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ISSN 2203-2037
29/10/2013
CHINA STUDIES CENTRE
Demystifying
Chinese investment
in Australian
agribusiness
October 2013
Important choices to be made
kpmg.com.au
© 2013 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.All rights reserved.The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International Cooperative (“KPMG International”).Liability limited by a scheme approved under Professional Standards Legislation.
About our reports
THE ENERGY IMPERATIVE: Australia-China Opportunities | 1
China’s outbound direct investment in Australia | Demystifying Chinese Investment | 1
CHINA STUDIES CENTRE
CHINA STUDIES CENTRE
CHINA STUDIES CENTRE
CHINA STUDIES CENTRE CHINA STUDIES CENTRE
CHINA STUDIES CENTRE
Demystifying Demystifying
Chinese investment
Australia & China:
Demystifying Chinese
Investment
The Energy Chinese Investment
in Australia in Australian
Future Partnerships
2011
The Growing Tide:
China outbound direct
China’s outbound direct
Imperative: Update March 2013 agribusiness
October 2013
investment in Australia Australia-China Opportunities Australia still a priority destination,
investment in Australia Preliminary Brief 25 September 2012
but the world is catching up Important choices to be made
Update August 2012
November 2011 kpmg.com.au
kpmg.com.au kpmg.com.au kpmg.com.au
kpmg.com.au
What does the future hold for Chinese energy and energy
infrastructure investors in Australia? Will there be strong and
diversified investment into these sectors for the long haul?
Or will Chinese interest be drawn to other increasingly competitive
and attractive global market opportunities as a result of our
failure to address present, wide-ranging concerns in Australia?
China’s largest energy companies Undoubtedly, there is ample scope
have rapidly increased their stakes in for greater Chinese investment and
Australia’s energy sectors in recent participation in Australia’s energy
years, motivated by the same factors supply chain, given the complementary
that have underpinned their acquisitions long-term energy requirements and
in the resources sector: Australia’s objectives of both countries.
abundant and high quality energy Australia is seeking investment
resources, geographic proximity, relative partners in large and long-term energy
political stability, experienced workforce infrastructure projects. China is seeking
and mature institutions. deeper integration in Australia’s energy
Yet Chinese investment in Australia’s and resources sector to secure
energy infrastructure sector is not as long-term access to resources,
deeply embedded as could be expected technologies and markets.
considering the strong trade ties While there are challenges, there are also
between the two countries and the considerable opportunities to be seized.
overall volume of Chinese off take.
KPMG and The University of Sydney China Studies
Centre have formed a strategic relationship to publish
research and insights on doing business with Chinese
investors. Our first report was published in September
2011, with Demystifying Chinese Investment in
Australian Agribusiness representing the sixth report
in our series.
Despite strong public interest, little detailed factual information has been
previously available about the actual nature and distribution of China’s
outbound direct investment (ODI) in Australia. This specialist report
continues our comprehensive reporting of China’s ODI into Australia.
The dataset is compiled by a joint University of Sydney and KPMG team
and covers investments into Australia made by entities from the People’s
Republic of China through M&A, joint venture and greenfield projects.
The dataset also tracks Chinese investment by subsidiaries or special
purpose vehicles based in Hong Kong, Singapore and other locations.
The data, however, does not include portfolio investments, such as
the purchase of stocks and bonds, which does not result in foreign
management, ownership, or legal control. For consistency, the geographic
distribution is based on the location of the Chinese invested company and
not on the physical location of the actual investment project. Completed
deals which are valued below USD 5 million are not included in our
analysis, as such deals consistently lack detailed, reliable information.
Unless otherwise indicated, the data referred to throughout this report
is sourced from KPMG/University of Sydney database, and our previously
published reports1.
The University of Sydney and KPMG team obtains raw data on China’s
ODI from a wide variety of public information sources which are verified,
analysed and presented in a consistent and summarised fashion.
In line with international practice, we record deals using USD as the
base currency.
We believe that the KPMG/University of Sydney dataset contains the
most detailed and up-to-date information on Chinese ODI in Australia.
1.
Includes Australia & China Future Partnership, September 2011; The Growing Tide:
China ODI in Australia, November 2011; Demystifying Chinese Investment, August 2012;
The Energy Imperative: Australia-China Opportunities, 25 September 2012; Demystifying
Chinese Investment in Australia, March 2013.
© 2013 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG
International”), a Swiss entity.All rights reserved.The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International
Cooperative (“KPMG International”).Liability limited by a scheme approved under Professional Standards Legislation.
1 Demystifying Chinese investment in Australian agribusiness October 2013
Introduction
China is not only Australia’s largest or otherwise of foreign investment This report, the sixth in our KPMG/
trading partner, but also the largest into Australia’s agriculture and Sydney University China Insights
trading partner of approximately agribusiness sectors, and the series, provides clarity on the
123 economies2, many of which potential for Australia to become current scale and composition of
are competitors for agricultural the ‘food bowl of Asia’. Chinese large scale commercial
trade and investment, including investment into the Australian
The topic is polarising. For many
New Zealand. agricultural and agribusiness
in the business community
sectors. It analyses the realities
Chinese investment has foreign investment is positive and
facing China’s food demand
contributed enormously to essential to securing the long-term
patterns and addresses some
Australia’s relative prosperity health of the sector.
of the most critical issues of the
– both as our largest
However it’s also a very complex debate. It identifies key growth
agricultural trade customer
and confronting issue for many in opportunities for the sector and
(AUD 6.6 billion p.a. in 20113)
the industry, government and concludes with some pragmatic
and having invested over
broader society. recommendations for Australia’s
USD 50 billion into our economy
agricultural and agribusiness
through direct investment across As a result of this focus, Chinese
leaders in building an Australia-
many sectors in the past 6 years4. companies feel cautious about
China agribusiness model.
engaging with Australian
More recently, we have witnessed
agribusiness – even where This is an important debate that
intense debate within mainstream
investments would lead to benefits we must have. And now is the
Australian society about the merits
for both sides. time to have it.
