China eyes Australia’s dairy sector

Sovereign fund looking to invest in Tasmanian dairy

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With growing demand to keep its population fed, China is on the lookout for assets around the world as they seek to cash in on Asia’s booming food demand and secure sufficient supplies for the future.

China’s eyes are currently on Australia, with the Wall Street Journal reporting that China Investment Corp (CIC) a, Chinese sovereign wealth fund, is among three large funds vying to take a stake in Australian dairy producer Van Dieman’s Land Co (VDL).

VDL is seeking up to $180 million to expand its milk production, with $110 million coming from equity, and the remainder in debt.

The Wall Street Journal in November reported that CIC had held talks with the world’s largest dairy exporter, New Zealand’s Fonterra (ASX: FSF) about investing in the group’s newly created shareholder fund. Fonterra’s farms put out nearly 22 million tonnes of milk products in 2011, and the company exports roughly half the world’s supply of milk powder.

Investors are restricted from holding more than 15% of the total shares of the Fonterra fund, which would give CIC only a small piece of the action.

A deal with VDL, which supplies Fonterra, would allow CIC to take a more significant slice in the business, and is expected to be finalised by the middle of the year.

We could see more interest in Australia’s farm industry in future. We already have US agricultural firm Archer Daniels looking to pick up Graincorp Limited (ASX: GNC), following takeovers of ABB Grain and AWB (Australian Wheat Board) in recent years.

Next on the platter might be Australian dairy and cheese producers, Warrnambool Cheese And Butter Factory Company (ASX: WCB) and Bega Cheese Limited (ASX: BGA), or we could see some interest in Tassal Group (ASX: TGR), which farms Atlantic salmon.

Foolish takeaway

No matter which way you look at it, the world’s expanding population is going to need food – a lot of it. A growing middle class in developing nations with a demand for more Western-style and higher quality food is also playing its part. We could well see more ‘investments’ as well as mergers and acquisitions with our agricultural sector.

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Motley Fool writer/analyst Mike King doesn’t own shares in any companies mentioned. The Motley Fool’s purpose is to help the world invest, better. Take Stock is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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