Agri infra and FTA potential

Greetings from Asia, where I’ve been seeing contacts in Hong Kong and am now in Singapore for Private Equity International’s Family Office & Private Investor Forum.

One of the topics market contacts have been keen to discuss is the eagerly-awaited free trade agreement between Australia and China.

The FTA was seen as a big win for Australia, as China agreed to eliminate import tariffs on lamb, beef, horticulture and dairy products within 10 years. In return China was promised an increase in the threshold for private direct investment into non-sensitive sectors before they go to the Australia’s Foreign Investment Review Board. But not the agriculture sector.

Private investment into land of more than A$15 million ($13 million; €10 million) will still be screened along with agribusiness investments of A$53 million or more. This aspect of the FTA was hailed by many protectionists and local media sources sceptical of too much foreign land ownership.

But the FTA is unlikely to impact the status quo either way, as Chinese interest in Australian land has actually been quite low, according to sources.

“The noise [around] Chinese investment is vastly greater than the reality,” said Marcus Elgin, executive chairman of Australian Agribusiness Group, a consultancy that arranges direct deals for investors.

“We are getting much more interest from the US than China,” another agribusiness consultant told me.

Instead, through the FTA, the Chinese government has signalled it plans to secure off-takes through partnering with Australian producers, rather than buying Australian land and producing food themselves.

Part of that rationale may be to do with issues China’s faced with its own food production, one placement agent noted. “They are still clearly having problems with food safety in China so investors are very keen on finding business opportunities where traceability is high.”

Andrew Forrest, the mining magnate who is working hard to improve trade between the two countries, told Australian Financial Review last week that partnerships between the two nations are the best course of action; for example, his ‘Australia-Sino 100-Year ­Agricultural and Food Safety Partnership’, dubbed the ASA 100, is focused on creating a single Australian food brand to stimulate demand from Chinese supermarkets. The ASA 100 is also focused on facilitating investment into Australian agricultural infrastructure to ensure that supply can reach demand efficiently.

Building better roads and transport links is just one infrastructure opportunity in Australia; water management is another area begging for improvements as conversations about public-private partnerships to build dams and water irrigation systems are increasingly in the news.

“The Chinese are looking for off-take,” one delegate at today’s forum said plainly. And this emphasises the need to improve the industry’s overall efficiency presenting some infrastructure fund managers with an exciting prospect.

What are your thoughts on the FTA? Contact louisa.b@peimedia.com