Dec. 3 (Bloomberg) -- Prime Minister Tony Abbott’s election pledge to turn Australia’s remote north into a food bowl for Asia has set him on a collision course with his own government over foreign ownership of agricultural land.
Local farmers and officials have warned Abbott’s vision for the sparsely populated region will fail unless he allows greater investment from countries such as China and Indonesia. The government’s decision last week to block a U.S.-led $2 billion purchase of crop handler GrainCorp Ltd. has put a cloud over Abbott’s vow after his Sept. 7 election win that Australia is “open for business.”
“Politics are getting in the way of common sense,” said Ian McBean, 82, who last month hosted a group of potential investors from Indonesia on his cattle property the size of Manhattan Island in the Northern Territory. “It’s not like the Indonesians or Chinese can chuck a rope around the land and drag it away.”
With Abbott’s popularity dipping early in his term, he may have to choose between his food bowl plan and a pledge to put land deals under closer scrutiny. Abbott faces pressure from his coalition partner, which has warned that ceding Australia’s farm land to foreigners will risk losing control of the country’s food supply.
The economic importance of Australia’s north, which now accounts for 76 percent of live cattle exports, is set to grow, with its gross value of production from industries such as agriculture, mining and tourism forecast to double from 2000 levels to A$35 billion ($32 billion) by 2030. Meeting that goal requires further investment in railways, ports, dams and irrigation in areas where it may not rain for half of the year, and flood at other times.
“If foreign investors are willing to take up the costs of establishing a northern food bowl, the government shouldn’t stand in their way,” said Saul Eslake, chief Australia economist at Bank of America Merrill Lynch in Melbourne. “There isn’t sufficient capital in Australia to undertake the sort of investment required, so if we don’t accept investment from overseas, it’s not going to happen.”
Abbott, 56, sowed doubts about his stance on foreign investment in July 2012 when he told a Beijing forum that investment from Australia’s biggest trading partner China was “complicated” by that country’s state-owned enterprises. During the election campaign this year he promised to lower the threshold for official review of land deals to A$15 million from the current A$244 million.
Lawmakers from the National party -- Abbott’s coalition partner -- lobbied against the sale of GrainCorp to Decatur, Illinois-based Archer-Daniels-Midland Co. Farmers in the south and east also opposed the deal that would have given ADM, the world’s largest corn processor, control of 280 storage sites and seven of the 10 ports that ship grain in bulk from the east coast.
Abbott’s new government has taken a hit in the opinion polls and trails the opposition Labor party 52 percent to 48 percent on a two-party preferred measure, according to a Fairfax Nielsen poll conducted Nov. 21-23. The poll had a margin of error of 2.6 percentage points.
While the government regards “foreign investment as vital for our future prosperity, it’s got to be the right foreign investment,” Abbott told reporters in Canberra today. “The problem with the ADM bid was that it would’ve given a very, very large overseas-based company a virtual monopoly over grain handling in the eastern states.”
Still, the focus on protecting supply may come at the cost of agricultural exports from northern areas. In the three decades to 2010-11, the value of Australia’s farm exports surged from A$8.2 billion to A$32.5 billion.
“It surely should be argued that developing a northern food bowl would be in the national interest,” said Jeremy Low, a Sydney-based partner at international commercial law firm Allens who advises Chinese investors.
Since winning office Abbott has had little to say on his food bowl plan, promising to produce a policy paper within 12 months of the election. A committee will study options including encouraging population growth -- 5 percent of Australians live in the area -- through tax benefits and moving government agencies to urban centers in the region.
“As a country we are extremely well placed to help meet surging demand in the Asia Pacific which will be driven by the extraordinary rate of growth in the region’s middle classes,” Trade Minister Andrew Robb, who is holding talks this week in Indonesia and Singapore, said in a Dec. 1 statement.
The GrainCorp decision was “highly unlikely” to deter foreign investment in northern Australia’s agriculture industry, Deputy Prime Minister and Nationals Leader Warren Truss said in a Nov. 29 e-mailed response to questions. “It’s a message that we want to test each of these foreign investment applications to make sure they are in our national interest.”
