A Chinese firm has won the right to develop a farm project in Western Australia, targeting a $728 million investment to build a sugar industry in the state, and marking the latest foreign deal aimed at securing agricultural resources in Australia.

Shanghai Zhongfu Group plans to invest up to $700 million ($728 million) in the next six years in the 52-sq-mile (13,400-hectare) area of the Ord East Kimberley region, the Western Australia state government said on Tuesday. Zhongfu forecast the project could produce about 4 million tons annually of sugar cane, exporting 500,000 tons of raw sugar, or about 15% of Australia’s estimated 2012/13 exports.

The move comes after a number of high-profile deals involving Chinese investors, including the purchase of the country’s biggest cotton farm, as well as foreign takeovers in its deregulated wheat industry. However, foreign investment in agriculture has sparked a political backlash that some analysts fear could threaten the opportunity for Australia to tap the booming demand to accommodate Asia’s middle-class.

“This investment in large-scale agricultural industry and downstream processing will be the start of an exciting new era for the East Kimberley and northern Australia,” Western Australia premier Colin Barnett said in a statement.

Zhongfu, trading in Australia as Kimberley Agricultural Investment (KAI), is also proposing to build an A$425 million sugar mill in the area and could build a biofuel plant as well as upgrading port facilities in the area.

Despite local skepticism at the prospects for Australia’s farming sector, an increase in offshore interest comes at a time when returns have seldom been better and adds to other evidence suggesting the foreign investment may not be mistimed after all.

Helped by generous rains and strong global prices, Australian farmers may have enjoyed the best year in decades in 2011/12. Australia is the driest inhabited continent, but it has plenty of water in the tropical and sub-tropical northern regions such as Kimberley, which are mostly underdeveloped.

The Kimberley project would open new tracts of farmland to irrigation from the waters of the Ord River and Lake Argyle, which hold enough water to fill 21 Sydney Harbours.

Zhongfu’s president Pui Ngai Wu said investment in a sugar mill and other infrastructure would depend on further negotiations with local governments and environmental approvals.

“Scale is important and will directly relate to the level of investment which KAI will make in infrastructure such as port upgrades,” Wu said in a statement.

The firm’s plans could also include building an ethanol plant, which could produce biofuel from sugar, the state government said. The Kimberley project is the first investment in Australia by the Shanghai-based property company, which is still negotiating rent and will look to start clearing land from 2013.

Australia is the world’s third-biggest raw sugar exporter, with exports forecast to rise by nearly 12% from last year to 3.4 million tons.

Source: Reuters Nov 2012

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