China is on a worldwide shopping spree to secure ownership of the world's most valuable and vital resources. With 70 percent of Chinese investment classified as state-owned, the nation is focused on securing resource supplies for its 1.36 billion people. This spree exists chiefly in Zambia for coal and copper, Saudi Arabia and Angola for crude oil, Australia for water, and now New Zealand for dairy.
Few people would immediately identify dairy as a valuable resource. When the world's most valuable assets are discussed it's usually oil, gold, coal, and energy products like uranium and water.
But China has recognized a shifting focus on global demand, and worldwide population growth means high quality produce and food sources are as valuable as non-renewable resources. As well as an obvious drink, milk powder is highly valued by many international beverage chains and food companies. And despite a recent dip in prices, it's an asset they know will only become more valuable.
In recent years China's growing population has adopted a more Western, dairy-focused diet. This has led to China vying for a piece of New Zealand's dairy industry, to be used by its own population.
Although it's not the world's biggest dairy producer, with a small population and its coordinated farming co-ops, New Zealand is one of the last countries to feed cows on grass rather than grain. As the rest of the world moves away from traditional "natural" farming practices, China has identified New Zealand's dairy as the highest-grade product.
In theory, Chinese investment could be overwhelmingly positive, but New Zealand's farmers and the general public are wary. These feelings became apparent in August this year when a dairy station, Lochinver, was purchased by Shanghai Pengxin for $54 million. The deal left Kiwi farmers concerned they'd be cut from New Zealand's part in the station altogether. The purchase further disgruntled local dairy industry insiders, who questioned whether foreigners are receiving buyer preference over locals.
Much of the unrest comes after China's previous purchase of another local farm conglomerate, the Crafar Farm Estate. Following the purchase, the farm's lenders forced the estate into liquidation. Then, rather than dividing the 16 properties to generate higher profits and selling them individually to Kiwi farmers, the liquidators offered the entire group to a Chinese dairy company, Shanghai Pengxin. The deal is said to have ignored usual procedures, and local industry insiders are convinced it's because the government wants Pengxin on its side.
Interestingly, the New Zealand government-owned Landcorp is now running the Chinese-owned farms. While this aspect hasn't received much attention in the media, it is a well-known conversation within NZ's dairy industry.
Although Kiwi farmers are clearly worried about a Chinese-owned dairy monopoly, as previously mentioned the country has benefited from foreign investment for decades. This raises the question: Why is it so concerning now?
One obvious reason is xenophobia. Foreign investment in New Zealand's rural land is actually dominated by the USA and Lichtenstein, with China accounting for only four percent of foreign buyers. However, worry over foreign investment has only become a national talking point since China became a large investor. It's interesting to note too, that New Zealand's Asian population has doubled since 2001, with the largest immigrant population being Indian and Chinese.
China's history of social misconduct is also worrying to farmers. In Africa, this includes labor mistreatment, poor safety standards, violence, and even affiliations with dictatorships including arms deals with the Zimbabwean revolutionary Robert Mugabe.
Labor standards are also sparking concern for employees of Chinese companies. CNBC Africa reported a Chinese analyst saying: "Western notions of labor practices' don't apply to Chinese companies, and in China (work) is 24 hours a day—but everyone has their time to rest. It's about getting the job done and getting it done quickly." Despite this, any Chinese company investing in Kiwi dairy would still operate under local labor laws.
Concerns are also compounded by Australia's experience with Chinese monopolies after Tasmania's "investor ready" cubbie farms and and water supply were purchase by China. The Cubbie cotton station occupies land neighboring huge dams that control vital water in times of drought. Local farmers are concerned the nation's largest cotton producer may harness the water to create a buy-back scheme, forcing them to pay higher prices for the water when they actually need it. A situation that could be mirrored in New Zealand dairy if a monopoly does take hold.
Locals and Cubbie employees seem to be thrilled with their new Chinese owners, although the region is also enjoying renewed economic stimulus. The anticipated war over the nearby water supply is not forecast until mid summer.
Despite fears and conspiracy theories, perceptions of China's dairy investment should come down to the ability of a purchase to add value, and build capital within the country. By injecting money into New Zealand, companies like Pengxin are able to stimulate the economy without changing the strict animal safety, labor laws, and existing restrictions already put in place by Fonterra.
We'll just have to wait and see what Chinese resource ownership means for the world's future, but it seems true what Chinese economists have said: "the Chinese way is now a part of the global reality."
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