"Overseas investors are too dumb to realise that they are not going to make money out of Australia agriculture," said David Leyonhjelm, an Australia-based agriculture consultant at Baron Strategic Services.He may have a point. Australian farms' return on capital has seldom exceeded more than 2 percent in a year on average during the past decade, excluding changes in land values, according to government research bureau ABARES. That is less than half the return on stocks and less than a third compared with bonds, figures from Russell Investments suggest. Although farm returns are volatile anyway - owing to the vagaries of the weather - the unpredictability of Australian earnings is much greater than in the United States. In the past 30 years, Australia's net farm income has experienced annual drops of more than 40 percent on five occasions compared to just once in the United States, data from ABARES and the U.S. Department of Agriculture shows. Including capital appreciation, Australian farm returns have been outstripped by Africa and Brazil. Australian farm debt has risen some 8 percent a year since 2001, almost double the pace of U.S. farm debt. Even when it comes to the weather, Australia seems worse off. It has the lowest and most variable rainfall patterns of any inhabited continent, due largely to the El Nino-Southern Oscillation climate pattern that periodically bakes much of the country in hot, dry weather and intersperses it with flooding rains. "In recent history, Australia has seen more volatility in agricultural farm output than other major agricultural producers," said Michael Creed, agribusiness economist at National Australia Bank. "In the past 20 years alone, we've had a drought that lasted a decade and when the drought broke, it broke in massive way." Despite the weak and volatile returns, the explosion of the middle classes in Asia is attracting more offshore investors looking beyond immediate returns to an expected long-term surge in demand for high-quality food. The UN Food and Agriculture Organisation says the world needs to boost food output by 70 percent by 2050 to meet demand, a sobering statistic for highly populated countries such as China, where a major tenet of the Communist Party is guaranteeing food security for its 1.3 billion people. Chinese investors have been involved in a number of high-profile farm deals, including the purchase of the country's biggest cotton farm, the 1,000 sq km (390 sq miles) Cubbie Station. Chinese entities are also in the running for a large dairy operation in Tasmania and a big irrigation project in Western Australia. U.S. firm Archer Daniels Midland (ADM.N) last month made a $2.8 billion bid for Australia's last major independent grain handling company, GrainCorp (GNC.AX), spurring a 40 percent jump in its share price. Australia lacks comprehensive data on foreign ownership but the government says the vast majority of farms are locally owned and that has not changed much over the past 30 years. But spurred by a number of high-profile foreign deals, the issue has become politically sensitive as the sector struggles to attract much-needed investment at home. Despite local skepticism at the prospects for Australia's farming sector, the increase in offshore interest comes at a time when returns have seldom been better and adds to other evidence suggesting the foreign investment may not be mistimed after all. Helped by generous rains and strong global prices, Australian farmers may have enjoyed the best year in decades in 2011/12. "For the first time in more than 30 years, all states and all industries are expected to record positive farm business profits and rates of return," ABARES said in its 2011/12 annual crop and livestock farm performance report. Average farm cash income jumped to A$117,3000 in 2010/11 from just A$59,470 the previous year, it said. This year is forecast to remain a strong A$116,000 - almost 40 percent above its real, long-term average. GrainCorp, the target of Archer Daniels, last week posted a record profit of A$205 million, boosted by a bumper crop. It said the takeover bid failed to reflect the promise of the business. Some analysts say a global rush for agricultural land is just beginning, driven by increasing concerns over long-term food and water security. With the availability of suitable farmland shrinking and productivity gains slowing when populations are growing and diets changing, supply/demand dynamics are likely to be favorable over the next 40 years, an ANZ report says. Another study, by real estate company Savills (SVS.L), identifies Australia as having some of the lowest land costs for wheat production in the world and highlights the appreciation in farmland values since 2002. Shandong Ruyi Group, which bought Cubbie Station, is taking the long view, company adviser Ian Smith said. "They are not dictated by the short term and they also have a proud track record of maximizing the assets over the longer term," he said. Underscoring the gap between the short and the long view, Laguna Bay Pastoral Co, an agricultural investment fund advised by U.S. commodities trader Jim Rogers, was forced to seek investors offshore because of a lack of interest in Australia. "We were presented to most local funds. Most Australian local pension funds don't have agriculture assets allocation," Laguna founder Tim McGavin told Reuters. "We have been forced to market to overseas just because the general lack of understanding and interest in agriculture." Laguna secured its main seed funding from U.S.