mr oliver cenedese

Topics: Investment, Foreign direct investment, Agriculture Pages: 6 (1838 words) Published: October 11, 2013

Entry of Foreign Multinationals into Australian Agriculture Sector Chinese organizations such as RuYi (Cubbie Station), Beidahuang (Western Australia farms), COFCO group (Tully sugar), Bright Food Group (Manassen Foods) and Shanghai Zhongfu (Ord River Properties) Theoretical area (institutional theory, how Chinese firms build legitimacy and deal with different stakeholders e.g. local communities, unions, media etc. through engaging in CSR initiatives; entry into Australia allows firms to exploit location specific advantages) Other issues

1. Government policy towards foreign investors (should the government control foreign investment into the agricultural sector (issues of food security)) 2. Impact of market entry on domestic agricultural sector (small farmers unable to compete with large foreign conglomerates).

Entry of foreign Multinationals into the agriculture sector has had a considerable effect on Australia. This essay will examine the rationalization behind this increase in foreign direct investment, (FDI) into the industry from a theoretical and practical perspective. Individual case studies will then be analysed to gain a more insightful perception of agricultural FDI into Australia. Consequently, individual and collective stakeholders to be identified which will prove imperative when trying to examine the total effect of FDI. The effects of FDI must also be scrutinized from a political, economical and social perspective. Furthermore, the governments reaction to these effects through the introduction of legislation both governing and subduing FDI will help dissect whether agricultural FDI is proving to be beneficial to Australia.

It is clear that foreign investment plays a significant role in the Australian economy. A high propensity for Australians to spend has left a void in the level of domestic savings in which to invest in the economy. This void has been filled by foreign investment and has subsequently allowed for additional capital expenditure. This expenditure has prompted greater production, employment and income growth. Due to rapid population growth an increase in world wide food prices has provoked an increased interest in agricultural investment in Australia. The three main factions of foreign buyers of agricultural land in Australia are private or government owned agribusiness companies looking to venture up the supply chain, pension funds looking for healthy profits and mining companies looking to expand operations. (Rural Industries Research and Development Corporation 2011).

An increase in agricultural FDI, particularly by state owned enterprises, has been the subject of much debate in the Australian community. Some are questioning the real motive behind such purchases and specifically whether these government owned companies are operating solely on commercial principles. There are however, many theoretical benefits that can be attributed to FDI. The limitations of exporting into a foreign country can be attributed to the high transportation costs and trade barriers such as tariffs and quotas. Although globalization and the relaxation of government trade barriers has allowed these costs to fall considerably, for some industries, the costs of exporting to foreign countries still outweigh the benefits.

Licensing, where a foreign entity, the licensee, is granted the right to produce and sell a firms product in return for a royalty on every unit sold can also prove to be an inferior alternative to FDI. The economic theory of internalisation is used to outline the drawbacks of licensing. If implementing a licensing approach, firms may sacrifice valuable technological knowledge to a foreign competitor. Furthermore, firms also may lose control over manufacturing, marketing and strategy in the foreign country. Consequently this may cause the firms to lose their competitive advantage in producing a product which was previously based upon the effective control over those elements of the...

References: Rural Industries Research and Development Corporation 2011, ‘Foreign investment and Australian agriculture’, Rural Industries Research and Development Corporation, Australia, viewed 1st September 2013,
Healy, B 2013, Feeding China: China invests in the north-west, Holding Redlich Update, viewed 1st September 2013, . 
Farm Online 2013, ‘VFF oppose graincorp takeover’, Farm Online, Australia, viewed 1stSeptember 2013, .
Nash, F 2013, Growers will be creamed in graincorp takeover, Financial Review, viewed 1stSeptember 2013,
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