Doug Ferguson Hans Hendrischke
Head of China Business Practice Professor of Chinese Business & Management
Head of Asia Business Group China Studies Centre/Business School
KPMG Australia The University of Sydney
T: +61 2 9335 7140 T: +61 2 9351 3107
M: +61 404 315 363 M: +61 401 067 095
dougferguson@kpmg.com.au hans.hendrischke@sydney.edu.au
2. China Daily, China continues to increase influence on global trade, http://www.chinadaily.com.cn/cndy/2013-01/11/content_16104315.htm
3. DFAT, Australia’s exports to China 2001 to 2011, http://www.dfat.gov.au/publications/stats-pubs/australias-exports-to-china-2001-2011.pdf
4. KPMG and The University of Sydney, Demystifying Chinese Investment in Australia, Update March 2013.
© 2013 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG
International”), a Swiss entity.All rights reserved.The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International
Cooperative (“KPMG International”).Liability limited by a scheme approved under Professional Standards Legislation.
Demystifying Chinese investment in Australian agribusiness October 2013 2
This is an important debate
that we must have. And now
is the time to have it.
© 2013 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG
International”), a Swiss entity.All rights reserved.The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International
Cooperative (“KPMG International”).Liability limited by a scheme approved under Professional Standards Legislation.
You are getting older and are
worried that your business – your
family’s wealth base – is devaluing.
Is there another way?
© 2013 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG
International”), a Swiss entity.All rights reserved.The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International
Cooperative (“KPMG International”).Liability limited by a scheme approved under Professional Standards Legislation.
Demystifying Chinese investment in Australian agribusiness October 2013 4
A hypothetical scenario
Imagine that you are the owner of a large, vertically integrated Australian family
farming enterprise that has grown over a number of generations to be a multi-million
dollar business operating in a highly mature and competitive market where large
corporate competitors are emerging and suppliers and customers are dominant.
Your business has developed Is there another way? The investor comes from China,
a great brand and intellectual You have one customer that a country with language and
property (IP), produces the highest accounts for approximately cultural traits that you don’t really
quality produce, employs from the 25 percent of your sales revenue understand. They are taking their
local community and pays tax. and who keeps increasing their time to proceed, but you feel they
orders each year. Imagine if one day are genuinely committed to building
At the same time, the costs of that customer came to you with a an integrated model which enables
doing business have increased. Your proposal to invest in your business, your family to sell down equity and
profit margin is eroding and there is provide capital, technology and continue to manage the business
not much hope of a profitable trade more importantly, direct access to operations without a huge amount
sale to a local buyer because of an international customer base on of direct interference.
oversupply in the real estate market a scale that could transform your
and recurring drought conditions. entire business. How would you feel about
this? How would you treat
You need capital to fund operations The investor realises that that customer and potential
and capex; the local banks are very investment in agricultural land investment and business
selective in lending and local equity is strategically important for the partner?
investors are more excited about integrated agribusiness investment What happens if you learn that
other, higher growth sectors. thesis, but is also interested in the the investment is subject to
IP and food processing aspects government approval delays, which
You are getting older and are of the business. The investor has frustrate the Chinese investor; or
worried that your business – your decided that they don’t just want you succumb to fears or criticisms
family’s wealth base – is devaluing. a trade relationship anymore: from your peers and you reject the
As much as you’d love to see your they want equity participation in investment offer? Do you risk losing
family business succeed under a vertically integrated business, not only an investment partner but
the next generation, you start to they want to invest capital to build also your largest customer?
encourage your children to pursue huge scale operations and they
other more lucrative careers in want to acquire your brand, Now what happens to the
banking, professional services IP and industry knowledge. family business?
or mining.
© 2013 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG
International”), a Swiss entity.All rights reserved.The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International
Cooperative (“KPMG International”).Liability limited by a scheme approved under Professional Standards Legislation.
THE FACTS
Chinese investment in Australian agribusiness
Commonly Held Belief: China is one of the largest foreign investors in
Australia’s economy
The facts: Although Chinese companies have invested over USD 50 billion directly
into Australia over the past 6 years, China still ranks ninth in accumulated investment
– the US has invested nearly ten times more.
Commonly Held Belief: China is buying up large areas of Australian farmland
The facts: Chinese investors may own less than 1 percent of Australian farmland.
For assets over AUD 5 million which we track in our database, there have only been
10 significant investments completed with a total value of just over AUD 1 billion in
Australia’s agribusiness sector since 2006. Agriculture represents only 2 percent of Chinese
investment into Australia.
Commonly Held Belief: Chinese SOEs are the most active investors
The facts: In mining, gas and energy this is true – but for other sectors including
agribusiness, privately owned Chinese companies are more actively investing
(by number).