-based Global Endowment Management, and now aims to buy and privatize PrimeAg Australia Ltd (PAG.AX), an investor in rural property and water assets. Australia's vast pension funds industry, sitting on $1.4 trillion and looking for long-term diversified assets, has largely shied away from the sector. Even The Future Fund, Australia's $80 billion sovereign wealth fund, has no direct exposure to the country's agricultural sector. Still, Pauline Vamos, the chief executive of the Association of Superannuation Funds of Australia, said interest in farm assets is picking up after some ill-conceived and poorly managed project had put off local investors. "You've had cotton farms built in the middle of the desert, you've had timber plantations built miles from any infrastructure - these schemes were never going to make any money," she said. (Additional reporting and writing by Lincoln Feast; Editing by Neil Fullick) ======================= Dec. 9, 2012 7:22 PM ET China's money changes the landscape in Australia By ROD McGUIRK, Associated Press AIM Share More News Video APNewsBreak: Antigua to seek sanctions against US Dec. 9, 20121:58 PM ET APNewsBreak: Antigua pursues sanctions against US Dec. 9, 20121:20 PM ET Booze, smokes on agenda for quirky gov't group Dec. 8, 201210:28 AM ET Russian trade, human rights bill heads to Obama Dec. 6, 20122:30 PM ET Mongolia finds China can be too close for comfort Dec. 6, 201212:01 AM ET Advertisement Advertisement Buy AP Photo Reprints GUNNEDAH, Australia (AP) — Tony Clift's family has plowed the rich black soil of Australia's Liverpool Plains for six generations. The thought of selling never crossed his mind — until a Chinese company came to town. Shenhua Watermark Coal offered to buy farms at unheard-of prices. The decision wasn't easy, Clift says. His pioneer ancestors settled the land in 1832. But farming is a business nowadays, and selling his 6,500 acres (2,600 hectares) made business sense. "If someone offers you a whole heap of money, you've got to take it," says the 50-year-old father of two, sitting at the kitchen table of the palatial hilltop home he built with the windfall. A sea of yellow stretches out below, canola fields planted on less fertile land he bought 25 miles (40 kilometers) to the north. ___ EDITOR'S NOTE — This story is part of "China's Reach," a project tracking China's influence on its trading partners over three decades and exploring how it is changing business, politics and daily life. Keep up with AP's reporting on China's Reach, and join the conversation about it, using (hash)APChinaReach on Twitter. ___ Soaring coal prices fueled by China's economic growth have made mining parts of the Australian landscape far more lucrative than farming it. It's one example of how China's emergence as a global trading power may transform countries in ways never contemplated and not yet fully understood. The Associated Press analyzed China's trade with other countries as a percentage of their gross domestic product, using an International Monetary Fund database. It found that, on average, trade with China had climbed to 12.4 percent of GDP by 2011. By comparison, the peak reached with the U.S. in the past 30 years was 10 percent in 2001. In Australia, where trade with China hit 7.7 percent of GDP last year, exports of coal and iron ore have helped Australia fend off recession for 21 years and deliver the largest trade surpluses in 140 years of record-keeping. China's rapid rise has given Australia its strongest terms of trade since a global wool boom in the 1950s, says economist Peter Robertson at the University of Western Australia. "That boom was fairly short-lived," he wrote in an email response to questions. "This one's length is unknown. It may turn out much bigger depending on China's future growth." The former British colony's relationship with China is deepening in other ways too: — More than 29,000 Chinese became permanent residents in the year ending June 30, 2011, for the first time eclipsing the United Kingdom, the traditional source of migrants. While India topped China in the next 12-month period, that appears to have been a blip. — China accounted for nearly two-thirds of the 10,407 business visas in the most recent year — investors and entrepreneurs either given residency or put on a likely path to it. "Here we have China not only being out biggest trading partner, it is now the major source of migrants and the major source of international students studying here," says Peter Drysdale, an emeritus professor of economics at Australian National University. "The study leads to migration leads to investment, leads to the deepening of the economic relationship and the interaction between the communities," he adds. "The scale of it is ... now starting to cover a space that historically the relationship with the United Kingdom covered." In eastern Australia, the China boom is reawakening the sleepy town