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Selling vast tracts of Australia's farmland to foreigners is not in our national interest

By Brendan O'Reilly - posted Monday, 18 January 2016


Both sides of politics publicly support the paradigm that foreign investment in Australian farmland is beneficial, and should remain largely unregulated. Senator Chris Black (Liberal, WA) in November 2015 summarised this view, stating that foreign investment provides additional capital and access to new technologies, as well as growing local agribusiness skills. "The level of foreign investment in agricultural land is pitifully small and in my opinion, it can be greater.... Chinese investment is about 0.5 of ONE per cent of foreign investment in agricultural land".

This view greatly exaggerates the extent to which foreign land-buyers actually introduce new technology and skills. Proponents also have their heads in the sand, pretending that recent farmland sales, mostly to Asian buyers (especially Chinese), are not really significant. The Appendix (listing recent prominent sales to foreigners) dispels this myth.

Official Government data for June 2014 indicates that 12 per cent of Australia's agricultural land (about 50 million hectares, an increase of 4.7 million hectares since 2010) featured some level of foreign ownership. It is obvious (given recent and continuing buying) that by mid 2016 the percentage of Australian farmland subject to foreign ownership could easily reach 15 per cent. In the absence of policy changes or a major financial crisis in China, Australia could even reach 20 per cent foreign ownership within a decade, with China looking likely to take-on the mantel of biggest foreign owner of our farmland.

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Most Australians don't have an issue with foreign land ownership at a low level (say 5 per cent). People do get concerned when it is a lot more, especially when most countries (including the countries doing the buying) don't allow foreigners buy their land.

A feature of Australia is that we have just about the cheapest farmland in the world, even when the lower average productivity of our land is taken into account. The low price reflects Australia's low population density and historic barriers to our agricultural exports. Other contributors included Britain's entry to the EU in the mid-1970s, the collapse of wool prices in the 1990s, and disruptions to our live cattle trade with Indonesia earlier this decade.

Our Top End land market deserves special mention.

It wasn't that long ago that our northern stations were seen as good for nothing, except producing skinny Shorthorn cattle suitable only for making tinned bully beef or manufacturing meat. The introduction of tropical breeds like the Brahman and the advent of live exports were game-changers. The result was a boom in top end land values that peaked around 2007-8, but even at the end of that boom, northern land was still extraordinarily cheap. Land valuers estimate that at that time the cost per (450kg Adult Equivalent) beast area in the Territory was only $1100-$2300 (varying with land type and location), whereas in southern states it was more like $4000-$5000.

The big constraint on our northern beef industry (aside from distance and inability to move stock during the wet) is dependence one main export destination - Indonesia. The industry took a knock around 2008 from the global financial crisis. Confidence was recovering until it was smashed in 2011, when the Australian Government banned live exports to Indonesia. While the ban was eventually lifted, exports were subsequently hit by reduced import quotas imposed by Indonesia in retaliation. One producer estimated that this disruption cost producers about $300 for each beast that was unable to gain access to live export.

Many people who purchased during the peak of 2006-07 were forced into receivership and property prices plummeted. In 2012 around the bottom of the market it was said that "you can pick up a (northern) cattle station for literally nothing more than the cattle grazing on it". The veracity of this comment is clearly evident (for example) from the sale price of Riveren and Inverway stations, sold in 2013for a price reported to be about $30 million, including 40,000 head of cattle (to Indonesia'sSantori Group). This equated to a modest $750 a head for the livestock, with the land and improvements thrown in for nothing! The extent of the bargain can be gauged from the fact that the market price for a 330 kg young steer is now about $1300. The Australian and (to a lesser extent) Indonesian Governments were the culprits yet the Australian Government paid out only a pittance in compensation to those affected.

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Recovery in cattle prices due to a resurgent trade with Indonesia and expanded markets in Vietnam and the Philippines (as well as emerging Chinese interest) led to a renewal of confidence. It is expected that northern land values could be back to 2007 levels by the end of 2016. Cattle prices in northern Australia reached around 340c/kg live weight (about 650 cents carcase weight) in late 2015, compared with 165c/kg live weight during the worst of the live export crisis.

