong Kong-based private investor Swing Media in what is perceived to be a move to capitalize on China’s growing demand for powdered milk products. The second is UK company PZ Cussons’s acquisition of Australian organic yogurt company five:am, and Australian premium baby food brand Rafferty’s Garden.

Dairy is a big attractor to Australian investment. The demand for dairy products in developing countries is growing, due to population growth, urbanization, rising incomes and changes in diets, notes Davis. “This demand offers a good opportunity for producers (and other actors in the dairy chain) to enhance their livelihoods through increased production, and provides Australia more broadly with an opportunity to maintain and grow its global position in the premium end of the dairy industry,” she says.

Davis highlights Australia’s global position in this particular sector: it is the fourth-largest dairy exporter in the world, accounting for 7 per cent of world trade. Dairy is a $13 billion farm manufacturing industry in Australia, directly employing 43,000 people. Annual milk output was 9.2 billion liters in 2013 with the potential to grow. Exports are valued at approximately $2.7 billion each year, over 40 percent of national milk production. Australia’s key dairy export markets include Japan, China, South East Asia, and Middle East.

Growth in Demand at the Premium End

Overall, the Australian agriculture market currently produces enough food to feed approximately 60 million people, notes Davis. Growth in demand at the premium end is a key trend globally through at least 2050, when the world population will surpass nine billion and a significant food production increase – to 70% – is required, according to the Food and Agriculture Organization of the United Nations.

Davis points to The ANZ Bank which predicted in its Greener Pastures report that an estimated $600 billion will be needed by 2050 for Australia to maintain its current share of global output. A further $400 billion will be required to support generational transition on farms. “International investment has an important role to play by providing access to new (and deep) pools of capital and alternative business models, exposure to new technologies and techniques, commercialization of Australian intellectual property and links to global value chains,” said Davis. She adds that the Australian Government has identified attracting investment into Australia and supporting Australian investment internationally as one of four pillars in its economic diplomacy. Agribusiness and Food is one of the five investment priorities endorsed by Andrew Robb, the Federal Minister for Trade and Investment, in February 2014.