of Gunnedah. Construction workers and surveyors in high-visibility, fluorescent green shirts are a common sight, a constant reminder that the plans to mine are the cause of the economic resurgence. Not everyone is happy. The prospect of mining has divided the town of 12,000, including members of the extended Clift clan. There are fears that coal dust, endless coal trains and damage to the aquifers could forever alter a pastoral way of life, perhaps even make it untenable. Shenhua spokeswoman Melanie Layton says the land will return to farming after the 30-year life of the mines. Gunnedah, whose previous heyday came during the 1950s wool boom, may be undergoing one of its biggest transformations since it was settled in 1856, says Adam Marshall, who stepped down as mayor in September. "We did have a mini coal boom in the early 1980s, but nothing on the scale which we're seeing now." Coal mining has a long history in Australia, but never before has it encroached on such prime farmland as the Liverpool Plains, a 4,800-square-mile (12,400-square-kilometer) flatland bordered by mountain ridges and dotted with volcanic hills about 275 miles north of Sydney. Shenhua Watermark, a subsidiary of state-owned China Shenhua Energy, the world's biggest coal mining company, spent 167 million Australian dollars (more than $170 million) to buy 43 farms covering 36,300 acres. Ex-mayor Marshall says sellers told him Shenhua paid several times market value. George Clift, 83, who refused to sell, is upset that his cousin Tony did. "You're supposed to hand it down to the next generation, so if you're not going to do that, you shouldn't have been handed the land in the first place," he says. "I'm very, very sad to see how everything's turning out for the next generation; we've seen the best of Australia and I think it's only going to deteriorate from here on." Tony Clift says he believes the state would have forced him to allow mining anyway — and probably for less compensation than Shenhua paid for the land. Mining companies can take landowners to court if the two sides can't agree on access to the land. "Yeah, it causes some problems in the family. That's life," Tony Clift says. "I'd rather take the money and run now than watch my whole block get dug up." Japan's heady growth powered a boom in the 1980s, but trade with China, which dethroned Japan as Australia's top trading partner in 2009, appears headed even higher. The 7.7 percent of GDP it reached in 2011 eclipsed Japan's average of 6.4 percent in the 1980s and even its peak of 7.4 percent in 1985. One quarter of Australian exports are now shipped to China. Mark Beeson, a political scientist at the University of Western Australia, injects a note of caution: Resource booms are often followed by busts. Commodity prices have already come off highs as global mine production catches up with Chinese demand and the global economy has slowed. Some companies have shelved mine expansion plans. But the outlook for investment remains strong, the Australian government says, with about AU$500 billion in projects still in the pipeline. "There're lots of things that could go wrong, of course, but if it carries on, it's going to get more and more important," Beeson says. In some ways, it already is: Turf wars between farmers and miners have triggered a national debate over agricultural land use, a rarity for such a sparsely populated country. In October the government announced plans to create a national register of foreign-owned farmland amid concern that such record-keeping has been piecemeal in the past. Not since the 1950s, before the modern, free-trade era, has a country done more trade with Australia as a percent of GDP. Then, Australian trade policy gave Great Britain preferential treatment and put the needs of the British Empire ahead of national interests. At the peak of a Korean War wool boom, trade with Britain reached as high as 19.5 percent of GDP, according to Australian government statistics. Though Great Britain and the United States remain far more pervasive influences, China is becoming part of the political and social fabric in Australia, says Chen Jie, a lecturer on international relations at the University of Western Australia. He notes that lawmakers now visit China at the invitation of business interests there, influencing Australian politics. "It's a new phenomenon. It's challenging some of the old assumptions in Australia," he says. Including the price of land in Gunnedah. Paul Smyth almost fell off his harvester and into a crop of sunflowers when a Shenhua representative called him on his cellphone two years ago to offer AU$6 million for his 1,100-acre farm — quadruple its market value. Smyth had bought the farm 12 years earlier for around AU$700,000. "You'll have to run that past me again; I'm in a very noisy machine," he recalls saying. "I heard him first up, but I just couldn't believe my ears." He adds: "If I lived two or three lifetimes there, I would never see a farmer come along and want to buy it at that price." Once word got around that he had sold, others who had once greeted him with a friendly "G'day" stopped acknowledging him. "If I was in their shoes, I'd be exactly the same way, I guess," says Smyth, who has