Commonly Held Belief: Australia offers an abundant pool of attractive agricultural
sector assets for Chinese investment
The facts: Australia’s family farming dominated sector is highly fragmented. Chinese
investors are mostly interested in very large scale investment opportunities and the largest
companies are already largely foreign owned or not easily acquired. To date, we have not
observed large scale aggregation strategies successfully applied on behalf of
Chinese investors.
Commonly Held Belief: Food security is China’s main priority
The facts: China is committed to pursuing self sufficiency in core bulk food commodities
and is a net exporter in certain foods. Global trade will manage any shortfall. Australia’s
opportunity lies in meeting China’s food safety objectives – providing premium, fresh safe
foods: meats, dairy products, vegetables and wine.
Commonly Held Belief: Australia has an exclusive opportunity to supply China with food
The facts: China is our largest trade partner but 123 other countries claim China to be
their largest trade partner. We have a great platform and opportunity but it is extremely
competitive, with New Zealand in a very strong position.
Commonly Held Belief: A Free Trade Agreement (FTA) is absolutely essential
The facts: It is important because Australian imports into China are currently taxed
at a higher level than competitors and this indirectly impacts Chinese investment into
Australian companies. However, there are existing avenues for Australian companies which
offer great opportunities to access China, including state government Memorandums of
Understanding (MoU).
© 2013 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG
International”), a Swiss entity.All rights reserved.The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International
Cooperative (“KPMG International”).Liability limited by a scheme approved under Professional Standards Legislation.
Demystifying Chinese investment in Australian agribusiness October 2013 6
China’s investment inflows
to Australian agribusiness
– very early days
China is not yet a major agricultural investor in Australia.
Unlike very large scale investment into the mining and LNG sectors,
Chinese investment in Australia’s agricultural sector commenced only quite
recently and has been relatively small in total value and transaction volume.
Chinese investment in Australia by industry 2006-2012
73% Mining
$36,874.95
USD millions
2% 3%
18%
Gas 4%
$8,867.01
USD millions
4
18%
% Renewable energy
$2,212.60
USD millions
2006-2012
Agriculture
2% $1,048.16
USD millions
73%
Others
3 % $1,789.16
USD millions
Total
$50,791.88
USD millions
Source: KPMG/The University of Sydney database.
© 2013 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG
International”), a Swiss entity.All rights reserved.The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International
Cooperative (“KPMG International”).Liability limited by a scheme approved under Professional Standards Legislation.
7 Demystifying Chinese investment in Australian agribusiness October 2013
Despite concerns that Chinese investors are ‘buying up Australian farms and
land’, our database currently shows a total of only 10 completed deals, with an
accumulated value of USD 1.05 billion invested in the Australian agricultural sector 5.
A selection of major completed Australia-China agribusiness deals (2006-2012)
Chinese investor company Australian company State Industry Year Value
(million USD)
Bright Food Group Manassen Foods NSW Food logistics 2011 500.00
China National Cereals, Oils Tully Sugar QLD Sugar 2011 146.00
and Foodstuffs Corporation
Shandong Jining Ruyi Cubbie Group Ltd QLD Cotton 2012 277.00
Woolen Textile Co., Ltd
Beidahuang Group Dennis Joyce’s WA Crop farming 2012 23.00 (est.)
family companies
Ferngrove Tianma Bearing Co. WA Vineyard 2012 15.5
Source: KPMG/The University of Sydney database.
In 2012, Chinese investment into aware that private Chinese investors
Australian agriculture accounted have purchased agricultural assets
for less than 3 percent of the total below this amount (including farms
Chinese overseas direct investment and vineyards) across Australia.
(ODI) inflow, including the Cubbie Detailed public information on such
Station deal. Overall, between deals is nearly impossible to obtain
the period 2006 and 2012, only 2 as, while each Australian state and
percent of Chinese investment has territory has detailed land and title
gone into agriculture. records, the true identity of the
land owner is often unclear as deals
By the end of 2012 China ranked
are structured through individual/
the ninth largest foreign investor in
corporate/trust structures. Until we
Australia, based on accumulated
have a national record of foreign
historical foreign investment into
ownership of Australian land that
Chinese Australia, at 3 percent of the total
ODI. This is well behind the US (at
looks through the corporate veil,
it will be difficult to establish the
companies 24 percent or nearly 10 times larger
than China’s investment), the UK
extent of Chinese ownership below
USD 5 million.
may own (14 percent), Japan (10 percent),
and even behind Singapore at However these investments are
less than 4 percent6.
Foreign companies are estimated
of less relevance to the business
debate, not only because the size
1 percent to own 11.3 percent of Australian
land7. Based on our understanding
of these landholding investments
is small and will not (alone) have a
major commercial impact on market
of Australian of major Chinese investment
transactions, Chinese companies
dynamics; but also because such
investments often seem to be made
land. may own less than 1 percent of
Australian land.
for personal investment and lifestyle
reasons. Unlike for some other foreign
Smaller investments not recorded investors, to date we are not aware
Our KPMG/The University of Sydney of successfully completed large
database applies a minimum scale farmland aggregation/roll up
threshold of USD 5 million per projects being undertaken on behalf
project. Based on anecdotal of Chinese investors.
background information, we are
5. Shanghai Zhongfu’s proposed investment into WA’s Ord Scheme not included as it is only a lease arrangement by 2012.
6. Australian Bureau of Statistics Cat. No. 53520 – International Investment Position, Australia: Supplementary Statistics, 2012 (Released 2 May 2013);
Table 2. Foreign Investment in Australia: Level of Investment by Country and Country Groups by type of investment and year; Austrade.
