Twiggy bets on China food boom

19 Sep, 2014 08:30 AM
(From right) New Hope Group chairman Liu Yonghao, Chinese Agriculture Minister Han Changfu), Australian Agriculture Minister Barnaby Joyce and Fortescue chairman Andrew Forrest.
I say to both sides, keep the eye on the long-term
(From right) New Hope Group chairman Liu Yonghao, Chinese Agriculture Minister Han Changfu), Australian Agriculture Minister Barnaby Joyce and Fortescue chairman Andrew Forrest.

AS China's hunger for Australia's resources fades, dealmakers bet on its growing appetite for our food. Mining billionaires Andrew Forrest and Gina Rinehart are among those seeking to tap the new China boom.

Liu Yonghao, the chairman of agribusiness giant New Hope Group, is often dubbed China's richest chicken farmer.

Now a multi-billionaire, Mr Liu frequently references his humble roots. He and his three brothers quit their government jobs in 1982, selling their watches and bicycles to raise the equivalent of $US150 ($168) in start-up capital, in the countryside of Sichuan province.

"Thirty-two years ago we had no money, we didn't have fathers who were officials – we only had ourselves to rely on," he told Fairfax Media in a rare interview on Wednesday. "With the increase in the standard of living in China, the demand for meat has been getting larger and larger. With the development of the market, we've grown. We went from raising chickens and pigs to today."

Together with his brothers, Mr Liu built the largest animal feed group in China which would grow to a conglomerate that spans beef, duck, dairy and grain, but also with considerable interests in real estate and chemicals.

Now his attention has turned to Australia to feed China's burgeoning middle class, and its growing appetite for quality produce.

His first foray, ironically, was a failed tilt at iconic chicken producer Inghams, pipped by private equity firm TPG. Late last year, New Hope secured a controlling stake in Kilcoy Pastoral Company, which processes more than 270,000 head of grain-fed cattle at its Queensland abattoir each year.

"We will continue to make acquisitions and investments in beef in Australia - and in sheep," Mr Liu said. "We are the fourth-biggest milk producer in China, so we also hope to co-operate with Australian dairy producers to help meet growing demand in China."

Mr Liu's appetite is indicative of a surging wave of Chinese interest in Australian food, just as its previous hunger for Australia's resources slows.

The Chinese government-backed Beijing Agricultural Investment Fund this week committed to spend $3 billion on Australian dairy, beef, lamb and aquaculture, while Chinese food importer Heilongjiang Grand Farm Group recently struck a deal to spend up to $200 million buying farms and investing in abattoirs.

"Just back in 2003 and 2004, everyone was asking if you knew a supplier for iron ore," one China-based Australian mining executive said. "But these days, people are asking, 'do you have suppliers for beef?'"

Promoting co-operation in ag

Mr Liu is a key Chinese partner in an initiative founded by mining billionaire Andrew Forrest to promote co-operation in agriculture, the Sino-Australia 100-Year Agricultural and Food Safety Partnership, or ASA 100.

Mr Forrest says the idea originated from a meeting with Chinese Premier Li Keqiang earlier this year who told him his "number one challenge was food security".

"I said: 'Let's meet this afternoon, Premier, and talk this through," Mr Forrest said. "And so we did."

It is understood the Chinese government was wary of the connotations of the original title of the initiative, which referred to a "food security" rather than "food safety" partnership, and requested the change.

Mr Forrest, who this year bought Western Australia's only licensed beef exporter to China, says Australia could boost its production by 50 per cent should it secure a supply position in the Chinese market.

With increasing wealth changing diet patterns, Rabobank predicts China will double beef imports by 2018. Meat consumption per person is projected to double in China by 2020.

With iron ore prices languishing at the lowest levels in five years amid a glut of new supply, the Fortescue Metals Group chairman is not the only mining giant to bet on the next China boom. Gina Rinehart bought a 50 per cent stake in two cattle stations in the Kimberley in July.

"In the past, Australia has exported a lot of minerals to China," Mr Liu said. "Now for resources [exports] to grow as before is unrealistic."

Mr Forrest dismissed the effect of the iron ore price slump on Fortescue. Iron ore prices still might decline, but Fortescue's margins were likely to remain comfortable as the company's cost of production was now around $US40 a tonne, he said.

