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New Zealand Dairy could see Chinese investment slow
April 19, 2018

The wave of Chinese dairy investment money into New Zealand since 2014 has brought opportunities, but also suspicion in some circles.

Benefits have come in the regular announcements of jobs from new Chinese-backed milk processing and packaging factories, and fresh milk exports to China.

Increasing Chinese influence in the dairy sector is viewed as “soft¬†power” imperialism by “red capitalists”, according to Canterbury University academic Anne-Marie Brady.

But Chinese investment in dairying will face headwinds even as Kiwi farmers reap rewards, according to Rabobank analyst Emma Higgins.

In Brady’s widely reported thesis last year, she highlighted business links of MPs with Chinese dairy businesses, donations to main political parties, and subsequent support by New Zealand for Mainland China policies including unification with Taiwan.

China is the biggest foreign investor in dairying, and New Zealand now supplies more than half of all dairy products imported into China.

It’s a big turnaround from 50 years ago when major foreign investors in agribusiness¬†were from the¬†UK, while¬†Australian banks currently dominate the¬†finance industry.

More than 24 per cent of China’s foreign milk supply, 52 per cent of cheese imports and 87 per cent of butter imports come from clean, green New Zealand.

Other Brady¬†claims included how a research balloon¬†launched¬†in 2015 by KuangChi¬†Science at one of Shanghai¬†Pengxin’s¬†dairy farms in mid-Canterbury was part of China’s “near-space” development.

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But Brady also said New Zealanders had their own weapons: the Commerce Commission, Overseas Investment Office and the media.

These “weapons” partly explained why¬†Shanghai¬†Pengxin¬†was turned down on its OIO application to buy Lochinvar Station, to its disappointment after earlier buying the run down Crafar farms.

The official reason, after several months of media scrutiny, was the company’s inability to demonstrate¬†significant benefit to New Zealand.

Regardless of these controls, the spectacular growth of Chinese investment is likely to slow, Rabobank’s analyst Emma Higgins said.

“Competitive procurement will see costs for raw milk increase.¬† Some farmers ‚Äď particularly in the Waikato, Canterbury and Southland regions ‚Äď now have a choice of dairy processors to supply.”

Coupled with Fonterra’s significant¬†local milk supply control, and stalling growth in milk production,¬†new investment in processing would cost more for latecomers¬†to the industry.

Slowing income growth of consumers in China and Asian countries would also be a challenge as prices of dairy products rose, Higgins predicted.

Recent Chinese investment has included¬†Agria’s¬†50.2 per cent stake in¬†rural services¬†firm PGG Wrightson,¬†funding of¬†Synlait, and¬†investment¬†in dairy processing by¬†Yili¬†in South Canterbury, and¬†Yashili¬†in the Waikato, Bright Dairy, and China Animal Husbandry, to name a few.

Chinese-backed firms have recently set up new packaging operations in Christchurch, with plans for more in Auckland.

 

Source: Stuff



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