Xcheque | 1 October 2012
by Kai Tanter
The biggest headline in Australian dairy news this week has been the possibility of China’s sovereign wealth fund, China Investment Corp, investing in the Van Diemen’s Land Company. The Van Diemen's Land Company, which operates in the Australian state of Tasmania, is looking for AU$180 million in order to expand its operations. The Tasmanian government and dairy industry have both been courting Chinese investors and seem to have met with some success.
This news follows hot on the heels of recent Chinese investment in Australia’s largest cotton farm, the Queensland Cubbie Station. Meanwhile in New Zealand, the dust has only just settled after the Crafar Farms were finally sold to China’s Shanghai Pengxin.
These large scale investments in agriculture have sparked considerable debate on both sides of the Tasman. The question now is whether this latest case is just a ‘business as usual’ sale or should we be asking if it is in the national interest.
What’s the problem
Foreign investment can be a sensitive topic full stop. Plenty of people want to see ownership and control of their industries staying at home, especially in agriculture. Food security is an important issue, and one that’s only becoming more so with the number of mouths to feed across the globe growing rapidly each year (see a previous blog What is this thing called Food Security for a discussion of the issue.).
For a whole variety of reasons Chinese foreign investment is an even stickier issue. In some cases it’s just pure xenophobia - ‘you’re different from us’ - which some of the Kiwi reactions to the Crafar Farms sales surely were. There are however other objections that, even if incorrect, need to be taken more seriously.
Many Chinese companies are state owned and surrounding this is the worry that they won’t behave in the same way as a private company, foreign or domestic. Rather than pursuing purely commercial interests, government policy and objectives could directly influence the company’s behaviour. This may be all well and good if their interests gel with ours but it’s a big problem if they run contrary to our national interests.
In this particular case it’s China’s sovereign wealth fund, China Investment Corp (CIC), which would be doing the investing. Sovereign wealth funds are state owned bodies designed to invest the nation’s savings. E.g. The Norwegian Pension Fund invests money from their petroleum industry and uses the proceeds to support their state pension scheme.
Given that CIC is directly owned by the Chinese government it’s likely to get even more alarm bells ringing. At face value CIC is unlikely to implicitly pursue Chinese government policy objectives other than making money. CIC says that it ”usually does not take a controlling role - or seek to influence operations - in the companies in which it invests.'' They also claim that decisions are based on a purely financial basis. This however is unlikely to convince the sceptics, especially if they see China as a competitor with different interests.
The arguments
Current legislation requires that proposed foreign investments in Australia above a certain threshold (around 15 per cent of voting power) have to be approved by the Treasury. Essentially a national interest test to see whether whether or not it will be beneficial to Australia. People are now beginning to fight over which one it is.
All of the arguments for the sale essential boil down to one point - ‘We need capital!’. Unlike other states, Tasmanian dairy is growing and it needs money to fund further expansion. If the money can’t be found at home then they’ll have to look abroad or face industry stagnation. This line of thought is wholly committed to the idea that growth is good or at least the natural order of things.
This is a familiar economic situation for Australia. Historically we have been, and still are, a resource rich but capital poor nation. Supporters of foreign investment say that in order to grow we need others to invest their money in developing our natural resources. We have what they want and vice versa - an arrangement that leaves both parties better off.
Dairy Tasmania summed up this position nicely when their executive officer, Mark Smith said:
“We think there are significant growth opportunities here in Tasmania and that growth won’t happen without outside investment.’’
In contrast those opposed often see the investor as getting an unfairly bigger share of the pie. If the enterprise is owned by capital then they’ll accrue most of the benefits, causing profits to drain out of the country. Dairy Tasmania seem relatively unfazed by this view.
“The bottom line is that dairy farming activity has a significant local and regional benefit here, even if it is overseas-owned. We shouldn’t shy away from having an appropriate level of overseas investment here,” said executive officer Mark Smith.
Another kind of objection has been voiced by Greens’ leader Christine Milne. Milne is concerned that selling farmland to foreign investors prevents domestic farmers from buying new land. Global food prices are expected to increase over time, pushing up the value of agricultural land with them. She fears that selling now might come back to bite us in the future.
