Scott: transfer pricing risks on Kidman

09 May, 2016 06:26 AM
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RETIRING Queensland LNP MP Bruce Scott has admitted he didn’t back selling the Kidman and Co cattle empire due to concerns it was a Chinese State owned enterprise and cattle would be exported direct to China, invoking transfer pricing risks.

The veteran Maranoa MP made the revelation on the Kidman controversy during his valedictory speech in the House of Representatives on Wednesday night.

It came after Treasurer Scott Morrison announced his preliminary view was that the transaction was against the national interest due to the significant size of the landmass being offered in one package, comprising 2.5 per cent of the nation’s agricultural land.

That led to the Chinese company Dakang withdrawing its $370 million bid this week with the issue now embroiled in the political cycle of a federal election on July 2 and foreign investment remaining a hot political topic.

Divisions over the Kidman & Co sale reflects similar arguments that erupted over the proposed $3.4 billion sale of GrainCorp to US multinational food giant Archer Daniels Midland in 2013, which was eventually blocked after the Coalition won government.

Mr Scott said he agreed with the Treasurer’s decision to not support the sale of Kidman to an overseas entity but stressed he was not anti-foreign investment which had a rich history of supporting Australian agriculture.

He said he’d been to see Deputy Prime Minister Barnaby Joyce to offer “a bit of quiet diplomacy behind the scenes” and to say, 'I think we have a problem here’.

Unlike his party leader, Mr Scott said he supported selling Cubbie Station in 2012 to a Chinese private company through a joint-venture with Lempriere Australia taking a 20 per cent interest.

He said Lempriere had been in Australia since 1858 and were a wool-buying and mixed agriculture enterprise, processing here and in NZ.

Mr Scott said he was not on the Foreign Investment Review Board or privy to any information the Treasurer was but held concerns Kidman was a large parcel of land with some of its cattle properties situated in his electorate.

He said those properties had 70,000 head of cattle capacity but the Chinese offer had lacked a satisfactory business case.

“At Cubbie they have continued to produce cotton on those properties,” he said.

“They have purchased a cotton gin.

“They have expanded the operation.

“Lempriere Australia, with a business base in Australia, manages Cubbie with the private enterprise investment coming from China.

“The Kidman purchase offer was from a Chinese government owned business enterprise with 20pc support from a rural property investment trust in Australia.

“It was not an operating business.”

Mr Scott said local constituents had asked him what the Chinese company intend to do and most of the cattle would be exported live to China where, rather than here in Australia, they would “add the real value in processing and feedlotting”.

“I do not have these answers but maybe we will find out whether there is any validity in them,” he said.

“There are suggestions that some of the business inputs - motor vehicles, steel and all the other inputs to a large cattle enterprise - might perhaps be imported directly out of China to these properties, so the stock and station agent in the towns would no longer be a provider of those and the motor machinery dealer would not be a provider of motor vehicles and repairs and tyres.

“These are questions I have been asked, Prime Minister, and I have said that I do not have the answer.”

Mr Scott said government needed to know the business case behind foreign investment proposals, “to ensure we do not see stranded assets as a result of an enterprise”.

“I put that on the table tonight, not being opposed to foreign investment - in fact, I am a great supporter of it,” he said.

“As I said, I supported the sale of Cubbie almost to my political death, because I believed it was right and the business model was right.”

At his post-budget lunch in Canberra on Wednesday, Mr Morrison was asked why he emphasised FIRB’s recommendation when he initially rejected the sale late last year in citing national interest security concerns, linked to Anna Creek Station, but not with his most recent iteration of the ongoing saga.

He FIRB always gave advice, “but it's my decision” and the one he outlined last week was a preliminary decision and “we were following a natural justice process”.

“That is the appropriate process for me to advise where my preliminary position was and give them the opportunity to respond, but I was very clear about it,” he said.

Mr Morrison said on the first occasion to reject the sale “clearly there were national security issues” but he also had “great concerns about just how large this holding was”.

“And my view has not changed about that now, because yesterday, Dakang withdrew its application and have walked away from that,” he said.