retired at 57 and moved to a 3-acre property near the coast. Those who remain are in limbo. Shenhua has completed exploratory drilling after paying New South Wales state AU$300 million for exploration rights, but it won't be able to mine unless it wins state environmental approval for what would be three open-cut pits. With the future uncertain, farmers don't want to invest in improving their farms, and no one wants to buy them. The affected include those who chose not to sell and others who were never given the choice, because they live on the periphery of the actual coal mining zone. "I've got 1,000 hectares of land that's irrigated from underneath," says Andrew Pursehouse, whose farm lies outside the zone but under ridges that Shenhua plans to excavate. "If something happens to that water resource, my land is going to be worth only a third of what it is now." Layton, the Shenhua spokeswoman, says the company may buy more farms in the years ahead if they are affected by dust and noise. The company plans to mine the ridges and leave the soil untouched and plant trees for those it destroys. Smyth misses the Liverpool Plains, but he doesn't believe that farming and mining can coexist. "I think that's just a pie in the sky pretty picture that they paint," he says. "I think it should be left alone. I feel guilty in lots of ways because I was one of the ones that weakened and got out of there." Associated Press ============= FACTBOX-Australia coal projects compete with farms Mon, Mar 01 01:12 AM EST SYDNEY, March 1 (Reuters) - Proposed new coal mines in Australia pose a threat to some of the country's most productive agricultural land, farmers say. They argue the planned giant mines could damage water aquifers that sustain the rich black soil country in the Gunnedah Basin, in the north-west of the eastern state of New South Wales, some 330 km distant from Sydney. For accompanying analysis, click on [ID:nSGE61O00R] Here are some facts about the projects and the region. Projects: Caroona - 100 percent owned by the world's largest diversified miner, BHP Billiton (BHP.AX) (BLT.L): * BHP was awarded an exploration licence in 2006 to look for coal over 344 sq kms, paying some A$100million ($89 million) for the licence area, which could contain more than 500 million tonnes of coal. * The group plans to develop an underground mine to extract coal via a longwall mining system. * The group hopes mining will run for 30-50 years. * Project cost is currently estimated at around $2 billion. * BHP supports an independent water catchment study before undertaking development and will contribute to the study's cost. * The group plans to ship its coal via the port of Newcastle, about 160 kilometres north of Newcastle. Watermark - 100 percent owned by China's state-owned Shinhua Corp * Shinhua was awarded an exploration licence to look for coal over a 195 sq km area, agreeing to pay around A$600 million for the licence area and to develop infrastructure needed to transport coal to the port of Newcastle. * The company plans to develop an open cut mine should its exploration program be successful. * Shenhua says it will only mine the ridge country but will need to do some investigative work on the more productive black soil to get a thorough understanding of the underground water system. * Shenhua has given landholders within the targeted mining area within the exploration lease the choice to sell their property up-front. * There is estimated to be around 500 million tonnes of coal within the Watermark licence area with a potential mine life of around 50 years. * Should a viable mine be identified and subject to the issue of all necessary approvals, Shenhua anticipates construction of the mine to start in 2012, with mine production to start in 2013. * Oil and gas companies, such as Australia's second largest listed oil and gas group Santos Ltd (STO.AX), are also hoping to develop coal seam gas projects within the region but have met strong opposition from the community as well as green groups, over concerns that coal seam gas extraction will sully the region's water quality. Agriculture in the Gunnedah Basin * The Gunnedah Basin contains the Liverpool Plains, comprising fertile black soil used to grow both winter crops such as wheat as well as summer crops including cotton and sorghum. * Beneath the surface run large water aquifers that farmers tap, making the area less prone to drought. * The basin also includes less fertile ridge country, used for cattle and sheep farming. * The region's wheat output accounts for about 1.3 million tonnes of around 22 million tonnes of grain produced in a good year, with the areas directly affected by the mining proposals producing about 275,000 tonnes. * While not a large portion of Australia's overall crop, the region's high-protein grain is highly sought by flour millers and pasta makers. * The region also also accounts for about half of Australia's cotton output and is also a big producer of sorghum, barley, oats, sunflowers, soybeans and corn. ($1=A$1.11) (Editing by Clarence Fernandez) ===================
Monday, October 29, 2012
Analysis: What's eating Australia? Foreign buyers at the farm gate
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