7. Australian Bureau of Statistics, Agricultural Land and Water Ownership Survey, 2013.
© 2013 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG
International”), a Swiss entity.All rights reserved.The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International
Cooperative (“KPMG International”).Liability limited by a scheme approved under Professional Standards Legislation.Demystifying Chinese investment in Australian agribusiness October 2013 8
Geographic distribution
New South Wales has attracted nearly 50 percent of the Chinese
agribusiness investment from 2006-2012, followed by Queensland (QLD)
40 percent, Western Australia (WA) 5 percent, and Tasmania (TA) 5 percent.
Chinese ODI in Australian Agribusiness by state (2006-2012)
TAS VIC SA
1% 1%
WA 5%
5%
State Transaction value Share
(million USD) %
NSW 500.00 48
QLD 423.00 40
WA 48.50 5
QLD NSW TAS 50.66 5
40% 48% VIC 15.00 1
SA 11.00 1
2012 1,048.16 100
Source: KPMG/The University of Sydney database.
Australia’s largest cotton farm, Cubbie Station, purchased by Chinese investors in 2012.
© 2013 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG
International”), a Swiss entity.All rights reserved.The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International
Cooperative (“KPMG International”).Liability limited by a scheme approved under Professional Standards Legislation.9 Demystifying Chinese investment in Australian agribusiness October 2013
Characteristics
of Chinese ODI in
Australian agribusiness
The demand Based on our analysis of investments from 2006-2012,
there are at least four characteristics that distinguish
for safe and Chinese ODI in Australian agribusiness from those
high quality of other countries:
agricultural
products 1. Food safety over food security
We have observed that the These subsectors that are of
drives Chinese underlying driver of Chinese ODI
in Australian agribusiness is the
greatest Chinese interest are also
ones that have experienced an
investment market demand for diverse and
high quality agricultural products,
increase in output growth above the
sector average. A report published
in Australian rather than to fulfil long-term food
security objectives.
by the Australian Productivity
Commission in 2005 (still quoted
agribusiness. Since September 2006, Chinese
investment has been recorded in
by the Australian Bureau of
Statistics in 2012) found that sugar,
cotton and grapes all ranked among
the following subsectors: sugar
the top contributors to overall
(eg COFCO’s acquisition of Tully
output growth, reflecting their
Sugar), cotton (eg Shangdong
ability to establish the trends for the
Jining Ruyi Woolen Textile Co.,
sector (as shown opposite). These
Ltd’s acquisition of Cubbie Group
subsectors are also areas that
Ltd), vineyard (eg Tianma Bearing
exhibit high growth trends in both
Co.’s acquisition of Ferngrove), and
Chinese and international markets.
food logistics (eg Bright Food’s
acquisition of Manassen). These are
sectors where Australia’s agricultural
industry has competitive advantages
and is able to supply safe and
premium products such as meat,
dairy, wine, and vegetable, as well
as other processed, branded goods.
© 2013 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG
International”), a Swiss entity.All rights reserved.The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International
Cooperative (“KPMG International”).Liability limited by a scheme approved under Professional Standards Legislation.Demystifying Chinese investment in Australian agribusiness October 2013 10
Agricultural industries, growth in the value
of output and changes in farm numbers,
1985-86 to 2002-03 (percent)
5
Nurseries
Dairy
Trend average annual growth rate in output
4 Poultry meat
Sugar
Vegetables Cotton
Grains (b) Grapes
3
-80 -60 -40 -20 0 20 40 60 80
Pigs 2
Beef
Sector average Fruit and nuts
1
0
Eggs
-1
Sheep industries (c)
-2
Change in farm numbers
Source: Australian Productivity Commission, Trends in Australian Agribusiness, 2005.
2. Exploratory approach
Chinese investors in Australia However, cross-industry •o
btain access to local knowledge,
have been taking an exploratory investment by Chinese investors IP and create synergies within
approach to Australia’s agribusiness is not unique to Australian their value chain, eg Bright Foods
sector. On the one hand, they are agribusiness. It is also true for
• a chieve capital growth and
exploring opportunities and modes Chinese enterprises investing
risk diversification – Chinese
of cooperation and integration in other countries who are
conglomerates investing
across a variety of agribusiness increasingly competing to attract
across sectors.
industries. On the other hand, Chinese investment, as evidenced
Chinese investors are currently in recent years with Chinese
in the stage of accumulating investing into New Zealand’s dairy
necessary experience to better industry (such as Bright Food,
manage the complexity of Yili, Yashili, Pengxin); fruit sector
investing and operating Australian investments in South America and
agribusinesses. various South-East Asian countries;
olive oil projects in Mediterranean
Besides major Chinese agri/food
countries and wine sector
companies, including Bright Food
investments in France and new
Group and COFCO, there are a
world wine countries.
limited number of experienced
Chinese companies investing Investment motivations are diverse.
internationally in this sector. Based on our findings, Chinese
Based on the KPMG/University of investors seek to:
Sydney database, only three of the
• integrate Australian primary
10 Chinese enterprises that have
production and early stage
made investments had meaningful
processing operations into their
prior operational experience,
value chain, eg Shandong Ruyi,
combined with international
China Textile
investment experience, in the
agribusiness sector.
