CHINESE investors in Australian agriculture and agribusiness need to obtain a “social licence” to operate in the market if their investments are to succeed, a new report suggests.

The report was compiled by Powell Tate, a specialist public affairs agency affiliated with global communications and engagement firm, Weber Shandwick.

Principal author of the report, Alistair Nicholas, director of special projects with Powell Tate Australia, said Chinese investors needed to demonstrate a commitment to Australian society that goes beyond earning profits in order to succeed – even where an investment is providing an economic benefit to the nation.

The qualitative study conducted over the past 12 months involved detailed interviews with parties close to foreign investment and within the agriculture sector including current and former politicians, political advisors, media, government bureaucrats, academics, industry association members, and the business advisory community. Weber Shandwick China, also led interviews with investors and other Chinese stakeholders.

While the notion of the need for social license for offshore investors raised by Powell Tate in its report is not an original concept, it explores it in more detail than previous discussion.

“After listening to key stakeholders, we concluded that Chinese investors are best advised to adopt a ‘joint venture’ model rather than make straight-out investments in Australian agriculture if they are to succeed,” Mr Nicholas said.

“It seems Chinese investors going abroad now have to consider the same model that was required of foreign companies when they first entered China after it opened to the outside world,” he said.

What to do, what not to do

The report, click here to view, includes examples of Chinese investment case studies that have failed or succeeded in the Australian agribusiness sector.

Many of those interviewed by Powell Tate pointed to the example of Ningbo Dairy Group in discussing what not to do. They said the Chinese company had “got it wrong from the outset” in its purchase of five farms in Gippsland in Victoria.

The group hadn’t connected with the local community to see if they were on board with its plans to place 1000 milking cows into barns and build a bottling plant, according to one of our interviewees. Not surprisingly, the plans were unanimously rejected by the Bass Coast Shire Council in August 2015 after it received 400 submissions from the local community and other interested parties opposing Ningbo’s plans.

The group’s efforts were not helped by ham-fisted media interviews given by its executives prior to the Council vote. They had bragged that they could reduce costs and improve labour efficiency by bringing in 2000 Chinese farm workers, achieve higher milk production per cow with Chinese methods, and that they thought Australian supermarket prices for milk were so low they were “a joke”.

Ningbo Dairy Group’s naivety was believing that federal and state government approvals for its initial investment were sufficient to move forward with aggressive expansion plans, the report found.

“Its lack of understanding of Australian politics, political institutions and structures, of the importance of local government, and of local community sensitivities, made it a fearful juggernaut. It found it had few, if any, supporters when it most needed a local advocate,” the report said.

Find a “pardner”, cowboy

A number of interviewees pointed to the investment by Shandong RuYi into Cubbie Station and the New Hope Group’s investments into a number of rural properties as examples of successful approaches to investment into Australia. The secret to these successes might be described as the joint-venture partnership approach.

“New Hope Group’s business success in Australia (four properties to date) has been due to partnering with the local owners – investing in their businesses rather than total acquisitions – as well as retaining local management and a connection to the community. One interviewee closely associated with New Hope Group’s acquisition of the Moxey Farms in 2015 said its FIRB approval was smooth because there was no suggestion of a restructure of the business post-investment,” the report found.

Beyond maintaining the local management structure, the Chinese-Japanese venture of Shandong RuYi succeeded in obtaining an ongoing social licence despite initial apprehension from local communities over the Cubbie purchase. Factors that changed initial negative local perceptions included:

• $30 million invested to lift cotton production and more into upgrading irrigation at the property; and
• a strong commitment to, and action toward, environmental issues, water management and sustainability in the area surrounding the property – all important matters in the Darling Downs region.

Additionally, the company contracted local businesses to supply Cubbie Station and committed to hiring from the local area, including for its seasonal casual workforce. These actions together have made a considerable social impact in the region. “Today the investment by the Chinese-Japanese consortium is seen to have breathed new life into what was previously a dying region,” the report said.

