Jingchuan Zhao is a partner from our Beijing office, who is currently on secondment in our Sydney office. Jingchuan specialises in M&A, foreign direct investment, outbound investment and other corporate matters. She has acted for many multinational clients and large scale Chinese SOEs. Jingchuan shares some insights about what has driven the surge of Chinese interest in deals in the Australian agribusiness and food sector.
Where did your interest in agribusiness first stem from?
Just after returning to Beijing in 2009, following several years studying and working in New York, I had the opportunity to work for Fonterra on my first agribusiness deal. Fonterra’s Chinese joint venture partner, Sanlu, was involved in the Melamine scandal and Fonterra consequently decided to set up its own dairy farms in China. My experience on these matters led to an ongoing interest in the sector. Since then, I have been deeply involved in agribusiness and particularly the dairy business.
What have you advised clients on in the agribusiness space?
I have represented a number of clients in the agribusiness sector on M&A deals and greenfield investments. In fact, most deals I have advised Fonterra on related to greenfield investments such as setting up new dairy farms hubs in China. I also advised Fonterra on its joint venture with Abbott Laboratories.
I have also represented the Bank of China International in its dairy M&A deals in China, and in 2014, I worked with KWM Partner Meredith Paynter in New Hope’s investment in Moxey Farm in Australia.
Outside of the dairy business, I have also worked for other agribusiness clients such as Pepsi Food, Guilin GFS Monk Fruit Corp and others in their M&A or joint venture deals.
In your view, what has driven the recent surge of Chinese interest in deals in the Australian agribusiness and food sector?
The growth of China’s middle class has generated huge demand for high-quality agribusiness and food products. Australia is regarded as one of the best suppliers of these products.
When I was a child, I had to pick up 250mLs of fresh milk from the milk delivery truck with an empty bottle every day. Nowadays, Chinese consumers have greater ease of access to fresh milk and a wide range of dairy products – whether in supermarkets or by home delivery. However, because of pollution and food safety concerns, great caution is exercised about drinking fresh milk in China now.
To Chinese consumers, Australia’s agribusiness products equate with quality and high food safety. As a result, many Chinese investors are aiming to bring Australian products which are more popular and trustworthy than the local products and branding to the Chinese market.
What are main challenges that Chinese investors face when they invest in Australian agribusiness?
Chinese investors often have difficulty finding appropriately sized targets in Australia. Due to a lack of local knowledge and skills, Chinese investors generally choose to acquire existing Australian businesses rather than make greenfield investments. However, most Australian agribusinesses are family-owned businesses that are considered by Chinese investors to be too small.
Difficulties also often arise in negotiations between Chinese and Australian parties. It is not unusual for Chinese investors to re-open issues or request a delay in negotiations as they tend to strictly follow hierarchy and internal approval requirements. Since this is not what Australian parties are used to during the negotiations, we have seen Chinese bidders lose bids solely because of their failure to stick to the timeframe.
In the post-acquisition stage, Chinese investors need to overcome not only the legal differences but also cultural differences between China and Australia to achieve success.
Do you believe that M&A activity in the agriculture sector will continue to grow?
Yes, notwithstanding the Australian government’s recent decision to block the sale of S. Kidman & Co, Australia is generally viewed as being open to foreign investment. Further, since the signing of the China-Australia Free Trade Agreement, trade in agribusiness has been more active than ever, which may also energize agribusiness investment in Australia.
If the owners of family businesses in the agriculture sector can do the same as the home owners in the property sector by jointly selling their property to one developer as a package, their property and businesses will become more attractive to Chinese investors as they will be able to consolidate or combine smaller agribusinesses into one sizeable business.