"We want to make sure that vertical integration from the farm, to the processor to the Chinese consumer does not constitute "out sourcing" and distort markets for land and dairy products." said Milne.
Whatever the worth of Milne’s criticisms, they seem less relevant to this particular case. Perhaps we should be concerned about selling off too much agricultural land to foreign interests. However the Van Diemen’s Land Company is already foreign owned, and by a foreign government body no less - the New Plymouth District Council from just over the Tasman. To object to CIC’s bid you have to either argue that it should be brought back into Australian ownership, or that New Zealand investors are fine - are they really foreign? - but that Chinese owners are objectionable.
The bigger picture
This takes us full circle to the ‘there’s something about China’ question, which I want to avoid. The debate around whether the sale should go ahead is complicated and it’s our job to help you think, not to do it for you. That said, there are some broader issues about foreign investment that don’t seem to get talked about enough.
You see, Australians and Kiwis love foreign investment, despite their apparent hostility to Chinese buyers. Europeans and Americans are the same. We’re all big fans of investing in other countries and overseas expansion is the goal of most western dairy industries.
Foreign investment gets a big thumbs up but only when we’re the ones doing the investing. Fonterra, Arla and friends are gung ho about expanding into China and the rest of southeast asia. Many in British dairy would like to be, and Murray Goulburn recently told the Australian government to ‘get off its bum’ and aid the domestic dairy industry in getting a piece of the action.
Whether or not you’re in favour of CIC buying into the Van Diemen’s Land Company, or foreign investment in agriculture more generally, it cuts both ways. “They” will be having just the same debate as “us”. In fact “they” already are. There are currently Chinese concerns that foreign dairy brands are crowding out locals. Similarly, Indonesian dairy industry reps have criticised a Fonterra investment because it “will not benefit local farmers". Non-western countries may need western knowledge and capital now but it won’t stay this way forever. Like us, they’ll be thinking about their national interests.
by Kai Tanter
The biggest headline in Australian dairy news this week has been the possibility of China’s sovereign wealth fund, China Investment Corp, investing in the Van Diemen’s Land Company. The Van Diemen's Land Company, which operates in the Australian state of Tasmania, is looking for AU$180 million in order to expand its operations. The Tasmanian government and dairy industry have both been courting Chinese investors and seem to have met with some success.
This news follows hot on the heels of recent Chinese investment in Australia’s largest cotton farm, the Queensland Cubbie Station. Meanwhile in New Zealand, the dust has only just settled after the Crafar Farms were finally sold to China’s Shanghai Pengxin.
These large scale investments in agriculture have sparked considerable debate on both sides of the Tasman. The question now is whether this latest case is just a ‘business as usual’ sale or should we be asking if it is in the national interest.
What’s the problem
Foreign investment can be a sensitive topic full stop. Plenty of people want to see ownership and control of their industries staying at home, especially in agriculture. Food security is an important issue, and one that’s only becoming more so with the number of mouths to feed across the globe growing rapidly each year (see a previous blog What is this thing called Food Security for a discussion of the issue.).
For a whole variety of reasons Chinese foreign investment is an even stickier issue. In some cases it’s just pure xenophobia - ‘you’re different from us’ - which some of the Kiwi reactions to the Crafar Farms sales surely were. There are however other objections that, even if incorrect, need to be taken more seriously.
Many Chinese companies are state owned and surrounding this is the worry that they won’t behave in the same way as a private company, foreign or domestic. Rather than pursuing purely commercial interests, government policy and objectives could directly influence the company’s behaviour. This may be all well and good if their interests gel with ours but it’s a big problem if they run contrary to our national interests.
In this particular case it’s China’s sovereign wealth fund, China Investment Corp (CIC), which would be doing the investing. Sovereign wealth funds are state owned bodies designed to invest the nation’s savings. E.g. The Norwegian Pension Fund invests money from their petroleum industry and uses the proceeds to support their state pension scheme.