"At $US70 to $US80, it's still a great business," he told The Wall Street Journal.

Mr Forrest's ASA 100 was being promoted in China in a launch attended by other Chinese industry heavyweights including state-owned agribusiness giant COFCO and Wahaha beverages tycoon Zong Qinghou, one of China's richest men.

It coincided with a week-long visit by Agriculture Minister Barnaby Joyce, who met with his Chinese counterpart Han Changfu on Wednesday, with the free-trade agreement high on the agenda. Just as increased foreign acquisitions of farms are likely to stoke fears of "selling the farm" in sections of the Australian community, the Chinese government is wary of a potential influx of Australian beef and dairy on the local market if existing tariffs are lifted.

"I understand completely the sensitivities around farmland in China and they understand the sensitivities that exist around Australia," Mr Joyce said.

Both sides hope to conclude negotiations by November, when President Xi Jinping is expected to make a state visit to Australia.

"I say to both sides, keep the eye on the long-term," Mr Forrest said. "If you're on the Chinese side and you're worried if the food you're producing is competitive against Australia's … the market, as clear as the noses on both our faces, is going to grow very strongly as China's average income grows."

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19/09/2014 9:57:18 AM

Having had extinsive dealing s over the last 12 months with New Hope group I can confirm there intentions . However the snake oil salesman here Twiggy has decided to jump on the bandwagon. His track record re Anaconda and the upcoming demise of fortescue should make people very wary . characters like Twiggy are constantly raving about the road paved with gold in china if only it were true
20/09/2014 6:25:48 AM

If global ag commodities don't halt this serious deflationary spiral sometime soon, we are in for tough times. There is very little talk about it but the scale of the price falls and trend of being across the board should concern every farmer. how wheat prices can have a 1 in front of them in Chicago is gobsmacking. Just goes to show you when you control the printing press, shorting commodities is the best way to counter the inflationary pressure that should normally prevail. Sure there is big crops but the bulk of the selling is central banker manipulation
20/09/2014 7:13:32 PM

"I say to both sides, keep the eye on the long-term" well i say " how about you pay farmers a realistic price so there is a long term" seems like everyone forgot about farmers till this supposed boom hit the headlines. did we not exist before? just because its cool to buy into agriculture everyone with too much money wants to be in on the action. be a real hero and PAY THE FARMERS A FAIR PRICE.
Bushie Bill
21/09/2014 10:57:10 AM

Hey, TasAg, "the upcoming demise of fortescue" is a very definitive and unambiguous statement. What is it you know that gives you the right or the confidence to make such a destructive and damaging statement about a listed Australian companies? Calling Twiggy a "snake oil salesman" could prove very damaging to your bank account. However, fools rush in where wise men fear to tread...
Bruce Watson
22/09/2014 12:23:04 PM

I think we should all give Twiggy Forest support. It's not everyday you see a very successful miner turn to a creative activity instead. If he's as successful as a beef producer and marketer as he is a miner, we will all benefit in the long run.
22/09/2014 1:40:05 PM

Oh dear deregul8, I cant believe how this deregulated wheat market has now failed you. You put all your faith in it, and continued to talk it up while so many others knew what you are just finding out. That is, when you sell out to the mega multi nats, you go down eventually. It was only ever shortage of supply that caused the price hikes of recent years and not deregulation. You put your all your eggs in one basket and it was the wrong one.
23/09/2014 3:53:18 PM

@ Bushie BIll, Google forward curve iron ore , and then reference FMG's cost of production. Look at the simply supply demand dynamics and you should pick it up fairly quickly. FMG is dead in the Water like most of the other mid tiers and juniors. I think Twiggy has a snowball's chance in hell with New Hope, they are not that silly nor do they need him in any way shape or form .
Bushie Bill
24/09/2014 11:03:09 AM

Tasag/tasag, With your super self-confidence, you should be shorting FMG's shares. Are you doing that or is it only your mouth that is active?
24/09/2014 5:09:02 PM

@bushie bill why do that when I have access to Dalian ? already on board the writing has been on the wall for some considerable time . Denial is not a strategy , maybe for the die hard FMG shareholders which you sound like one of there will be another binding or non binding announcement.
Bushie Bill
25/09/2014 7:17:27 AM

Did you understand my email, tassie?
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