Morrison right to block Kidman farm sale

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By Leith van Onselen

It seems Treasurer Scott Morrison’s decision to block the sale of Australia’s largest single land holding, S. Kidman & Co, which has a herd of some 200,000 cattle in Australia, spanning 101,411 square kilometres and spread across 11 cattle stations in South Australia, Western Australia, the Northern Territory and Queensland, has angered The Australian’s David Uren:

[Morrison’s] decision, which appears to require the Kidman assets to be broken up, ensures they will not be developed to their full potential, and the opportunity to establish a major Chinese-owned beef business exporting to the lucrative Chinese market has been lost…

When Morrison visited China for the first time as Treasurer in February, he emphasised the gains for Australia’s beef industry from the China-Australia free-trade agreement, which axes tariffs of up to 25 per cent, enabling Australian beef to enter China tariff-free.

He said beef exports to China, already earning $1 billion a year, had great growth potential.

That will not be realised if we erect barriers to Chinese investment. Foreign investment has been crucial to the development of Australia’s pastoral industry, ever since Australian Agricultural Company was formed by British investors in 1824.

FTA booster, Alan Oxley, has also condemned the decision:

ITS Global director Alan Oxley, a former diplomat who ­negotiated trade agreements, warned of the damaging signal to foreign investors from the decision. “Our whole agricultural industry from the time of white settlement has depended on ­foreign investment,” he said.

“I can’t see the point of playing around with Chinese investors in this way. The fact that it is a large piece of land is irrelevant — most of it is desert.”

The decision comes as Malcolm Turnbull and his government seek to claim a political dividend from three trade deals concluded in this term of parliament, including one with China.

“This would be an immensely shortsighted investment decision if it meant that Chinese investors were discouraged,” Mr Oxley said.

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Blind Freddy can see what would likely happen if the Chinese were allowed to acquire the Kidman businesses:

  1. They would vertically integrate it with beef processing facilities in China, buying live cattle at below cost (paying no Australian tax), thus allowing the company to make their profits at home; or
  2. They would process the beef in Australia and then export it back to China at below cost (thus paying no Australian tax).

In either case, the Chinese would very likely transfer-price the heck out of its Australian exported beef, thus selling beef from its Australian-based farm to its offshore parent at a loss-making price. The Chinese would also likely import its own workers (allowed under the FTA), thus providing few (if any) employment benefits to the Australian population.

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In the process, Australians would not share in the benefits from this Chinese “investment”, and could very well be made worse-off.

By all means lets encourage genuine foreign investment that adds to the productive capacity of the economy, resulting in increased economic activity and Australian jobs.

But where foreign “investment” likely involves the mere transfer of ownership, profit shifting (tax minimisation), and no real job creation, Australia should push back, just as Morrison has done. Because it’s selling-off the farm and our children’s future.

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About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.