Milk to cry over: treasurer quietly sinks once-lauded Chinese dairy deal

Australian-Chinese business relations are now at such a low ebb that the treasurer is not even publicly announcing controversial decisions, but instead letting them leak out without confirming or commenting.

That’s how Josh Frydenberg seems to have handled the decision to reject China Mengniu Dairy Co’s proposed $600 million purchase of Lion Dairy and Drinks.

He would also be rejecting the advice of his own Treasury Department and the Foreign Investment Review Board, who apparently recommended the acquisition according to a well-placed story in The Australian Financial Review yesterday.

Even by traditionally-opaque foreign investment standards, this one has surprised many observers on all sides — from Greens and conservative pollies who had raised concerns about the sale, to angry business groups who had assumed it was a done deal.

After all the sale, which is for an already foreign-owned Japanese company and does not include any touchy agricultural land, was announced back in December last year, only weeks after the treasurer had approved the same Chinese Mengniu buying Tasmanian infant formula company Bellamy’s for $1.5 billion.

Plenty has changed in the ensuing months, from the pandemic to the bitter backlash against China, but the underlying tensions in this case predate that Bellamy’s decision last year and go back to another Tasmanian dairy company taken over by the Chinese in 2016.

Van Diemen’s Land Company was Australia’s oldest and largest dairy farming company when it was acquired by the Chinese investment company Moon Lake for $280 million in 2016. 

The deal was given the green light by then treasurer Scott Morrison who hailed a number of undertakings by the company which promised to create 95 local jobs, invest $100m into the local industry, to even help protect the endangered Tasmanian devil. 

Within two years the Australian non-executive directors staged a mass resignation amid allegations none of the investment and other promises were met, and far from protecting wildlife there were even allegations of animal cruelty.

Tasmanian federal pollies Greens Senator Peter Whish-Wilson and Independent MP Andrew Wilkie raised alarm bells, so by last year when another Chinese company bid for the Tasmanian-based Bellamy’s, the outcry was even greater.

Whish-Wilson worried about market manipulation due to Chinese government restrictions, which might have helped depress Bellamy’s share price thus aiding the purchase by one of their state-owned companies.

(Though to be fair nothing could ever be proved given the battling Bellamy’s board and shareholders had done their own best to hamper the share price.)

In the Bellamy’s deal the treasurer required the infant formula maker to stay based in Australia for a decade, have a majority of Australian directors and for the Chinese parent to invest at least $12 million in a formula processing and canning plant.

Crucially though, these undertakings were actually enforceable, which incredibly was not the case in the previous Van Diemen’s sale, where those undertakings were only voluntary.

It was that which had lead Whish-Wilson to push for the Senate Economic Committee to look into the whole issue of foreign investment rules, but then came the pandemic where the treasurer froze all foreign investment anyway (for the same reason of not wanting foreign players to exploit the depressed price of many companies).

Meanwhile, Tasmania continues to be a hotbed of controversial Chinese farming investment stories. The same Senate committee is also investigating money laundering and foreign investment, after the news last October that the Australian Federal Police had seized $17.3 million worth of land which two Chinese nationals allegedly purchased with the proceeds of crime.

So it’s no wonder that both Senators Wilkie and Whish-Wilson yesterday cautiously welcomed the news that the government might have knocked back the latest China dairy deal.

“The treasurer’s intervention is an opportunity to bring Lion Dairy & Drinks into Australian ownership, so long as Kirin Holdings remains keen to sell. Many members of the Australian community would welcome this outcome, especially as so much of Australia’s dairy assets have been bought up by the Chinese,” said Wilkie.

Whish-Wilson agreed there was a “huge disconnect between people on the ground and the decision makers in Canberra”.

While he had not opposed the deal, he raised concerns it would give Mengniu control of 10% of the 9 billion litre-a-year Australian milk pool.

He had wanted binding assurances that they would not be able to turn this into infant formula for export to the voracious Chinese market.

It’s not so far-fetched given recent public outrage over Chinese owned companies using Australian employees to send tonnes of locally sourced masks and other protective gear back to China at the height of the pandemic in Wuhan.