Bloomberg | Jul 11, 2011
Foreign companies seen targeting Australia, seeking to secure food supply
By Phoebe Sedgman
Overseas buyers may boost investment in agriculture assets in Australia, the fourth-biggest shipper of wheat, as they seek to secure supply to meet surging food demand, said Queensland Sugar Ltd. Chairman Alan Winney.
“We now face a realistic prospect that Australian agribusiness may in the near future be run from boardrooms in Singapore, New York and Shanghai,” Winney wrote in a report for the Australian Farm Institute.
China’s Cofco Ltd. said last week it won control of Tully Sugar Ltd., adding to the company’s supply of the sweetener from Australia, the world’s third-largest shipper. Rising incomes and economic growth in emerging markets including China and India are fueling demand for farm products and helping drive food prices higher. Companies may also look to acquire Australian grain assets to ensure supply, according to the report.
“They can throw a lot of capital at these businesses,” said Belinda Moore, a Brisbane-based analyst with Royal Bank of Scotland Group Plc. Companies may invest in Australian firms as they seek food security and diversification of risk, she said.
Twelve of 23 licensed wheat exporters are Australian-owned, while 60 percent of the grain storage companies are owned by foreign interests, according to the report. Australia’s biggest wheat exporter is Minneapolis-based Cargill Inc., which operates as Cargill and AWB, Winney said.
Overseas Investment
“In two years it is likely that the majority of Australian wheat will be exported by international companies,” said Winney, who is also chairman of grain-marketing company Emerald Group Australia Pty, which is 50 percent-owned by Japanese trading company Sumitomo Corp. (8053) “It is debatable if there will be a surviving Australian-owned storage business,” he said.
Australia said in November it will study the level of overseas investment in its farms amid concern over foreign ownership and food security. The Australian Bureau of Statistics will survey 171,000 agricultural businesses this year, according to Assistant Treasurer Bill Shorten.
Opposition leader Tony Abbott said last month he will establish a working group to investigate tightening rules governing the sale of Australian agricultural land and agribusinesses to foreigners.
“A lot of our companies are going and I suspect there will be continued foreign investment in Australia, given the sense that we’re the food bowl into Asia,” Moore said.
Rising Food Costs
World food output will have to soar 70 percent by 2050 as the global population climbs to 9.2 billion from an estimated 6.9 billion in 2010, the United Nations estimates. The price of staple foods including corn will more than double in two decades without action, Oxfam International said in May.
Monthly food prices tracked by the UN have surged 10 times in the past 12 months and this month stayed near a record reached in February, on higher sugar, dairy and rice prices. The World Bank estimates higher food spending have pushed 44 million more people into poverty.
“Nations in the southern hemisphere will increasingly need to supply the food imports of the northern hemisphere,” Winney said. “Future food demand will be driven by growth in Asia.”
Growth in agricultural output will slow to 1.7 percent a year through 2020, compared with 2.6 percent in the previous decade, FAO and the Paris-based Organization for Economic Cooperation and Development said in a report last month.
Bright Food
“Food and energy security are driving 25-year forward planning in some nations,” Winney said. “Some governments are building strategic food reserves as a counter against food inflation and sovereign funds are investing in productive land at lower returns in order to guarantee supply lines.”
Bright Food Group Co., based in Shanghai, bid last year for CSR Ltd. (CSR)’s sugar division to meet rising demand for the sweetener in China. Bright’s offer was topped by a A$1.75 billion ($1.89 billion) rival approach from Wilmar International Ltd. (WIL), the world’s biggest palm-oil processor by sales.
In 2009 Viterra Inc. (VT), based in Regina, Saskatchewan purchased ABB Grain Ltd., Australia’s biggest barley exporter.
“Asia is seeking out food and energy resources to support this phenomenal growth now and the preferred agribusiness investment locations are Australia, South America and sub-Saharan Africa,” Winney said in the report.