In terms of benefits, some foreign investors do have the capacity to introduce new technology or skills. Only a minority of foreign buyers (mainly North American and European), however, have contributed much in this area. China has an appalling food safety record in its dairy industry and until recently more than 80 percent of China's dairy farms raised fewer than five cows. China (in common with other Asian buyers of beef country) has almost no experience in running beef-cattle under our conditions. Instead, Australia leads the world in the management of extensive grazing, especially in semi-arid areas, and is highly regarded for most aspects of its agriculture. This is why (in most cases) Asian buyers of Australian farmland continue to use local management.

The main benefit to Australia of selling farmland to foreigners is the contribution of capital on the part of buyers. In respect of purchases of Northern cattle country, the evidence suggests that Asian interest lies mainly in opportunity-buying the land and continuing live export, but in a more vertically integrated format. In other sectors there are clear signs that many Chinese buyers also have an interest in processing, particularly for dairy and (southern) beef.

The main arguments against allowing large scale foreign buy-ups of our farming land relate to national sovereignty (our independence is somewhat nominal, if foreigners own much of our country) and to a belief that the accelerating sell-off is poorly timed in terms of the dive in our dollar and the opening of new markets (especially in China). The price Australian sellers are receiving for land also seems poor relative to what we might have to pay to buy the land back in the future (if indeed the new owners were prepared to sell). There is a question of possible insider trading, if foreign investors are privy to non-public information (e.g. related to future demand or market access) from their home country. Vertical integration by foreign food companies also brings risks of transfer pricing and market manipulation.

While foreign landowners are still subject to Australian laws, in reality Australian authorities already have only limited knowledge or control over what actually happens on very large remote properties, even when they are locally-owned. The opportunity for monitoring or policing foreign-owned stations, especially if they are managed or staffed by non-nationals, is even less. This clearly creates some vulnerability in strategic or defence terms. Thus there is an inconsistency in Australia spending about $32 billion annually on defence, while at the same time selling off vast expanses of our largely empty north for a relative pittance.

By way of example, a senior Chinese Communist Party member is reportedly behind the purchase of the NT's Wollogorang Station and several other large northern properties. While I would emphasise that there is no evidence that anything untoward is being contemplated, it is notable that in the past Wollogorang (due to its size, isolation and sea frontage) was notorious as a site for marijuana growing and drug smuggling. Thus it would be easy in its vast expanse to hide activities contrary to our defence interests

If you add up all the major purchases of Australian farmland over the last year, the billion and a bit dollars involved is not much more than the Victorian Government (both sides of politics) squandered on the now-cancelled East-West Link or the Turnbull Government plans to spend on the PM's pet $1 billion Innovation Package (another likely waste of money). Worse still it is most unlikely that foreign buyers will sell these lands back easily or cheaply. China's plan, in part, is to gain control of its food chain to ensure long term supply. A forced future buy back would be both expensive and probably create a diplomatic incident with our biggest trading partner.

A parallel to the recent and continuing buy-up of Australian land by foreign companies can be found in the mass purchase of Eastern European farmland that occurred prior to the eastward expansion of the EU zone around a decade ago. According to an EU report, the relatively low price of land in the new Eastern European member states compared to prices in existing EU member countries (as well as land reform processes in the former socialist countries) provided a major incentive for investors to acquire cheap farmland in these countries. In Romania, up to 10 per cent of agricultural land is now in the hands of investors from outside the EU, with a further 20-30 per cent controlled by investors from EU countries.

Foreign investment in Australian farmland should only be supported, where it passes a rigorous national interest test. Where purchases are accompanied by major additions to infrastructure or to employment, or where introductions of expertise (not otherwise available) come about, a strong case for approval exists. On the other hand, if none of these benefits are likely, then foreign ownership seems undesirable.

Appendix: Summary of Significant Recent Land Sales to Foreign Interests

Currently there is controversy over the attempted sale to Chinese interests for about $350 million of Australia's biggest private landholder (S. Kidman and Co), whose holdings cover 11 million hectares or 2.5 per cent of our agricultural land. The sale has been (only temporarily?) blocked, mainly due to proximity of one station to defence facilities at Woomera. Insiders expect a deal of some sort to be eventually approved, probably excluding Anna Creek Station bounding Woomera.