© 2013 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG
International”), a Swiss entity.All rights reserved.The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International
Cooperative (“KPMG International”).Liability limited by a scheme approved under Professional Standards Legislation.11 Demystifying Chinese investment in Australian agribusiness October 2013
When considering these This year we witnessed a
investments into the agriculture USD 4.7 billion investment by
and food value chain (as shown Shuanghui International, China’s
below), we observe that Chinese largest meat processor, into
investment to date has been Smithfield Foods in the US which
concentrated in the lower part of was motivated by a desire to
the food production value chain, not only increase the volume of
namely ‘Farmers’ and ‘Traders’, premium safe pork to be exported
where risks are higher due to back to China but also to acquire
seasonality but where profits can valuable processing, packaging
also be highest. This is consistent and brand and marketing assets
with first and third investment and knowledge from a very well
drivers noted on the previous established western company.
page and reflects a preference
to process, package and market
finished food products back
in China.
Similar to many other foreign
investors involved in Australia’s
food sector (from the US, the UK,
Europe and New Zealand), we
expect Chinese investment to
eventually seek to follow Shanghai
Bright Food’s lead and move into
the ‘Food Company’ sub-sector
where profit margins are also
attractive and stable.
The agriculture and food value chain
Consumers • Urban
• Rural
• Hypermarkets
Retailers • Supermarket
• Corner shops
• Bakery
Food • Meat
companies • Dairy
• Snacks
• Beverages
Traders • Crops
• Meat
• Oils/meal
• Biofuels
Farmers • Crops
• Meat
• Dairy
• Seeds
Input • Fertilizer
Companies • Crop protection
• Animal health and nutrition
• Crop insurance
• Food ingredients
Source: KPMG, The agricultural and food value chain: Entering a new era of cooperation.
© 2013 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG
International”), a Swiss entity.All rights reserved.The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International
Cooperative (“KPMG International”).Liability limited by a scheme approved under Professional Standards Legislation.Demystifying Chinese investment in Australian agribusiness October 2013 12
The Changing Farm Landscape
Although our agribusiness sector value of agricultural operating value For example:
is slowly consolidating as family (EVAO) of less than AUD 100,0008. •M
eat processing – JBS (Brazil),
farms are sold and aggregated, Only a small number (7,000 or Cargill (US) and Nippon Meats
there is currently a very limited 6 percent) of large farms offered (Japan).
supply of very large scale assets in estimated agricultural operational
•S
ugar production – Sucrogen /
the sectors that Chinese are mostly value in excess of AUD 1 million
Wilmar (Singapore), Finsucre
interested in. (as shown below).
(Belgium), MSF Sugar (Thailand).
The 2010-11 Agricultural Census Many of the largest and most •M
ilk and milk powder – Fonterra
conducted by the Australian Bureau attractive businesses in the dairy, (New Zealand), Kirin (Japan).
of Statistics found that there were grains, sugar and food processing
There is not a large pool of wholly
135,000 farm businesses across sectors are already owned by
Australian owned agribusiness
Australia and over 55 percent of foreign investors.
organisations of global scale that
these farms had an estimated
may be considered for investment
Size
%
of Australian farm businesses – 2011 by Chinese companies. The
cooperative ownership structures
40
of some of Australia’s largest
companies (dairy, cotton, sugar)
are complex and Chinese are
30
still learning about major listed
company takeovers.
20 Recent proposals to increase
Australian Competition and
Consumer Commission (ACCC)
10
scrutiny and reduce the FIRB
approval threshold from
AUD 248 million to AUD 53 million
0
(agribusiness) and AUD 15 million
< $50 $50-$99 $100-$199 $200-$499 $500-$999 $ 1,000+ (agricultural land) are other hurdles,
particularly for Chinese State
Note: Based on estimated value of agricultural
( $’000)operations. Owned Enterprises (SOEs).
Source: ABS agricultural Commodities, Australia, 2010–11 (cat. no. 7121.0).
Size of Chinese investment deals
in Australia’s agriculture sector (2006-2012)
Smaller deal sizes Percentage of deals by size
Based on our database, there was
only a small proportion of deals
completed by Chinese investors 10%
with transaction values over
USD 200 million and no completed USD 500 million +
10%
investment deals in the Australian USD 500 – 200 million
agriculture sector exceeding
USD 600 million. This is very USD 200 – 100 million
different to the overall experience 10% USD 100 – 25 million
with Chinese investment across
60% USD 25 – 5 million
other sectors in Australia between
years 2006 -2012, where nearly
10%
50 percent of the all completed
deals had a transaction value
of over USD 200 million and Note: Based on number of deals.
19 percent had a transaction value Source: KPMG/The University of Sydney database.
of over USD 500 million.
8. According to the Australian Bureau of Statistics, the Estimated Value of Agricultural Operations (EVAO), is an aggregation of commodity values which
takes into account (without double counting) the area of crops sown and numbers of livestock on holdings at a point in time as well as the crops
produced and livestock turn-off during the year. It should be noted that EVAO is applicable only for industry coding and size valuation purposes. It is not
an indicator of receipts obtained by units or of the value of agricultural commodities produced by these units.
