China invests record $904m in Australian agri

Chinese outbound direct investment in Australia’s agricultural sector jumped 220% in 2016 compared to the previous year, totaling $903.7 million.

China set a new record in 2016, investing A$1.2 billion ($903.7 million; €827.6 million) in Australian agriculture, a 220 percent increase compared to the A$375 million invested the previous year, according to the new report from KPMG and The University of Sydney.

The A$1.2 billion figure represents eight percent of total Chinese investment into the country, which grew 11.7 percent from A$13.8 billion in 2015 to A$15.4 billion last year, maintaining Australia’s position as the second-largest recipient of Chinese outbound direct investment (ODI).

The report, Demystifying Chinese Investment in Australia, found that Chinese agri ODI consisting of 12 deals in the dairy, meat, seafood and wine sectors led to the threefold increase from 2015.

“The 2016 result is a clear sign of flow-on effects from the China Australia Free Trade Agreement (ChAFTA) and its positive impact on raising the competitiveness of Australian agricultural products in the Chinese market,” the report’s authors stated.

The trade agreement, which went into force on December 20, 2015, provides duty-free status or preferential access to more than 96 percent of Australia’s goods exports to China, according to Australia’s Department of Foreign Affairs and Trade.

For agriculture specifically, ChAFTA completely eliminated tariffs on Australian barley and sorghum as soon as it went into effect, while tariffs on agricultural exports such as seafood, sheep meat, dairy, beef and wine will be reduced over the next eight years, according to the department’s website.

China’s expanding middle class and the subsequent increase in demand for premium quality food is the driving force behind the increased investment, the KPMG/University of Sydney study found. In addition, Chinese investors are recognizing that post-acquisition management of rural properties is key for their investment.

“More Chinese companies are engaging with experienced local management before completing their acquisitions,” the authors stated in the report.

Chinese investors often cite Shandong RuYi’s acquisition of Cubbie Station and New Hope Group’s various investments as examples of large scale Chinese investment that is both enabling market expansion and creating community benefits, they added.

Delivering benefits to the community and having a social impact in general will give Chinese investors the social license they need to successfully invest in Australia’s agricultural sector, Alistair Nicholas, executive vice president – director of special projects at Powell Tate Australia, wrote in the report.

Shandong RuYi reportedly closed on its acquisition of an 80 percent stake in Cubbie Station for A$240 million in 2013. The report attributed the firm’s post-acquisition success to the fact that it maintained the existing, local management structure; invested A$30 million in boosting cotton production and upgrading irrigation systems; and is committed to environmental issues, such as water management and sustainability.

The success of New Hope Group, which has invested in more than four projects in the country, can also be attributed to the retention of local management and partnering with local owners through investments in their business rather than pursuing outright acquisitions.

In geographic terms, Victoria received the largest amount in agricultural investment – A$413 million – accounting for 11 percent of the A$3.9 billion it received in Chinese ODI. Western Australia followed, receiving A$333 million and Tasmania, which also had a record year for investment, received A$280 million. South Australia received A$125 million.

Overall, commercial real estate continued to rank first as the sector attracting the most Chinese capital, accounting for 36 percent of the A$15.4 billion invested. Infrastructure ranked second, attracting a record 28 percent of total investment, or A$4.3 billion, thanks to mega-deals such as Asciano and the Port of Melbourne.