The ruckus over the sale of Van Diemen’s Land dairy in Tasmania earlier this week once again raised the issue dogging Australian agribusiness – is investment policy in this capital-hungry sector being driven by xenophobia or sound economics?
It’s not always easy to tell the difference.
The government’s approval of the $280 million sale of the VDL dairy has been attacked by Tasmanian independent Andrew Wilkie, South Australian Senator Nick Xenophon, and by competing bidder Jan Cameron – the businesswoman behind the Kathmandu retail chain.
These critics have been at pains to stress that their opposition to the deal is not because the buyer is Chinese – millionaire Lu Xianfeng, whose Australian company Moon Lake Investments was incorporated last October.
Instead, they rely on essentially one objection: because the 190-year-old, 20,000 hectare property is ‘iconic’, it should finally come into Australian ownership. It was previously owned by New Zealand interests.
They also put forward economic arguments, but nothing that holds much water – more on that below.
When is ‘xenophobia’ justified?
Telling voters that a deal is wrong, but that it’s not because it’s a Chinese buyer, has one effect – to draw attention to the fact that it’s a Chinese buyer. But is that fair?
Some fears over foreign investment are justified, particularly when the investor is a government-sponsored enterprise (GSE) – and China is brimming with corporations that fit that description.
The world is headed towards a population of nine billion people, and growing demand for food up and down the ‘protein curve’ is expected to make food security a real issue for many nations.
The fear over GSEs is that, being government backed, that can operate outside of market-determined prices – that is, they can sell produce into their home markets at a loss, leaving supply shortages and therefore higher prices here.
There is no suggestion that Moon Lake Investments has such government links, and the Foreign Investment Review Board has fully approved its takeover of VDL.
So although some fears over Chinese investment are justified, in this case all the evidence says they are not.
The economic case
Australia has long been a large importer of capital. That reflects the fact that with just 24 million people, we can’t save enough for ‘capital formation’ to keep up with the potential riches we can unlock using money from abroad.
This is as true in agribusiness as elsewhere. A business such as VDL can, with a certain amount of capital, export low value-added commodities. By investing more capital, it can transform those commodities into higher value products.
Ms Cameron, who was outbid for VDL by around $30 million, focused on this aspect of the deal, telling Radio 3AW: “There’s virtually no plans to add value to the product so it will be shipped to China in the form of milk powder. So there’s not a lot of economic gain in this situation for Australia.”
But does this have anything to do with economics? If Ms Cameron sees a chance to invest more and export a higher value-added product – let’s say fine cheese for the sake of argument – wouldn’t Moon Lake Investments see it the same way?
If it was a GSE, or if it was influenced by the Chinese government some other way to run at a loss, then Australians would have cause to fret. But with the FIRB giving Moon Lake the green light, officially there is no evidence for circling back to the ‘legitimate xenophobia’ argument, if we can call it that.
The political argument
And then, of course, there is domestic politics. Opposition agriculture spokesman Joel Fitzgibbon has no problem with the VDL deal, but says while the government got this call right, that’s a bit of luck for VDL.
“They send one signal on this, and another or Graincorp or the Kidman station sale,” he told The New Daily.
The sale of the Kidman station – a station the size of the Czech Republic – is not yet settled, though Chinese buyers are leading that bid.
But bulk grain handler Graincorp, which was pursued by US firm Archer Daniels Midland in 2013, was chased away by the Abbott government for what the chairman of FIRB later admitted were political reasons.
More consistency on foreign investment would be far more attractive to foreign investors, just as greater consistency would help in identifying when a Chinese buyer is a real threat to agribusiness markets, and when it’s simply doing business.
Any government that knowingly makes the wrong calls to win a few vote, will at the same time be losing more than a few jobs.