“That's their call and as a result of the decision I took last week, then Australia's largest land holding will not be sold to foreign interests.

“I make no apology for that - no apology for that whatsoever.”

Mr Morrison said he considered every single foreign investment application on its merits.

“I have been criticised for other decisions where I have said yes; I’ve been criticised for other decisions where I have said no,” he said.

“But on this occasion there's got to be a limit and it was just too big and I wasn't going to say yes.

“Ultimately, having considered all the factors that were there and I am surprised that Labor had a different view.

“But if Chris Bowen is the Treasurer on the other side of the election, well, I suppose we know what he'll do.”

NSW Liberal MP Angus Taylor said the Treasurer had formed a preliminary view that the acquisition may be contrary to the national interest.

“He is concerned that the form in which the portfolio has been offered, as a single aggregated asset, has made it difficult for Australian bidders to compete,” he said.

“While it’s important to provide for foreign investment in our nation’s development, the community needs assurance that the investment is being made in a way which ensures the national interest is protected.”

In criticising Mr Taylor, Shadow Agriculture Minister Joel Fitzgibbon accused the Coalition government of internal chaos over the Kidman sale but said it was “not for Labor to necessarily have a specific view on Kidman”.

“It is for Labor to be very concerned about the way they are dealing with these national issues and foreign investment issues in particular and the message that sends to the international community,” he said.

“I mean the competition for capital in the global economy is intense and Angus Taylor knows better than anyone that Australian agriculture needs that investment in shovel loads and this is going to send that investment running to other countries.

“I haven’t seen anything yet which would suggest that this purchase didn’t pass the national interest test.

“Everyone who knows anything about this sector knows that the vast majority of that land is the most unproductive land in the country - in other words, it is barren - it is only pockets that really matter.

“It is the sparseness of the landholding that makes Kidman so successful because they can move cattle from place to place (but) if you split up then you lose that capacity.”

FarmOnline
Colin Bettles

Colin Bettles

is the national political writer for Fairfax Agricultural Media
Date: Newest first | Oldest first

READER COMMENTS

Mark2
9/05/2016 8:51:00 AM

I find it interesting that both sides of politics are increasingly comfortable borrowing larger amounts of money from elsewhere to fund our incresingly unsustainable welfare state whilst selling off the asset base that is the only thing we have to create the wealth to pay off future debt, what gives?. The foreign investors may not be able to take the land with them , but then they don't have to do they because they're pocketing the productivity. No one ever got rich flogging off their assets
Philip Downie
9/05/2016 2:20:22 PM

So there are no transfer pricing risks with the Van Deimens land dairy acquisition???? How about other large ag enterprises beef or dairy or hort. Anyone could see that was always a distinct possibility.
John Carpenter
9/05/2016 6:55:31 PM

This stupid decision has nothing to do with the national interest and everything to do with the interests of the ultra nationalists in the National Party.The claim by Morrison that a $370 million deal was too big is pure desperation.Australia's GDP is $1.5 trillion so this deal is statically insignificant Further it's not like they are buying 2% of Sydney,they are buying a company that owns the leasehold over semi desert running an insignificant number of cattle in comparison to the total national herd.Another attack on property rights by the lefties in the Liberal Party.
Archibald
12/05/2016 10:26:00 AM

Of course all the other existing multinationals aren't using transfer pricing are they! Goodness me what a lame excuse for a government that is in control of our sovereignty!! John Carpenter is correct here, voters have choice at the next election, it is either of the socialist bananas B1 or B2
keith
14/05/2016 7:17:38 AM

Scott has a point; what he is outlining is exactly what is happening in the Ord irrigation right now - the Chinese State owned enterprise there is growing ag products, containerizing them and shipping them out direct to China - there is no sale recorded, no Australian tax paid - the farms are staffed by Chinese using imported machinery and housing etc.. there is no economic benefit to Australia - the only way may be to put a tariff on those kind of goods - but Scott has a point and its already happening
John Carpenter
16/05/2016 7:54:22 AM

Keith,I think you will find tariffs are precluded under the chafta.

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