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3. Diversity of ownership
Another characteristic of Chinese enterprises, the participation of
investment in Australian agriculture Chinese private investment is likely
is that private Chinese companies to be even larger.
are playing a more active role
The advantage of private over
compared to other sectors such
State-Owned investors needs to
as mining and gas, where SOEs
be assessed in the light of their
have dominated.
market strength within the Chinese
By accumulated deal value, private domestic market. In general,
investment accounted for 35 percent. Australian partners are most likely
By volume of transactions however, to benefit from cooperation with
private investment accounted for Chinese investors who provide
67 percent of the total number access to the Chinese domestic
Private of deals. If we were to include market and can integrate Australian
smaller sized investments (below produce into their value chains.
Chinese AUD 5 million) made by private
investors Chinese agricultural deals in Australia by ownership (2006-2012)
are relatively Ownership Investment Value % no. deals %
(USD million)
more active SOE 669.00 64 3 30
than SOEs Private 379.16
1,048.16
36
100
7
10
70
100
in Australian Source: KPMG/The University of Sydney database.
agribusiness.
Chinese agricultural deals in Australia by Chinese agricultural deals in Australia by
ownership, in terms of investment value ownership, in terms of deal volume
(2006-2012) (2006-2012)
30%
36%
Private State-Owned
enterprises Enterprises
State-Owned Private
Enterprises 64% enterprises
70%
Source: KPMG/The University of Sydney database. Source: KPMG/The University of Sydney. database.
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4. Tendency for majority stakes
Although anecdotally we The increasing attraction of higher
understand Chinese investors
may be willing to take minority
income employment away from
farming for Australians who would
To date,
positions in primary production
assets, to date Chinese investors
otherwise be next generation
farmers means that Australian
Chinese
in the agricultural sector have
demonstrated a higher tendency to
owners have less incentive to retain
controlling equity. This is particularly
agri investors
take majority stakes when investing
in agribusiness in Australia. There
true for small and medium-size
farms. Between 1981 and 2011, for
have tended
are several possible explanations
for this, including the fact that
example, the number of farmers
declined by 106,200 (40 percent),
to take
compared to mining, gas and
energy projects, smaller scale
equating to an average of 294
fewer farmers every month over
majority
agricultural assets are seen as
more ‘affordable’. (As mentioned
that period10. Meanwhile over the
same period, the median age of stakes.
earlier, only 6 percent of Australian farmers increased by 9 years and
farms offered estimated agricultural the proportion of farmers aged
operating value in excess of 55 years and over increased from
AUD 1 million9.) 26 percent to 47 percent, while
the proportion of farmers aged less
Another possible explanation for
than 35 years fell from 28 percent
Chinese investors taking controlling
to just 13 percent11.
stakes is the family ownership
model and an ageing workforce in
the Australian agriculture sector.
Age profile of Australian farmers – 1981 and 2011
85+
Men Women
75-79
2011
65-69
1981
55-59
45-49
35-39
25-29
15-19
20,000 15,000 10,000 5,000 0 0 5,000 10,000 15,000 20,000
Source: ABS Census of Population and Housing.
9. Australian Productivity Commission, Trends in Australia Agriculture, research paper, 2005.
http://www.pc.gov.au/__data/assets/pdf_file/0018/8361/agriculture.pdf.
10. Australian Bureau of Statistics, 4102.0 – Australian Social Trends, Dec 2012.
11. Australian Bureau of Statistics, 4102.0 – Australian Social Trends, Dec 2012.
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From food security to
food safety: China’s basic
food requirements and
diversifying market demand
Food security It is important that we understand
the future food needs and realities
•C
hina has the world’s third largest
land area and arable agricultural
is a core which the broader Chinese
population faces as the growing
land accounts for 12 percent of
China’s total land area.
objective of
new middle class changes its
Food security is a core objective of
dietary consumption habits. Some
the Chinese Government, and China
important facts about the size and
the Chinese strength of China’s food production
industry are helpful in predicting
will not outsource food security.
China is largely self sufficient in core
Government, Chinese corporate and government
strategies.
food commodities including wheat,
rice, coarse grains and meats. The
and China will Agriculture has always and will
Food & Agricultural Organisations of
the United Nations (FAO) believes
not outsource always play a vital role in China’s
domestic economy:
China will remain largely self
sufficient for the next 8 years, with
food security. •D
omestic agricultural production
still accounts for more than
the exception of dairy, fruit and
vegetables, oil seeds and meat.
10 percent of China’s GDP.
•C
hina’s rural population is still
695 million people. Seventy
percent of rural workers are
employed in agriculture.
China’s milled rice production and consumption, China’s wheat production and consumption,
1990 to 2012 1990 to 2012
Milled Rice (’000 mt) Wheat (’000 mt)
150000 15000 130000 15000
145000 10000 125000
10000
140000 120000
5000
135000 115000 5000
130000 0 110000 0
125000 -5000 105000
120000 100000 -5000
-10000
115000 95000 -10000
-15000
110000 90000
-20000 -15000
105000 85000
100000 -25000 80000 -20000
2000
2000
2002
2003
2004
2005
2005
2006
2007
2008
2009
2002
2003
2004
2005
2005
2006
2007
2008
2009
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2001
2001
2012
2012
2011
2011
Supply surplus (RHS) Production (LHS) Consumption(LHS) Supply surplus (RHS) Production (LHS) Consumption(LHS)
Sources: Bloomberg Professional Service: Agriculture Supply and Demand.
