Chinese firms eye Aussie farmland

The Australian | May 12, 2008

Rowan Callick, China correspondent

CHINA'S fast-growing farm corporations may be the next wave of Chinese investors in Australia, joining their already influential mining comrades.

China's Agriculture Ministry is developing a policy to encourage farming companies to invest overseas, including in Australia, as China runs out of land and as its appetite grows with its economy.

Xie Guoli, a senior trade promotion official with the ministry, said: "Australia and China have a basis for long-term agricultural co-operation, since Australia is rich in land and China is rich in labour. But developing such a relationship will depend substantially on Australia's policy on importing labour.

"Generally, China is encouraging its companies to co-operate more internationally. But we are not providing financial support, and we are not at this stage studying or recommending any specific country as an investment target."

However, the ministry is offering free advice and assistance to companies "that come to us for help in arranging customs clearance and quality and health inspections."

This mostly happens with neighbouring countries, such as Russia and the central Asian republics.

Mr Xie said one of the first state-owned farming companies to go offshore went to Australia. It began operating in Queensland in 1989 on 43,000ha.

But so far, the main input from China to Australian farming has come through its production of herbicides and fertilisers.

China makes more than a third of the global production of glyphosate, the key active ingredient of Roundup, the most popular herbicide in the world.

Mr Xie said Chinese companies were involved in growing soybeans and vegetables in Russia and mushrooms in Canada. But the products were consumed by local markets rather than being shipped back to China - where inflation is bring driven by sharply rising food costs, up 21 per cent over the past year.

"There is a saying in Chinese: 'Don't transport grain further than a thousand miles.' It's not cost-efficient," he said.

But rapid urbanisation as well as desertification are reducing China's farmland - down by 40,700ha last year. China has 8per cent of the world's arable land and 20 per cent of its population.

One answer from Beijing is to encourage the consolidation of farming - shifting large numbers of the 700 million people still living in rural China, many of them underemployed, into the fast-growing cities. In 2025, China will have 221 cities with more than one million people living in each.

Businesses are starting to take over small farmers' mostly tiny leases, and consolidate them into more efficient, larger scale farms. Some of their product is being exported. Vegetable exports, for instance, are growing by 20 per cent a year, faster than local market growth.

But such businesses are wanting to expand faster than the slow process of consolidating domestic farmland permits. Thus, in part, the push to go offshore.

The Suntime Group is one of those emerging farming corporations. Suntime vice-president Zhang Xichen said the firm - which is operating in Cuba, Kazakhstan and Mexico - is "developing the rich water and soil resources in places like South America, Australia and Russia which can lower Chinese companies' production costs".

But his company's shares have since been designated for "special treatment" by the Shanghai stock exchange, which warns that private investors must be cautious about the stock.

Mr Xie said that as prices rose, offshore farming projects might become profitable. But so far, companies operating them were still struggling to repay their investments.

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