Given that CIC is directly owned by the Chinese government it’s likely to get even more alarm bells ringing. At face value CIC is unlikely to implicitly pursue Chinese government policy objectives other than making money. CIC says that it ”usually does not take a controlling role - or seek to influence operations - in the companies in which it invests.'' They also claim that decisions are based on a purely financial basis. This however is unlikely to convince the sceptics, especially if they see China as a competitor with different interests.
The arguments
Current legislation requires that proposed foreign investments in Australia above a certain threshold (around 15 per cent of voting power) have to be approved by the Treasury. Essentially a national interest test to see whether whether or not it will be beneficial to Australia. People are now beginning to fight over which one it is.
All of the arguments for the sale essential boil down to one point - ‘We need capital!’. Unlike other states, Tasmanian dairy is growing and it needs money to fund further expansion. If the money can’t be found at home then they’ll have to look abroad or face industry stagnation. This line of thought is wholly committed to the idea that growth is good or at least the natural order of things.
This is a familiar economic situation for Australia. Historically we have been, and still are, a resource rich but capital poor nation. Supporters of foreign investment say that in order to grow we need others to invest their money in developing our natural resources. We have what they want and vice versa - an arrangement that leaves both parties better off.
Dairy Tasmania summed up this position nicely when their executive officer, Mark Smith said:
“We think there are significant growth opportunities here in Tasmania and that growth won’t happen without outside investment.’’
In contrast those opposed often see the investor as getting an unfairly bigger share of the pie. If the enterprise is owned by capital then they’ll accrue most of the benefits, causing profits to drain out of the country. Dairy Tasmania seem relatively unfazed by this view.
“The bottom line is that dairy farming activity has a significant local and regional benefit here, even if it is overseas-owned. We shouldn’t shy away from having an appropriate level of overseas investment here,” said executive officer Mark Smith.
Another kind of objection has been voiced by Greens’ leader Christine Milne. Milne is concerned that selling farmland to foreign investors prevents domestic farmers from buying new land. Global food prices are expected to increase over time, pushing up the value of agricultural land with them. She fears that selling now might come back to bite us in the future.
"We want to make sure that vertical integration from the farm, to the processor to the Chinese consumer does not constitute "out sourcing" and distort markets for land and dairy products." said Milne.
Whatever the worth of Milne’s criticisms, they seem less relevant to this particular case. Perhaps we should be concerned about selling off too much agricultural land to foreign interests. However the Van Diemen’s Land Company is already foreign owned, and by a foreign government body no less - the New Plymouth District Council from just over the Tasman. To object to CIC’s bid you have to either argue that it should be brought back into Australian ownership, or that New Zealand investors are fine - are they really foreign? - but that Chinese owners are objectionable.
The bigger picture
This takes us full circle to the ‘there’s something about China’ question, which I want to avoid. The debate around whether the sale should go ahead is complicated and it’s our job to help you think, not to do it for you. That said, there are some broader issues about foreign investment that don’t seem to get talked about enough.
You see, Australians and Kiwis love foreign investment, despite their apparent hostility to Chinese buyers. Europeans and Americans are the same. We’re all big fans of investing in other countries and overseas expansion is the goal of most western dairy industries.
Foreign investment gets a big thumbs up but only when we’re the ones doing the investing. Fonterra, Arla and friends are gung ho about expanding into China and the rest of southeast asia. Many in British dairy would like to be, and Murray Goulburn recently told the Australian government to ‘get off its bum’ and aid the domestic dairy industry in getting a piece of the action.
Whether or not you’re in favour of CIC buying into the Van Diemen’s Land Company, or foreign investment in agriculture more generally, it cuts both ways. “They” will be having just the same debate as “us”. In fact “they” already are. There are currently Chinese concerns that foreign dairy brands are crowding out locals. Similarly, Indonesian dairy industry reps have criticised a Fonterra investment because it “will not benefit local farmers". Non-western countries may need western knowledge and capital now but it won’t stay this way forever. Like us, they’ll be thinking about their national interests.