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International”), a Swiss entity.All rights reserved.The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International
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17 Demystifying Chinese investment in Australian agribusiness October 2013
However, China faces a number • While China’s total water supply
of challenges: ranks fourth in the world, on a
per capita basis it was only one
•C
hina is home to 21 percent of
quarter of the world average.
the world’s population, but only
Agriculture consumes
8.5 percent of the world’s arable
60 percent of total water usage in
land and just 6.5 percent of the
China and the overuse of nitrogen
world’s water reserves12. China’s
based fertilisers (combined with
emerging land and water issues,
pollutants from heavy industries),
coupled with higher labour
has already severely restricted
costs and increasing rural-urban
China’s clean water supplies.
migration, are key challenges to
China’s future food security. Trade will continue to play an
important role. Since China joined
At this year’s • population,
Due to the size of China’s
rapid urbanisation,
the World Trade Organisation in
2001, the value of agricultural trade
Bo’Ao Forum, desertification and environmental
degradation, 20 percent of
has increased from USD 27.9 billion
to USD 155.7 billion, with an
President China’s arable land has been
degraded. China lost approx
average annual growth rate
of 17 percent14. Australia has
9 million hectares (6.2 percent) of
Xi Jinping the country’s farm land between
benefitted directly from this trend.
1997 and 2008 . 13
announced Australia's agricultural trade with China, 2005 to 2012
China would 8000
invest
7000
6000
AUD 500 billion 5000
in overseas 4000
3000
markets in the 2000
next 5 years. 1000
0
2005 2006 2007 2008 2009 2010 2011 2012
Export Import
Sources: Ma, X and Li, X2009, Chinese Agricultural Exporting Market Guide 2009: Australia,
Ministry of Commerce PRC and Australian Bureau of Agricultural and Resource Economics
(ABARES) 2012, Agricultural Commodities: March Quarter 2012, ABARES.
China's cattle export and import, 1990 to 2012
250
200
150
100
50
0
-50
-100
-150
2000
2002
2003
2004
2005
2005
2006
2007
2008
2009
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2001
2012
2011
Trade surplus Export (’000 heads) Import (’000 heads)
Sources: Bloomberg Professional Service: Agriculture Supply and Demand.
12. KPMG 2012, Opportunities for China and Australian in Food Security, KPMG Australia, p. 4.
13. OECD/Food and Agriculture Organisation of the United Nations 2013, OECD-FAO Agricultural Outlook 2013, OECD Publishing,
‘Chapter 2 Feeding China: Prospects and Challenges In the Next Decade’, p. 65.
14. OECD/Food and Agriculture Organisation of the United Nations 2013, OECD-FAO Agricultural Outlook 2013, OECD Publishing, p. 11.
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Investment is also key to China’s Australian agricultural science
success in maintaining food companies with leading IP and
security. China’s food production deep experience in environmentally
industry grew by 3.8 percent p.a. sustainable farming, soil and
between 1978-2011 as a result water conservation, animal and
of government policies to crop genetics can play a major
increase investment in machinery, commercially-driven role in assisting
infrastructure and R&D. China’s China to address and resolve both
11th and 12th Five Year Plans commit its challenges (land and water
to ongoing heavy investment related) and objectives
in science and technology (science and technology driven
acquired both domestically and sustainable growth).
internationally to resolve problems
However this is not without some
and boost domestic production,
challenges including finding the
rather than being overly reliant on
right commercial partner and
trade and foreign investment.
protecting IP for sustainable
commercial benefit.
Australian agricultural
science companies can play
a key commercial role in
addressing China’s land and
water-related challenges.
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Australia’s opportunity:
premium, safe food
Tremendous growth opportunities However, Chinese middle class The consequence of the shift from
for Australia’s food industry consumer demands need to be food security to premium, safe food
lie in supplying safe, premium understood. For example, China is a shift in commercial strategies.
meat, dairy, wine, vegetable and meat imports are expected to Food security was served by export
processed, branded product to reach 1.7 million tons by 2022 and of bulk agricultural commodities
China’s growing middle class. meat consumption will increase and was heavily reliant on
from 47 kg per capita in 2012 to government-to-government policy
With a population of 300 million
54 kg per capita in 2022. Pork initiatives. Premium, safe food
today15 – estimated to rise to
will account for 66 percent of this is market driven and reliant on
630 million by 202216 – these
additional meat consumption and industry initiatives and niche
households have annual earnings
chicken will be the fastest strategies which leverage off
between USD 9,000 to 16,000. This
growing meat consumed. government policy platforms that
group will represent 45 percent of
Australian suppliers have to be support and facilitate integration
China’s population and is expected
careful not to assume that all into Chinese supply chains and
to consume goods and services of
growth will be in bovine meat and which provide flexible responses to
USD 3.4 trillion.
miss other opportunities or shifts changing demands in the huge and
This target market for Australian in trends17. dynamic Chinese domestic market.
food shows rapidly developing
Australian agricultural exports to Meeting China’s food safety
westernised consumption habits
China over the last decade show requirements goes well beyond
and diets. Consumers have choice
growing diversification and a shift clever marketing and branding and
and are concerned about the safety
towards processed food with much requires absolute transparency
of their food. They prefer foreign
higher long-term growth rates than and traceability across the entire
produced and imported processed
unprocessed food items18. Australia-to-China supply chain
food, as levels of trust in certain
process – from crop, livestock, soil
Chinese processed foods (after
and water management systems
recent high profile public scandals
in Australia, to food processing and
in meat and milk) are low.
production stages in both countries,
to logistics to retail markets in
Chinese supermarkets.
