But as Chinese investment in the Australian farm sector shows, Australian agriculture can be a hard row to hoe. For a start, the yields are not what the fundamentals seem to promise.
RMIT Senior Lecturer in Management Dr Charlie Huang, who researches Asian investment in Australia, says investors have to date received poor returns on their ventures in agribusiness.
“I interviewed Chinese investors with long-term investments in Australia and when I asked them about the return on investment, to my surprise it was very, very low," he told BlueNotes.
That assessment is supported by ANZ’s report Greener Pastures report which notes investment return “is particularly challenging in Australia”.
“The nation has fewer alternative farm ownership and management structures in place to attract capital beyond the farm gate,” according to GP. These structures are critical to providing a credible means to draw investment from capital markets while ensuring farms are managed by high-yielding farmers. Purchasing farms without these mechanisms in place will adversely impact productivity and likely deliver poor returns. In a world where long-dated capital is increasingly in demand, agriculture in both countries - Australia and New Zealand - will need to improve returns and find innovative ways to attract investment.”
The insight report further noted “the alternative pathways to address the capital constraints are not attractive: a collapse in land values or delays to farm succession, which can only be sustained in the short to medium term”.
But GP also found both Australia and New Zealand have the potential to boost agricultural exports and returns.
Of a range of major projects, dairy performs the best. But Huang is yet to hear a success story from a crop harvest. And he discounts the impact of the drought, as some of the investors had bought their stakes 10 and 20 years ago.
The outlook for agricultural exports is strong as tariffs in Asian countries continue to fall thanks to bilateral free-trade agreements and the Trans-Pacific Partnership regional trade agreement.
There is also an investment push factor from China's President Xi Jinping, who is encouraging Chinese firms to invest abroad.
Despite the history of lower returns, investors are not necessarily unhappy, however, because they are looking at land appreciation of 50 to 60 per cent. Some investors are buying farms as property speculation rather than for the agribusiness.
Huang says some Chinese buyers are drawn to agribusiness by a wish to diversify an investment portfolio whereas others see an opportunity from the lower Australian dollar. Some are more serious about a long-term position in agriculture as part of their business strategy.
He says that raises questions about what sort of foreign investment Australia will attract and whether it will be used for the infrastructure, research and development needed to build the sector.
“Australia needs to be aware of investors' different motives and look at value creation," Huang says. “How can we leverage our agricultural assets to increase our productivity?"
Major firms are considering all types of investment in Australia but the problem is finding agricultural projects big enough, according to a local lawyer who advises Chinese investors.
“Australia is well regarded and the (China) free-trade agreement has created a nice atmosphere for foreign investment here," says the lawyer, who doesn't wish to be named to respect the confidentiality of clients.
Australia's 'clean-and-green' image and stringent food standards appeal to international customers and the lawyer has clients in dairy, cattle, fruit, nuts, and seafood production.
“If somebody is growing something, they are interested," the lawyer says.
Clients typically want large projects, such as conglomerations of farms run by local managers, with the parent firm taking care of distribution into China.
Huang agrees investors tend to want larger projects than are available and he wants to see more research into both investors and consumers.
For example, rural industries need to invest more in understanding what motivates the buying decisions of consumers in Asia and, for China in particular, how quickly regulations and consumer tastes change.
CHANGE IS CONSTANT
China's regulatory environment is evolving constantly as the government responds to concerns about food safety and while consumers are well exposed to Australian products, Huang says there is too much assumption they will buy.
He has two PhD students researching the much-hyped infant formula market and their work so far shows more understanding is needed around who decides to buy a particular product and the criteria used for choosing it.
Parents do considerable research into products prior to birth and then will study how their baby actually benefits from different brands, such as by measuring weight gain.
They want more information from manufacturers and Huang says it is critical to provide this to build brand loyalty. The same applies to other agricultural products.
Australian beef competes with the US in China and consumers want to be told why they should favour one over the other (or why they should choose Australian wine instead of a bottle of red from Europe).
Huang says there is a lot of “noise" around the China market and not enough high level understanding.
“At the moment we are very much using a push approach. We need to do more market research into trying to create demand from the Chinese market to put ourselves in a better position there for the long term."
Jan McCallum is a freelance business journalist and former China correspondent.