China has become the top investor in Australia’s farming sector, investing US$450 million in the financial year ending June 2014 – twice the amount invested in the previous year, according to a report issued by the Foreign Investment Review Board.
Activity by Chinese investors in Australia’s farming sector has been more conservative and cautious than their push into its mining sector in previous years, keeping their investments mostly limited to joint ventures and acquisitions of stakes in exchange for a percentage of output, and engaging local managers and expertise instead of launching greenfield projects or gaining full control of operations.
Despite this growth in investment, Australia remains a small part of China’s overseas agricultural portfolio, accounting for US$1.5 billion of a portfolio which committed US$43 billion to foreign agribusiness investments and contracts over the past decade. But, the key difference is that the Chinese investment activity occurring in Australia all happened within the past five years, and now that the two countries have sealed a free-trade agreement, Chinese foreign investment in Australia is on track to increase. Especially as Chinese consumers view Australia’s agricultural products as being three times safer than Chinese products, and 50% healthier than food products of France, the U.S., or Brazil according to a 2013 Reputation Institute Survey.
Another key difference in the landscape today, is that China’s investment rush into Australia’s mining sector was led by state-owned entities who were directed by Beijing to secure overseas supply, whereas investment made in its agriculture sector is more nuanced, and is being led by private Chinese companies.
This different approach is exemplified by China’s New Hope Group, which last year created a $500 million fund to invest in Australian agriculture, but under the strategy of developing partnerships with local companies to build new processing facilities, or through the development of joint ventures such as the $100 million joint venture New Hope forged with Australian dairy giants, the Moxey and Perich families with the goal of exporting 200 million liters of milk per year to China within ten years.
Chinese beef group, Chongqing Hondo Agriculture Group has also committed A$100 million in investments in Australian cattle stations over the next year in exchange for a percentage of output, while Chinese company Shanghai Zhongfu invested A$700 million last year to launch a sugar and sorghum operation.
The listing for sale of the massive beef farming operations owned by the Kidman family, which bankers estimate could be worth A$350 million has drawn attention from Chinese buyers, and the listing of the Consolidated Pastoral Co., another large beef operation, has created talk to a possible joint purchase, which would result in the single largest beef producer in Australia.