Over the past decade Canadian companies and pension funds have increasingly chosen Australia as a destination for investment, and they have been strategic in their approach, targeting key assets.
The amount of Canadian investment in Australia outstrips Australian investment in Canada by a rate of about three to one.
The commercial relationship is built on a foundation of shared values. As well, both economies are powered in part by strong agricultural and resources sectors.
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Both countries also have private and public entities that are experienced in global investment. Australia has tended to sell public assets and engage in public “asset recycling” at a higher rate than Canada. On the other hand, Canadian corporations and pension funds tend to be increasingly experienced in direct investment around the world
Over the last decade Canadian pension funds have been highly active in Australia. In 2015 Quebec pension fund CDPQ made a major investment in the NSW electricity grid and opened an office in Sydney. Agribusiness has also been a target.
The agricultural sector
Given Canada’s extensive experience in the business of agriculture it makes sense for Canadian entities to consider overseas opportunities.
The agricultural sector itself is changing rapidly. The use of digital technologies is taking on greater significance. Whether it be crop monitoring, the use of autonomous machinery, or the better use of water, there are many barely tapped efficiencies available to smart operators in the sector.
At present institutional investors remain relatively modest players in agribusiness worldwide. However, that may change and result in more large-scale investment, particularly if we are entering a time of sustained higher prices for commodities.
The Australian market
Regular readers of Country Guide might recall Gerald Pilger’s article in 2015 comparing the grain industries in Australia and Canada. That article identified the way Australia was looking at the big picture, and observed:
“Australia recognizes that the health of its agricultural industry does not start with the seeding of a crop. Nor does it end with the dumping of grain into an elevator pit. It understands that marketing isn’t only about the price that farmers receive for their production. It’s about a lot more as well.”
The Australian agricultural sector has always been important to the country. It is large and has been improving access to the rapidly growing Asian market. It is generally well regulated, but with differing and sometimes surprising rules applying to land use and ownership. In addition, Australia faces the challenge of managing a limited and changeable water supply. There have been repeated attempts to effectively regulate water usage in the key Murray-Darling Basin in southeastern Australia. The arguments about the best way to manage that water continue, and have filled a few books already.
In addition, Australia faces international competition in its traditionally strong sectors. Apart from North America, other grain-producing areas are taking a more savvy approach. For example, over the last decade South American countries and producers near the Black Sea have upped their game when it comes to efficiency and output in grain production.
Investment in Australia
There is already a sizeable degree of foreign investment in Australian agriculture. And it may come as a surprise to learn that in 2018 Canada became the biggest investor in Australian agriculture for that year. Around that time Viterra entered the Australian market. McCain Foods, which has become a truly global company, also has large operations in Australia.
In early 2019 Canadian company Nutrien, the world’s biggest supplier of crop fertilizers, offered $460 million to acquire well-known Australian rural supplies company Ruralco. The acquisition was slowed down over competition concerns, but ultimately was not prevented by local regulators. Readers will recall that Saskatoon-based Nutrien was formed in 2017 via the high-profile merger of PotashCorp and Agrium.
Around the same time the Canadian Public Sector Investment Board bought U.S. investment company Protera Investment Partners’ majority stake in New South Wales-based grain grower BFB. PSP Investments has also made major purchases from a stake in freight rail operator Pacific National and extensive tracts of pastoral land on the Northern Territory, through to investments in toll-road operators in busy Sydney.
Canadians have also made substantial acquisitions in the fruit and vegetable sector in Australia, including large investments in avocado production.
PSP investments – a short case study
Montreal-based pension fund PSP is the pension fund for some public servants, the armed forces and the Mounties. It has a global investment focus, and likes to invest in areas where the rule of law is strong and corporate responsibility is important.
From an initial investment in 2015 the fund now has around $4 billion in Australian assets in the primary sector. The investments vary from nuts to dairies to crops. And some of the projects have been structured as joint ventures rather than straight out acquisitions of assets. PSP controls extensive rights to water in the Murray-Darling Basin, a strategic holding given the variable Aussie rainfall. In the Australian media, PSP has been described as a major player in the Australian ag sector. PSP launched a takeover of Webster Limited (one of Australia’s oldest companies) and de-listed it from the local stock exchange in 2021.
As a result of its activities PSP has taken control of 12,000 hectares of almond orchards in northern Victoria after paying more than $850 milion to Olam International, and then for a similar price acquired Webster’s 340,000 hectares of walnut, cotton and pastoral assets in Tasmania and New South Wales. It says much about PSP’s busines and diplomatic skills that they have so adeptly identified business opportunities while diplomatically traversing the politics of water rights in the driest continent on earth.
What’s the reaction down under?
Overall the Canadian investments in Australian agriculture have received only sporadic coverage in the Australian media outside of rural-based publications. Indeed, the attention paid to those investments has been largely positive, particularly given the recent difficulties in the trade and business relationship between Australia and China.
In August the media reported positively on the possibility of eastern Canadian-based Cooke Aquaculture making acquisitions in Tasmania, the seafood-rich, southern-most state in Australia.
By contrast, acquisitions in other areas such as Brookfield’s entry into the Australian health sector attracted more critical media and political attention. To some degree this could be due to a general sensitivity about the acquisition of health-care assets. However, these risks don’t appear to be as present in agriculture, where the systems in place seem more stable and predictable.
Even so, potential investors in Australia need to approach the system with good background knowledge. It’s a common challenge encountered by international businesses — namely understanding and dealing with local regulatory conditions and politics. A jurisdiction that appears similar on the surface can still have its differences. And in the long run that may have significant impacts on profitability and stability of a venture. Canadian provinces differ in laws and culture. The same has become increasingly true amongst Australian states, especially under the stresses of the last 18 months.
Despite its overall lower ag productivity, Australia has increasingly been able to make the most of what it has. And despite the challenges of the last 18 months, Canadian investments in Australia have continued.
Conclusion
So what are the lessons for farmers? On the one hand the trend raises interesting questions about ownership in the sector, and what ownership or co-operative structures might serve farmers and farming best in the future.
But the investment story also shows an old-fashioned truth. The combination of stability, good skills and a forward-looking focus creates demand, and that doesn’t just apply to large enterprises.