Which way to the Social Licence Office?

It is important that Chinese investors understand that there is no federal or state government authority that awards social licences to foreign investors, the Powell Tate report said.

“It is not a physical licence but an ‘acceptance’ by the community where the investment is made. It is amorphous. It cannot be defined in any one way, or obtained by any particular set of actions. What works in one instance may not work at another. In fact, social impact actions to obtain a social licence need to be dynamic, constantly adjusting to changing circumstances and fickle stakeholder perceptions,” the report said.

“Success depends on understanding what needs to be done to win the hearts and minds of local community groups and other stakeholders in each situation, and on understanding the ever changing atmospherics. Successful investors will have a plan and mechanisms in place to monitor changing circumstances and perceptions to ensure they make appropriate adjustments to actions.”

“They also need continuously to communicate changes in strategies and plans that affect stakeholder groups. Whatever sector Chinese investors are focused on, they need to engage with local communities. They must understand the needs of those communities, and contribute to solving their problems, much as the Cubbie Station investors have done.”

“Chinese investors need to demonstrate that they are bringing more to the table than just money”

“As many of our interviewees put it, Chinese investors need to demonstrate that they are ‘bringing more to the table than just money.’ It doesn’t matter that you have invested millions of dollars and are getting higher prices for Australian milk in China. That’s your business. But how many jobs have you created directly and indirectly? Do you support local businesses? Do you pay your taxes? What are you doing for the environment? What’s your broader social impact?”

“Offshore investors that have a story to tell on these social impact matters need to tell it and tell it often. This will get them their social licence. And, more importantly, these positive stories will start to balance the negative ones that are raised by the opponents of Chinese investment into Australia.”

A number of interviewees in China felt that when Chinese investments into Australia failed, it was largely caused by the poor strategies and approaches of the investors themselves.

“Leaving aside the interviewees’ perceptions of the failed Chinese bids for the Kidman assets, there was a sense that many Chinese investors in Australia are not sufficiently mindful of local sensitivities.”

“A number of interviewees said that some Chinese think they can do whatever they want with their investments as long as they are contributing the money, to use the words of one of the interviewees.”

“Some interviewees said they believed Chinese investors had failed to undertake sufficient due diligence prior to making investments or acquisitions. Unfortunately this was not elaborated on by our interviewees in China, despite prodding by our consultants. They simply declined to provide further comment on the matter.”

The majority of interviewees failed to understand the value of strategic communications and public affairs, the report found.

“When it came to discussing strategies for success in the market, they primarily discussed business operational issues, and legal and financial matters. None of the interviews put forward views regarding development and execution of stakeholder engagement strategies. Importantly one interviewee suggested that ‘doing too much [public relations]’ was the reason why the Chinese investors had failed to win approval for their bids for the Kidman estate.

“The view put forward by many Chinese was that all that was necessary to succeed in Australia was to win FIRB approval… and get on with operations”

The interviewee said they should have maintained a lower profile to ensure the success of the bid.

Others said communications with local stakeholders should be left to local partners to pursue. The general view was that outreach to local stakeholders was fraught with risk, yet offered little by way of return on investment.

“It can be concluded that there was little understanding among our Chinese interviewees of the concept of ‘social licence’, and little appreciation of the value of obtaining one. The unsophisticated view put forward by many Chinese was that all that was necessary to succeed in Australia was to win government approval (primarily via the FIRB process) and get on with operations.”

The report recommended a “best practice road map” approach for would-be Chinese investors in Australian agriculture.

“But it’s not just about investments in Australian ag,” Mr Nicholas said. “The findings are applicable beyond agriculture and lessons can be learned across markets and sectors.

“Wherever Chinese businesses are looking to invest overseas, whatever the sector, they will need to obtain local community support to operate. This report provides guidelines to achieve that.”

• Click here to access the full report.