15. The Chinese Dream: Rise of the World’s Largest Middle Class and What it Means to You”, Helen Wang.
16. “Half a Billion: China’s Middle Class Consumers”, Dominic Barton, McKinsey & Company.
17. OECD/Food and Agriculture Organisation of the United Nations 2013, OECD-FAO Agricultural Outlook 2013, OECD Publishing,
‘Chapter 2 Feeding China: Prospects and Challenges In the Next Decade’, pp. 78-80.
18. Source: DFAT, Australia’s Export to China 2001 to 2011, http://www.dfat.gov.au/publications/stats-pubs/australias-exports-to-china-2001-2011.pdf.
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Challenges for
Australian agribusiness
Australia’s fragmented family owned farming model, The core
and rural Australia more generally, is coming under
increasing financial and social pressures which
issue of farm
may restrict our ability to fully capitalise on profitability
growth opportunities. needs to be
Farm profitability
addressed.
The core issue of farm profitability While large Australian cities benefit
needs to be addressed. Key from major infrastructure funding
concerns around major retailer allocations, regional Australia – the
pricing pressure, high operating food production arm of the Asia
costs, relatively high commercial Century food supply plan – is under
borrowing costs, water access and invested in water, transport and
costs and delays associated with important civil infrastructure such
access to infrastructure are all as hospitals and schools, which
well documented. are critical for sustaining regional
communities.
Reducing tax, improving labour
market productivity, reducing Labour
bureaucratic red and green tape A common complaint of primary
and speeding up investment and producers is the lack of agricultural
project approvals are all mainstream labour at critical times in peak
issues which Chinese investors seasons and the affordability of
are watching very closely before this local labour pool. Australia’s
committing to new investment response to skills shortage has
projects. over the past decade facilitated
Infrastructure opportunities for Australian
companies to obtain temporary
The ANZ Insight Report 2012,
labour from outside the local labour
Greener Pastures: The Global
market, where the skills have not
Soft Commodity Opportunity
been readily available in Australia.
for Australia and New Zealand
A growth in the use of 457 visas, in
suggests that around
particular, has been key but other
AUD 600 billion in additional
initiatives have encouraged the use
capital will be needed to generate
of young, working holiday makers
growth and profitability in Australia
to take part in farming.
between now and 2050.
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International”), a Swiss entity.All rights reserved.The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International
Cooperative (“KPMG International”).Liability limited by a scheme approved under Professional Standards Legislation.Australian companies need Chinese partners
with strong domestic links who can help
reach these new customer markets quickly
and profitably.
© 2013 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG
International”), a Swiss entity.All rights reserved.The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International
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Is Chinese direct
investment
a solution?
Chinese investors can and should play a major role
in the solution.
New consumer markets
Rather than selling the production off take into Australia’s domestic food
production / wholesale / retail system (which is cited as a major cause of
declining farm profitability), Australian companies need Chinese partners
who understand complex market dynamics and rapid changes in demand
in the Chinese consumer markets and with strong local links to reach
those markets quickly and profitably.
Investment capital for growth and infrastructure
Australian agribusinesses need capital partners to co-invest in Australian
primary production and integrated food processing industries to realise
economies of scale. This model should drive Australian partners further
up the value chain beyond primary production.
Australia requires capital for new regional infrastructure and China has
the capital and proven, deep experience to co-fund and co-deliver new
road, rail and airport / shipping port assets which could transform our
food production industry in existing and new regions throughout Australia.
Australian Chinese investors are interested to partner with strong Australian
partners to develop strategically important and commercially viable
agribusiness infrastructure projects.
Skilled labour
needs capital We clearly need to educate and incentivise more young Australians to
partners consider a return to agricultural careers. However this may not resolve key
concerns around affordability and availability at peak times.
to realise Experts predict agriculture will soon require 6000 tertiary-qualified graduates
per year – in 2011 NSW universities produced 311. In the US the percentage
economies of farmers with a degree is in the high teens. In Australia it is less than 10
percent. Strong specialisation opportunities (in areas such as plant breeding,
of scale and environmental management, soil science, hydrology, plant science,
agronomy, animal production, economics and rural sociology) should exist
move up the alongside an acceptance of the interdisciplinary nature of agriculture19.
China can provide university qualified, skilled agri-science graduates on
value chain. appropriate working visas to supplement local talent and ensure we can
meet demand at peak seasonal demand periods. These graduates, of which
Chinese universities graduate 120,000 per year, are extremely hard working,
keen to work in Australia and further learn from our dry land, highly safe and
efficient farming and food production methodology and in most cases have
adequate English communication skills to perform their duties20.
19. Michael Spence, “Education needed to make most of agriculture’s big chance”., The Australian Financial Review, 21 October 2013.
20. KPMG 2012, Opportunities for China and Australian in Food Security, KPMG Australia, p. 27.
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