Australia's farmers and food producers face backlash at home against Chinese investment. Photo / Bloomberg
Australia's farmers and food producers face backlash at home against Chinese investment. Photo / Bloomberg
At Bindaree Beef's abattoir in the sweltering hinterland a day's drive north of Sydney, the benefits of Chinese investment are clear. Unless you're a Black Angus cow.
With funds from selling a stake in the business to a Chinese meat processor, Bindaree says, it could double its daily cattle cull to 2,400. That's almost two a minute, day and night. Within five years, half of Bindaree's beef might be sold in China thanks to the new partner's distribution network, according to Chief Financial Officer James Roger. The deal promises to "supercharge" the company, he says.
Despite such rewards, Australia's farmers and food producers are facing a protectionist backlash at home against Chinese investment. New laws have made it tougher to bring in overseas funds and the government board that scrutinizes investments now includes a former spy chief. Even Russia makes it easier for foreigners to inject capital into the local food industry, according to the Organisation for Economic Co-operation and Development.
"The government line is that we're open to foreign investment," said James Laurenceson, deputy director of the Australia-China Relations Institute at the University of Technology Sydney. "But the trend is probably in the other direction."
The opportunity for Australian agricultural companies is clear. They produce enough food for about 60 million people, more than double Australia's population of 24 million.
Demand for food in China, the nation's biggest trading partner and home to 1.4 billion people, is expected to double by 2050.
Yet Australia needs foreign investment to fully benefit. The typical farm Down Under generates a return on capital of just 1.4 per cent, according to a government report this month. That deters local investors and makes foreign investment all the more vital.
Just to keep pace with global export growth, Australian agribusiness needs to attract a further $399 billion (A$360 billion) of capital by 2050 because of a shortfall at home, according to a 2012 report by consultants at Port Jackson Partners.
We can't expect Australian food producers to go to China or Asia alone and succeed.
"We can't expect Australian food producers to go to China or Asia alone and succeed," said Doug Ferguson, a Sydney-based partner at KPMG who leads the firm's Asia business group. "They need a partner."
Bindaree, based in Inverell in northern New South Wales, agreed in October to sell a 45 per cent stake to Shandong Delisi Food for $155 million (A$140 million). Once the deal goes through in the next couple of months, the Australian beef producer plans to buy new freezing technology and boning machinery, as well as imaging equipment that can detect the fat content in minced beef, said CFO Roger.
Driven by a dearth of capital in Australia, Seafarms Group Ltd. is looking overseas for A$150 million to start a prawn farm in northern Australia.
If fully developed, the A$1.5 billion Project Sea Dragon will produce 100,000 tons of Black Tiger prawns a year, mostly for export, Executive Director Chris Mitchell said. "It's much less likely to proceed without foreign investment," he said.
A factory worker moves cattle carcasses from the chill room to the boning room at a Bindaree Beef facility in Inverell, Australia. Photo / Bloomberg
Australia's Foreign Investment Review Board last year stepped up scrutiny of agricultural deals involving Chinese buyers. Land purchases worth A$15 million or more and agribusiness investments of A$55 million and above now need sign-off from the government. The previous threshold for screening was A$252 million.
Not everyone gets the same treatment. US investors, for example, are allowed to spend A$1.09 billion on rural land or agribusiness in Australia before needing approval.
In November, Treasurer Scott Morrison blocked the sale of Australia's most iconic cattle company, S. Kidman & Co, to a foreign buyer because one of Kidman's biggest ranches borders a weapons-testing range. The company is now back on the market, with that property carved out. Shanghai Pengxin Group, one of two Chinese bidders, is proposing to team up with an Australian investment group to dilute any stake in Kidman it manages to buy.
That may help its chances and avoid the kind of backlash that followed the sale of Australia's largest dairy company, which was already foreign-owned, to a Chinese firm last month.
Can the Chinese buy the Opera House, the Harbour Bridge.
"Can the Chinese buy the Opera House, the Harbour Bridge?" Alan Jones, one of Australia's most listened-to radio presenters, said on air after Morrison approved the sale of Van Diemen's Land Co. to Moon Lake Investments. Jones called the sale "disgraceful."
Amid the protests, other countries are soaking up Chinese capital.
Chinese companies spent $120 billion on overseas investments and takeovers around the world in 2015, up 58 percent from a year earlier, according to data compiled by Bloomberg. The pace of spending soared in emerging nations such as India and Malaysia.
Australia's foreign direct investment rules are twice as restrictive as those enforced by developed peers, according to a 2014 OECD index. A Senate committee last month said Australia's foreign investment watchdog may need to be strengthened, even as it highlighted concerns that the increased scrutiny of agricultural deals could deter overseas buyers.
A report last year by KPMG and the University of Sydney showed that Australian agribusiness drew just 1 percent of China's outbound direct investment in 2014.
Australia needs to put aside objections to foreign investment because the alternative is falling farm productivity and rising subsidies, said Peter Langridge, emeritus professor at the University of Adelaide who has advised the United Nations on agricultural policy. Fears of foreign-owned farms sending food home while Australians go hungry are unjustified because the government would simply nationalize the property in such a scenario, he said.
For Bindaree's Roger, the company's incoming Chinese partner offers the chance to add beef to an existing pork distribution network in China.
"These guys had the whole supply chain," Roger said. "We can do it much quicker with a Chinese partner."
