Commodities

David Fickling is a Bloomberg Gadfly columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.

Countries usually welcome foreign investment. Not when the country is Australia, and when the foreign investor is looking to buy farmland. 

Chinese investments in agriculture put ``the footprint of another nation's government" on the country, Australia's deputy prime minister Barnaby Joyce -- then an opposition Senator -- was quoted as saying in a 2012 newspaper article. The issue was ``about the future of sovereignty as we know it," according to his colleague Bill Heffernan.

Land Ho!
Australia has the world's third-largest area of farmland
Source: U.N. Food & Agriculture Organization

Chinese investments in farmland are being done ``for their food security at the expense of our food security," Jan Cameron -- founder of the outdoor clothing chain Kathmandu -- was quoted as saying by the Australian newspaper in January, after lobbying the government to block the sale of a Tasmanian dairy business. ``Once the Chinese buy this land, it will never be resold." 

These concerns are hard to comprehend. Australia's food security is guaranteed by the government's control of its territory, not by whose name is on the title deeds to farms. No rich country has ever gone hungry because its farm products were being exported rather than consumed at home . Even if an entire supply chain is owned by foreign investors, it will still be local workers operating the machinery and spending their wages with local businesses.

Give a Man a Fish
Value added per agricultural worker in selected countries
Source: World Bank
Note: Constant 2005 U.S. dollars. 2014 data for all countries except 2013 data for U.S., Japan, and New Zealand.

Australia's problem with Chinese farm investment isn't that there's too much of it -- it's that there's too little. China was approved to buy just A$32 million ($24 million) of Australian agricultural assets in the year through June 2014, less than 1 percent of the A$3.43 billion total, according to the country's Foreign Investment Review Board.

A Small Plot of Land
China accounts for less than 1 percent of Australia's inbound agriculture investment.
Source: Foreign Investment Review Board
Note: Figures are for approved investments in the year to June 2014. "Joint ventures" includes Australian-international ventures and other investments requiring foreign investment approval that are controlled by Australian entities

The nightmare scenario occasionally painted by Joyce, of a Chinese state making ``non-commercial" investments to feed its population at the expense of Australia's domestic priorities, is one the country should actually welcome. A foreign investor desperate to maximize the productivity of farmland will generate the biggest increase in foreign exchange for Australians to spend on things the country is less good at producing, such as smartphones and cars.

The bigger risk is that investments are made by businesses less hell-bent on raising output, that would manage farms badly and let good land go fallow. Australian farming, fishery and plantation businesses already have some of the poorest returns on invested capital in the world, although China does yet worse.

The Malthusian Trap
Return on invested capital of listed farm, fishery and plantation businesses, by region
Source: Bloomberg data

With the third-biggest area of agricultural land globally after China and the U.S., and a population smaller than that of Shanghai, Australia is missing a trick with its continued suspicion of foreign investment. It would do well to regard Asia's rising appetites as an opportunity, not a threat.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. Trade with China has generally been good for Kathmandu: 85 percent of its products were made there, according to its 2015 sustainability report.

  2. Developing countries are another matter: China's Great Leap Forward famine was in part due to Mao's attempt to raise funds for industrialization by exporting grains.

To contact the author of this story:
David Fickling in Sydney at dfickling@bloomberg.net

To contact the editor responsible for this story:
Paul Sillitoe at psillitoe@bloomberg.net