By now, many readers will be familiar with the Joint Australian-Chinese governmental study entitled Feeding the Future: A Joint Australia-China Report on Strengthening Investment and Technological Co-operation in Agriculture to Enhance Food Security (the Report) released on 20 December 2012, by Australian Minister for Trade and Competitiveness and Minister Assisting the Prime Minister on Asian Century Policy, the Honourable Dr Craig Emerson MP.

The Report signals a clear intention by the governments of both nations to usher in an era of cooperation between Australia and China, particularly in agriculture, aimed at global food security concerns and benefiting both the agricultural sectors of both countries.

The Report identifies that northern Australia has large tracts of unused and under-utilised areas which, with investment in new technologies and infrastructure, could produce more food for China and world markets. This idea has many investors and commentators talking about the possibility of northern Australia becoming a food bowl. It is thought that direct foreign investment and the introduction of new capital and technology by Chinese investors could see Australia’s agricultural sector in northern Australia produce high quality produce for China and also for the rest of the world’s rapidly expanding population.

The Report identifies opportunities for mutually beneficial bilateral investment, especially in areas where new technologies can expand productive capacity. There is little doubt that many Chinese investors have the desire, the know-how and the capital to develop areas of northern Australia into productive agricultural regions. A recent example of large-scale investment by a Chinese company in Australia’s agricultural sector includes the Shanghai Zhongfu Group’s proposal to invest in a major sugar cane development in the Ord River region as part of the Ord-East Kimberley Expansion Project.1

Minister Emerson said “We should not contemplate passing up that once-in-a-generation opportunity to revive our rural towns and our provincial cities, to take full advantage of and make a great contribution to the humanitarian task of feeding the world’s people”.

“The idea here is surely that we have not reached maximum agricultural productivity across the north; that there would be areas of land that are unutilised or under-utilised which with the application of new technologies and new thinking could produce more food for export to the world. The areas where we think that there is potential include developing the water and soil resources of northern Australia”.
Minister Emerson also identified logistics as a further area of potential, with vast areas in northern Australia requiring improvements in infrastructure and the efficiency of transporting food to make Australia a competitive supplier. Again, it is contemplated that direct foreign investment could assist.

Having now identified the possibilities for investment cooperation between China and Australia in Australia’s agricultural sector, the challenge for both countries will be to convert that recognition into investment opportunities. The Report has identified a number of guiding principles. These include the promotion of public understanding of foreign investment in Australia and providing confidence to Chinese investors, particularly with a focus on developing large-scale projects on under-developed land, particularly in northern Australia; an initial geographic focus on investment cooperation will be, in Australia, northern Australia (Queensland, Western Australia and the Northern Territory); and an initial focus of cooperative investment activities will be large-scale agricultural water and soil resources development in northern Australia.

Perhaps a first step in this new direction is Shanghai Zhongfu’s large scale greenfield investment in the Ord River Stage 2 expansion.
The project involved complex structuring, construction, infrastructure, farming, environmental, planning and indigenous issues in a region of Australia that has defeated many would-be developers and farmers. All of these issues had to be considered to bring the project to fruition. Whilst these issues are faced daily in many large scale projects, in the context of one of the largest agricultural greenfields projects ever to be undertaken in Australia, they are quite unique. The manner in which they were addressed may well pave the way in the future for completing such significant projects, especially in the development of northern Australia for agriculture, as the Feeding the Future report would like to see.

As part of the agreement, the minimum irrigation rights it would obtain from the existing Ord River dam, should it grow sugar, would be 510,000 megalitres – a quarter of the Ord’s currently allocated water.

The Ord Stage 2 expansion includes 15,000 hectares: 13,400 hectares of that is to be developed by Shanghai Zhongfu. [Shanghai Zongfu is a private company with interests in petrochemicals and hotels - Ed.]

Shanghai Zhongfu will invest up to $700 million over six years to establish a sugar industry in Kununurra, including a $425 million sugar mill, which is expected to produce four million tonnes of cane annually and 500,000 tonnes of export sugar crystal.

It will be interesting to watch whether the guiding principles and recommendations of the Report translate into positive actions to contribute to development of northern Australia as productive agricultural regions. If successful, then vast areas of northern Australia, its communities and people may well be altered for the better forever. No ordinary project Preliminary work on the Ord River Irrigation Area (ORIA) Project began when the Western Australian Government established a small experimental farm in 1941. This farm was abandoned in 1945 and the Kimberley Research Station was established on Ivanhoe Plain, as a joint Commonwealth/State venture. By 1958 the WA Government was convinced of the viability of an irrigation scheme and the initial development was completed in 1963. The cost was around $20 million, of which the Commonwealth contributed $12 million. By 1966, 31 farms irrigated from the Diversion Dam had been allocated. Construction of the Ord River Dam followed to provide a major storage reservoir called Lake Argyle at a cost of $22 million. This was officially opened in June 1972 (Kimberley Development Commission Website, December 2006).

The existing Ord Stage 1 consists of an area of approximately 13,000 hectares of irrigated farmland on the Ivanhoe and Packsaddle Plains within Western Australia. Current crops in the area include broad acre and horticulture crops with a gross farm value of approximately $54 million.

Contact

Ron Eames, Partner
T: +61 7 3135 0629
E: ron.eames@holdingredlich.com

1. Holding Redlich has acted as legal adviser to Shanghai Zhongfu in relation to its successful bid for the Ord-East Kimberley Expansion project valued at up to $700 million. Holding Redlich advised Shanghai Zhongfu on the WA Government tender process for more than 15 months. Shanghai Zhongfu’s Australia subsidiary Kimberley Agricultural Investments Pty Ltd has been appointed as the preferred proponent to deliver Stage 2 of the Ord-East Kimberley Expansion Project.  

Disclaimer
The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity.  Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this publication is accurate at the date it is received or that it will continue to be accurate in the future. We are not responsible for the information of any source to which a link is provided or reference is made and exclude all liability in connection with use of these sources.  The Holding Redlich Agribusiness & Rural Industries Group assists many agribusinesses in getting investment ready for introduction of new investors and capital raisings.

 

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