In the north, farmers such as Fritz Bolten say they need foreign money. Born in Germany 44 years ago before moving with his family at 11, his 2,000-hectare (4,942 acre) farm is near land being cleared for the second stage of the Ord River expansion project -- aimed at increasing the area under irrigation in the region.
The expansion project and Bolten’s farm lie on the fringes of Kununurra, a town of about 6,000 people near Lake Argyle, created by the construction in the 1960s and 1970s of the Ord River dam. The dam, Australia’s largest with a water capacity equivalent to more than 10 Sydney Harbours, supports farms that grow fruit such as mangoes and the world’s largest Indian sandalwood plantation.
China’s privately-held Shanghai Zhongfu Group was in May chosen by the Western Australian state government to spend A$700 million to lease and develop 13,400 hectares, doubling the area’s irrigated farmland. “These Chinese have a 50-year vision; it’s not about just producing profits at the next annual meeting,” said Bolten, whose farm has doubled in size the past year and recently produced a crop of Omega 3-rich “superfood” chia.
Stage two of the Ord project was held back by legal battles over indigenous land rights and a lack of capital, said Peter Johnson, development officer for the Department of Agriculture and Food for Western Australia, as efforts to develop crops such as cotton and rice failed.
“Describing the area as a future food bowl is the wrong way of thinking,” he said, as his Kununurra office air-conditioner kept the 42 degree Celsius (108 degree Fahrenheit) heat at bay. “It conjures up pictures of growing vast quantities of vegetables and shipping it off but this area has got commercial realities” such as freight costs. “The successes have been export niches, not staples.”
About 80 percent of mangoes and vegetables produced are for the domestic market, Johnson said. Those that do make it to Singapore and Hong Kong must first be trucked to the port of Fremantle, 3,200 kilometers (1,988 miles) to the south.
“We’re 800 kilometers from Darwin and 1,000 kilometers from Broome, and they are the nearest real towns,” said Peter Stubbs, project manager for the Ord River expansion project. “To ensure the right economies of scale to make this prosperous, we have to get a larger amount of land in production,” he said. “If we don’t get more foreign money this region will probably just stagnate.”
China was the ninth-largest overseas investor in Australian agriculture at the end of 2012 with 3 percent, compared with the U.S. with 24 percent and Japan with 10 percent, according to research published by KPMG LLP and the University of Sydney. Chinese companies owned less than 1 percent of Australian farmland, it said.
“China’s development has brought the opportunity of development to Australia and the cooperation between the two countries is in the interests of both sides,” China’s Foreign Ministry spokesman Hong Lei told reporters in Beijing yesterday. “We hope that the Australian side will further promote the liberalization and freedom of trade, so as to facilitate economic growth of both sides.”
Purchases by China’s state-owned companies are “questioned for the role it plays in national security, and unfortunately from then on the matter often gets political,” Ma Wenfeng, senior researcher at Beijing Orient Agribusiness Consultant Ltd., said by phone. “These deals are all commercially driven and buyers just want to take advantage of the valuation.”
Spike Dessert, a third-generation seed producer who migrated from southern California in 1972, said government regulations and wage costs from an elevated Australian dollar are other hurdles to Abbott’s plan. “Countries like Italy and Mexico can do it for a third of the price. Mexico pays workers $35 a day -- we’re paying $30 an hour,” Dessert said from his seed farm and rum distillery outside Kununurra.
The sale of land to Indonesia -- which takes more than 60 percent of Australia’s live cattle exports -- has also been complicated by claims officials tapped the phone of the country’s president. Indonesia said in September it would spend as much as 2 trillion rupiah ($169.9 million) on cattle properties and PT Japfa Comfeed Indonesia recently bought two Northern Territory farms.
“Australia has to be careful it doesn’t deter future foreign investment by sending out mixed signals to Asia through a confusing range of policies,” said Andrew Hughes, who conducts political-marketing research at Australian National University in Canberra.
On his property 220 kilometers southwest of Darwin, McBean says he wants to sell up and retire.
“If it hadn’t been for foreign investment in the Top End, the area would still be back in the 1800s,” he said in reference to Australia’s far north. “You can’t have the country lying idle and dormant -- that would be absolutely criminal.”
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