Aussie Cotton Yarn Stirs Investment Debate Over China (China)

The potential sale of giant Australian cotton farm, Cubbie Station, to a Chinese-led consortium has got local policymakers in a bit of a spin.

Treasurer Wayne Swan has rubber-stamped the joint proposal by Shandong RuYi Scientific & Technological Group Co. Ltd and Australian wool processor Lempriere Pty Ltd to buy the cotton estate with assets of 420 million Australian dollars (US$431 million) on the condition that Shandong cuts its 80% interest to no more than 51% within three years.

The deal would include a trio of properties astride a Murray-Darling tributary in southwest Queensland stretching over 93,000 hectares, as well as dams that can hold 539 billion liters of water – more than the entire volume of Sydney Harbor. The acquisition is valued at under A$300 million.

The deal would bring an end to a three-year-long yarn that started when Cubbie Group went into voluntary administration in 2009 with debts of A$320 million.　As part of the approval, Mr. Swan also requires that the Chinese bidder investigate the possibility of publicly listing the cotton producer as it reduces its stake and ensure its representation on the company’s board is proportional to its holding in the group.

“The proposal would bring an end to this long period of uncertainty, helping ensure the ongoing operation of Cubbie Group, protecting jobs and supporting economic activity in the Dirranbandi and St George,” said Mr. Swan in a statement last week.

“The Government welcomes foreign investment in Australia and continues to ensure that investments are consistent with Australia’s national interest,” he said.

Consortium spokesman William Lempriere said he expected the acquisition to be completed by the end of the year. A spokesman for administrator McGrath Nichol noted the conditions but said the sale process was ongoing.

The third food price — spike in four years has put investment in agriculture back on the menu. Already, governments and private companies in food-importing nations — particularly in the Middle East and Asia—have started buying up swathes of agricultural land in exporting countries like Australia in order to secure supplies for the future.

Some argue that the move encourages much-needed investment in agriculture in order to meet the 70% increase in production the United Nations forecasts the world will need to produce by 2050. Phillip Napier, KPMG’s Head of Agribusiness, said that “Australia’s development over the last 50 years has been built on foreign investment into many industries including manufacturing, mining and now agriculture,” and this will only increase in the future.

But others argue that such investment gives foreign governments control of vital assets at the expense of local farmers. Queensland Senator, Barnaby Joyce, said that the station constitutes a “strategic asset” for Australia’s cotton industry because of its size, and so should not be sold to an “opaque” foreign company like Shandong RuYi.

“You’ve now got the holder of the biggest water license in Australia and the largest irrigated land holding in the Southern Hemisphere in foreign hands,” said Mr. Joyce. “If we broke it down we could keep it in the hands of Australian farmers.”

Australia already exports around 75% of its cotton crop to China, as well as some of the side products of production like cooking oils. Adam Kay, chief executive of Cotton Australia forecasts that farmers will produce around 4 million bales from the crop that will be planted in the coming weeks, down from a record 5 million bales last year, as prices have eased in response to lower global demand.

He declined to comment on the deal, but said that Australia’s agriculture industry needs to establish a federal register of international land holdings “so we can have a more sensible discussion about foreign investment.”