China’s ag investment rush leaves us for Brazil

14 Sep, 2016 08:20 AM
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3
 
Chinese investment activity in Australian agriculture has included a lot of confusing noise and inquiry generated by potential investors learning about what the Australian market offered and how things worked, rather than making significant purchases in the past few years.
Chinese investment activity in Australian agriculture has included a lot of confusing noise and inquiry generated by potential investors learning about what the Australian market offered and how things worked, rather than making significant purchases in the past few years.

Officially Chinese investors do not own as much of our farmland as some Australians were worried about, and unofficially China’s much-debated love affair with the agricultural sector already looks to be waning.

South America now seems to be gaining significant fresh investment attention from China – and probably at Australia’s expense – according to industry observers.

After five years of rapid investment growth by Chinese high wealth individuals and corporates, the flurry of interest in Australian farms and food businesses was now becoming less frantic.

However, plenty of serious investors were still arriving, and portfolios were still expanding.

Officially Chinese investors own or have part ownership of 1.5 million hectares of Australian farmland, or 2.8 per cent of the total area of foreign-owned landholdings, according to the Australian Tax Office’s recently released register of agricultural landholdings.

Although land bought by Chinese investors represented just 0.4pc of the nation’s entire agricultural estate, China rates as our fifth largest foreign investor.

Nearly all of those acquisitions are understood to have been made in the past 15 to 20 years.

“I actually think there’s more genuine interest in Australia now than 18 months ago,” said Chinese agribusiness boss, David Goodfellow, Rifa Australia’s chief executive officer.

“But for the past few years we’ve had a lot of noise and confusion about how much investing the Chinese were actually doing here.

“Much of that excitement and interest involved lots of people learning about what the Australian market offered and how things worked.”

Mr Goodfellow agreed some of the investor “herd mentality” was now moving on to chase opportunities in Brazil and Argentina, despite those countries having less stable political environments and more land ownership restrictions.

Leasing farmland required much less initial capital cost and left more money free to build beef herds, sheep flocks or cropping sector infrastructure, which in turn generated faster returns on investment.

Last week China signed a deal with the Brazilian government creating a $1 billion investment fund for agricultural development.

The agreement promotes Chinese funds to develop Brazilian farming services and infrastructure, including storage, logistics and ports, highlighting Brazil's increasingly open attitude to foreign agricultural investment.

Mr Goodfellow believed many Chinese corporate investors still favoured Australia’s “land ownership and capital gain story”, and this group would drive further large aggregation acquisitions.

Smaller individual farm holdings would also be popular with Chinese investors, but mid-sized rural land purchases or multiples of smaller farms, such as dairy holdings, were probably less in vogue than 2014.

Rifa, an offshoot of a global textile machinery business, has built up beef pastoral holdings in Victoria and NSW since first investing here in the early 2000s.

It has more acquisition prospects on the radar.

While rainfall-blessed South America had syphoned away some of the frenetic investment interest seen in Australia in recent years, Mr Goodfellow noted recent publicity about Chinese investment approvals and rejections may have generated some investor caution, too.

Regulators were also making it harder to move investment funds out of China when it could be put to good investment use domestically.

Although Chinese investment had grown swiftly in Australia in the past decade, National Farmers Federation chief executive officer, Tony Mahar, said that sort of activity was not unusual in the agricultural sector when overseas buyers jumped in.

“In the 1980s we saw a lot of activity here from Japanese investors, particularly in feedlots and beef processing,” he said.

“Investment goes in spurts - it also tends to be more noticeable in particular sectors at certain times.

“Horticulture may be attracting a lot of interest in the next decade, or Indonesians might be our next notable investors.”

Mr Mahar said agriculture clearly needed outside funds to help fill a severe capital shortfall, but plenty of transparency about where investment was being made and from where it was originating was was key to quelling any community concerns.

“We believe more detail is required than has been offered in the register released last week, particularly in terms of the regional location of foreign-owned properties and the nature of the investment entity.”

NFF believed greater transparency was also required to identify the costs involved in monitoring foreign land ownership and the formula for calculating fees charged to foreign investors.

Canberra partner with Asian-based global law firm King and Wood Mallesons, Malcolm Brennan, also questioned the wisdom of the government’s approach to “extremely high” investment fees for agricultural land.

“There is a striking imbalance between the top fee of $101,500 kicking in at $1 billion for commercial investment and the same $101,500 imposed at the low level of $10m for a farm,” he said.

“This continues to be a major disincentive to much needed investment in the sector.

If the government is actively trying to attract investment, this imbalance needs to be addressed.”

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FarmOnline
Andrew Marshall

Andrew Marshall

is the national agribusiness writer for Fairfax Agricultural Media
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READER COMMENTS

wtf
14/09/2016 12:46:49 PM

Global zero and negative interest rates have rendered all productive activity worthless relative to the returns offered by leveraged speculation. It is pointless to work and save when asset prices will outpace your ability to afford them. It is pointless to innovate or invest in growth when you can borrow to buy ever appreciating paper assets. No longer are houses/farms about what they can return in rent/production. They are about tax avoidance and price speculation based on destructive capital inflows, all at a cost not included in the relevant discussions. It is time these costs be realised.
Stop selling us off
14/09/2016 12:47:15 PM

Is it not time that our Gov't raised the issue of money creation? Relying on increasing amounts of borrowings to provide economic growth leads to the type of speculation we are seeing in property/house values. Is it not time to stop these destructive flows of capital that destroy our exchange rate conditions and related industries such as manufacturing and Ag. We have built a reliance towards foreigners buying our assets as a method of economic growth, add together an immigration ponzi and we have an undermining of our standard of living. Money created free of debt would be a start.
wtf
14/09/2016 12:47:43 PM

"Mr Mahar said agriculture clearly needed outside funds to help fill a severe capital shortfall" I see these blanket statements, usually from bank propaganda units, however no one ever explains what these might be. Are u talking about the purchase of land and letting the banking system off the hook for flooding the country with cheap money? Will someone in Canberra please explain that there are good forms of investment that improve productivity and there are bad ones, such as the exchange rate raising effect of allowing them to buy our farms and displacing Australians with offshore capital.

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Well done Steve,it is easy to see why Purchers have been so successful over 5 decades
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Reality of supply and demand. I remember many oat marketers including CBH saying while they were
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