Some of Australia's largest landowners already feature substantial foreign ownership. UK private equity firm Terra Firma bought the Consolidated Pastoral Company (which operates 20 cattle stations over 5.8m hectares) from James Packer in 2009 for about $450 million. Bahamas-based investor Joe Lewis controls about 30 per cent of AACO, Australia's largest beef producer (holding around 7 million hectares), while other overseas investors own substantial minority shareholdings.

Chinese investors have been buying Australian beef properties at a rate of about one major station a fortnight during much of the past year. The bigger purchases have included the 705,700 hectare Gulf stations Wollogorang and Wentworth for $47 million, the 205,000ha Douglas Daly flood plain property Elizabeth Downs for $11.5 million, the 294,000-hectare Singleton Station north of Alice Springs for about $10 million, the 35,000-hectare Hollymount Station and neighbouring 15,000-heactare station Mount Driven in SW Queensland for about for about $42 million, the 30,868 hectare Glenrock Station in the NSW Hunter Valley for $45 million, and the 31,000-hectare Woodlands near St George, Queensland for $28 million. In October Shandong Delisi announced an outlay $140 million to buy 45 per cent of large-scale abattoir operator Bindaree Beef.

Chinese companies have also acquired a lot of dairy country, and Chinese miners (in common with their Indian counterparts) have bought extensive farmlands surrounding their coal-mining interests (e.g. in the Gunnedah district of NSW).

Chinese owned Moon Lake Investments in November announced the purchase from New Zealand interests of Australia's largest dairy farmer, Van Diemen's Land Company. The sale (for $280 million) includes the iconic 16,800 ha Woolnorth dairy farm (Tasmania's largest property).

In western Victoria, about 50 dairy farmers between Colac and Mount Gambier (running 90,000 cows) have signed individual option deals to sell their farms, worth a collective $400 million, to a ­Chinese-dominated dairy conglomerate. Also in Victoria, the Chinese Ningbo Dairy in September bought several dairy farms in Kernot, South Gippsland, and plans to build a feedlot and a $20 million milk-processing plant to export fresh milk.

Another Chinese company, New Hope Dairy Holdings, has set up a joint venture in NSW with the aim of exporting fresh milk to China. The consortium is absorbing the farms of its partners, Leppington Pastoral Company and Moxey Farms (with the latter purchase alone worth a reported $100 million).

Chinese investors have also bought into cotton and irrigation. In 2012 Shandong Ruyi bought Australia's largest cotton irrigator Cubbie Station for $232 million, while in 2014 Shanghai-based Orient Agriculture bought the cotton farm Undabri, near Goondiwindi, for $30 million. Meanwhile, Shanghai Zhongfu in 2012 won the right to lease and develop the second stage of the Ord ­irrigation project, with 13,400 ha of land under its control, and projected investment of $700 million.

It has also been reported that the Chinese Government owned Beijing Agricultural Investment Fund has committed to spending $3 billion on Australian agricultural assets, while innumerable private companies in China are also said to be planning to buy.

In addition to the Chinese, in late 2013 and 2014 Indonesian companies went on a buying spree. Indonesia's biggest importer of Austra­lian live cattle, Santori, bought Victoria River district properties Riveren and Inverway stations for about $30 million. The properties cover 5500 square kilometres (the same area approximately as Bali) and came stocked with 40,000 head of cattle. Great Giant Livestock Co bought the 170,000 hectare Willeroo south-west of Katherine for $15.1 million, including 17,000 head of cattle, while another Indonesian company bought Edith Springs near Katherine for $4 million.

Filipino businessman Romeo Roxas in November 2015 bought 560,000-hectare Murray Downs station and the 265,000-hectare Epenarra Station in the NT for $20 million. Mr Roxas already has substantial land holdings of some 60,000 hectares in the Cobar region of New South Wales.

All this followed the forced sell-off of much of Australia's privately-owned forestry plantations. North American and other investors in 2011 bought the timberland assets of Great Southern Plantations (over 2,500 square kilometres of prime plantation forestry across six Australian states) for AU$415 million following the MIS debacle . In 2014 the forestry assets (over 200,000ha) of insolvent Tasmanian timber company Gunns Ltd were sold off for $330 million.

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About the Author

Brendan O’Reilly is a retired commonwealth public servant with a background in economics and accounting. He is currently pursuing private business interests.

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