Beef Central| 28 October 2015
 

Chinese investment in Australian beef – Is it as big as it sounds?

by Linda Rowley

Despite perceptions that Chinese investors are buying up large areas of Australian farmland, statistics and research do not support the contention that China is now Australia’s dominant offshore agricultural investor.

A series of reports into Chinese direct investment in Australia by KPMG and The University of Sydney’s China Studies Centre, titled “Demystifying Chinese Investment in Australian Agribusiness” provide insight into the current scale and composition of Chinese investment.

The reports, last published in May this year, found that:

• Chinese investors may own less than one percent of Australian farmland
• Chinese investment in Australia’s agricultural sector commenced only quite recently and has been relatively small, compared with total value and transaction volume controlled by other foreign investors
• While China has become a growing source of foreign investment over the past 12 months, Canada, the United States and Great Britain, which have had a 20-30 year ‘head-start’, still control far greater accumulated investment in Australian agriculture.
• NSW attracted nearly 50 percent of Chinese agribusiness investment last year, followed by Queensland (40pc), WA (5pc) and Tasmania (5pc).

Further, KPMG in its May 2015 report suggests agribusiness represented just 1pc of Chinese direct investment in Australia during 2014, dwarfed by its investments in Australian commercial real estate (46pc), infrastructure (21pc), leisure and retail (12pc and mining (11pc).

The following table shows Chinese investment activity during the past 12 months in Australian cattle grazing property and associated beef supply chain assets; where their investments are located and what prices were paid.

Together, these nine Chinese companies have outlaid almost $430 million on Australian beef cattle holdings and downstream red meat supply chain assets over the period from September 2014 to date.

Who are these Chinese investors?

• Yiang Xiang Assets Pty Ltd is a Chinese private sector company.
• Orient Agriculture is a Shanghai-based private company.
• Xingfa Ma is one of China’s richest men. His company, Tianma Bearing Group, established TBG Agri Holding Limited, in August last year as a subsidiary company in Australia.
• Taihua Food Co (Shandong). Taihua is already a major producer and distributor of frozen vegetables in China, but Churchill is its first investment in the red meat supply chain, and its first in Australia. The agreement with Churchill represents a diversification into a second food segment where Taihua sees “exceptional growth potential.” Taihua also plans to establish a wholesale/distribution business taking the product further through the supply chain.
• The Hailiang Group – one of China’s top 500 companies. The conglomerate, controlled by Feng Hailiang – reportedly China’s 90th richest individual, has interests across mining, real estate, agriculture and education.
• Li Family – beef cattle entrepreneurs (directors of Fucheng Woodlands, who also hold a joint interest in the wholly owned Australian subsidiary Fucheng Australia).
• The Dashang Group is a retail and supermarket giant. It has been buying land through an Australian subsidiary known as Australia Aulong Auniu Wang (AAAW).
• ABL Red Meat is an Australian registered company representing a Chinese meat importer and wholesaler.
• The Fucheng Group is a buyer of automotive interior and exterior parts.
• Shandong Delisi Food Co is China’s fourth largest pork processor, with market capitalisation of just under $1 billion and an extensive distribution and cold-chain network.

Other potential Chinese investors in beef

Earlier this year, Austrade’s trade commissioner in Chengdu, Jeff Turner told Beef Central the line-up of Chinese interests looking at Australian agriculture was extensive, with as many as 300 Chinese-related companies showing investment interest. Some already have links with the meat supply chain, others not. Here is a snapshot of some more potential Chinese investors in Australian beef:

• Chongqing Hondo Agriculture Group – one of China’s largest beef producers, says it is looking to buy up to $100 million worth of cattle stations and abattoirs in Australia.
• Pengxin’s listed subsidiary, Dakang Farming.
• Shanghai CRED – established in 1999, it is one of the largest real estate developers in Shanghai. Owned by Guo Jie Gui and Pei Zhan.
• Financial services group Zendai
• Textile, property and logistics conglomerate Shanshan Group
• Chinese government-backed company, Shaanxi Kingbull Livestock Co, is intending to buy a 5000ha cattle station in Australia as a stepping stone to importing 10,000 high-quality beef cattle and calves from Australia each year.
• Snow Dragon, owned by the Xuelong Industrial Group, has been importing about $7 million worth of high-grade chilled Angus beef from Australia each year for the past three years. Director of quality management Chen Hong said it has a plan to purchase farmland in Australia soon.
• RIFA, one of China’s biggest textile manufacturing companies (a former state-owned machinery company) already owns the well-known 2500ha Victorian Western Districts property Blackwood. Its Chinese parent company, Zhejiang RIFA Holding Group, reportedly has an increasing appetite for red meat, particularly beef. Beijing Capital Group is a Chinese government-owned company that formed a joint venture with Australian-based businessman Huang Changran and his company, Yuhu. The joint venture plans to invest as much as $3 billion in Australian agriculture.
• China’s biggest food company, Government-owned Cofco, says it plans to look at investment in the Australian beef and dairy industries, as it moves to become the face of China’s transformation of its biggest state-owned enterprises into globally-competitive corporations. “We are becoming a global citizen – we are not just a Chinese company any more,” Cofco president Patrick Yu told a Melbourne investment forum recently. The company last year spent $2.7 billion investing in grain trading and farm production assets in Europe and South America. In 2011 it made its first acquisition in Australia, buying Tully Sugar in Queensland. Mr Yu said Australia remained its prime target for investment. “We should have some local partners in Australia. I think beef is the next potential area for Australia to China.”

Kidman heavy focus for Chinese money

Finally, the ‘elephant in the room’ in reviewing future Chinese investment in beef can’t be ignored.

It is no secret that several large Chinese companies have flagged their interest in bidding for Australia’s largest landholder, S. Kidman & Co, which is on the market with an anticipated price around $325m.

Final tender offers close this week, and a final announcement on the successful buyer is expected in December. The Kidman board is due to start considering its options at meetings next week, before a bidder statement is made public later in November and a target statement is released by the company.

The following Chinese players are thought to be on the shortlist of bidders:

• The conglomerate Ningbo Xianfeng New Material and the RIFA Group, a textile machinery enterprise formerly owned by the Chinese government.
• State-backed developer Shanghai CRED and two private companies; financial services group Zendai and textile, property and logistics conglomerate Shanshan Group.
• Pengxin’s listed subsidiary, Dakang Farming. If successful, Pengxin could own about one per cent of the Australian continent. (Earlier this month, the New Zealand government rejected its bid for a 13,800ha sheep and cattle farm in New Zealand’s North Island, saying the benefits of the deal were “not substantial enough”).
• One of China’s biggest vegetable oil producers, Donlinks Grain and Oil Company and British Virgin lslands-registered Genius Link Capital.

A sale of the Kidman asset is by no means certain, however. Just as the New Zealand Government rejected Pengxin’s listed subsidiary, Dakang Farming’s bid for a large NZ cattle and sheep farm earlier this month, Australia’s Foreign Investment Review Board may yet reject any accepted Chinese offer to buy Kidman.

And finally, there is no guarantee that the disparate Kidman shareholders themselves will agree to terms, should a Chinese offer not meet their price expectations.

Conclusion

The level of Chinese investment in the Australian beef supply chain appears certain to increase as China hunts for new food sources to feed its one and half billion citizens.

With the Chinese Government ordering $3 trillion be spent securing food and farmland overseas, and the new Australia-China Free Trade Agreement set to be brought into being, a significant share of that fortune appears likely to be spent on more Australian beef properties and downstream infrastructure.