Hurdles remain for Australian agribusiness to fast-track Chinese investment

Contrary to widespread perceptions that Chinese investment is swallowing large swathes of Australian farmland, the latest KPMG research suggests that China is far from a major agricultural investor in Australia, and owns less than one percent of Australian farmland.

The latest report into Chinese direct investment by KPMG and The University of Sydney's China Studies Center -- Demystifying Chinese Investment in Australian Agribusiness, released Tuesday at a forum focusing on Chinese investment -- looks at the scale and composition of Chinese large-scale commercial investment into the Australian agricultural and agribusiness sectors.

KPMG has studied China's food demands and offers practical initiatives Australian companies can take to attract further investment.

"This is an important debate and now is the time to have it. Australia has important choices to make," said report co-author Doug Ferguson, Head of KPMG's Asia Business Group.

"China is not only Australia's largest trading partner, but also the largest trading partner of more than 120 economies many of which are competing for agricultural trade and investment, including New Zealand. Foreign investment in the agribusiness sector is a complex and confronting issue for many in industry, government and broader society. As a result of this focus, Chinese companies feel cautious about engaging with Australian agribusiness."

The research has found that, Chinese investment in Australia's agricultural sector really only kicked off quite recently.

"Our database shows a total of only 10 completed deals, with an accumulated value of 1.05 billion U.S. dollars invested in the Australian agricultural sector since 2006," said Professor Hans Hendrischke of the University of Sydney Business School.

"Last year, Chinese investment into Australian agriculture accounted for less than 3 percent of the total Chinese overseas direct investment into Australia, including the Cubbie Station deal. Overall, between 2006 and 2012 only 2 percent of Chinese investment to Australia has gone into agriculture."

By the end of last year China was only the ninth largest foreign agricultural investor in Australia, at 3 percent of the total outbound direct investment (ODI). This is well behind the USA at 24 percent, the UK at 14 percent, Japan at 10 percent, and even Singapore at 4 percent.

"Foreign companies are estimated to own 11.3 percent of Australian land and Chinese companies appear to own less than one percent of Australian farmland," said Professor Hendrischke.

New South Wales attracted nearly 50 percent of completed Chinese agribusiness investment in the research period, followed by Queensland (40 percent). Western Australia (5 percent) and Tasmania (5 percent).

Deal sizes tended to be smaller than other sectors, with 60 percent of Chinese investment in deal sizes of 5-25 million U.S. dollars. Only 10 percent of deals were valued at more than 500 million dollars.

The vast rural acreage in Queensland including farms, and commercial property valued at more than 70 million dollars was showcased in Chinea last month by a prominent Australian real estate company.

Landmark Harcourts' first China roadshow wound through Beijing, Shanghai, Tianjin and Hong Kong with a portfolio of 80 Australian - mainly rural - properties valued at over 200 million Australian dollars.

However, KPMG suggests more understanding of the China's needs and cultural sensitivities are required than simply taking Australia's agricultural potential "on the road."

Regarding the strategies for tackling the challenges facing the Australian agribusiness, Ferguson encourages Australian businesses to up-skill in Asian business practices and become more culturally aware.

"The way that we feel about Asian investment must change to be more pragmatic and objective. There is much work to do on both sides. For Australia, a huge public education program which sets out the facts, explains the realities of Australia's future with Asia and China and encourages respectful, positive approach is critical," Ferguson said.

According to the report, the new Coalition Government's plans to lower the threshold at which the Foreign Investment Review Board (FIRB) can review farm investment from the current 248 million dollars to 15 million dollars could hamper and even derail FTA talks and sound investment planning.