AgriThinking - Autumn 2013 - Mallesons

INSIDE THIS ISSUE 

1 WELCOME TO AGRITHINKING 

2 THE CHANGING FACE OF 

AGRICULTURAL LAND HOLDINGS 

IN AUSTRALIA 

4 TAX & FOREIGN INVESTMENT 

IN AGRICULTURE 

6 FOOD SAFETY LAWS IN CHINA 

8 ARBITRATION FOR CROSS-BORDER 

COMMODITIES CONTRACTS 

10 IN THE FIELD WITH ADRIAN PERKINS 

IN THE NEWS 

FEDERAL BUDGET 2013-2014 – 

AGRIBUSINESS HIGHLIGHTS 

While agriculture has been spared major 

cuts, there was very little new to provide 

extra support for the policy momentum 

behind the drive to become Asia’s food 

bowl. Here are the highlights: 

• $99.4 million committed over four 

years towards a new Farm Household 

Allowance to support farm families in 

periods of hardship, as part of the 

National Drought Reform program. 

• Farm Finance package introduced to 

assist farmers experiencing severe debt. 

The package includes $420 million in 

concession loans to be made available 

to eligible primary production businesses 

over two years, with a cap on loans 

of $650,000 per business and changes 

to the Farm Management Deposit 

(FMD) scheme (which enables primary 

production profits to be spread 

across several financial years to reduce 

tax liability). 

AGRITHINKING 

AUTUMN 2013 

WELCOME TO AGRITHINKING 

Agriculture continues to retain its prominent 

place on the national agenda and in the 

press. The debt crisis in rural Australia, the 

proposed multi-billion dollar takeover of 

GrainCorp by Archer Daniels Midland, the 

prospect of insects being a key future source 

of protein, and relationships between 

suppliers and grocery retailers have all been 

widely discussed and reported. Amidst this, 

the Global Food Forum, held in Melbourne in 

April, provided an opportunity to take stock of 

Australian food and agriculture, the enormous 

potential of the sector and the numerous 

obstacles it needs to overcome to prosper. 

In broad terms, we consider that there are 

two very significant issues that the Australian 

agricultural sector needs to address in 

order to ensure its future prosperity: 

• First, there is a need to develop scale 

through corporate farms and 

agribusinesses which are larger, more 

productive and have lower costs. To 

do this, ownership and management 

structures need to be developed and 

implemented which work for investors 

and appropriately incentivise farmers 

and asset managers. 

• Second, to achieve the first objective 

and attract the necessary investment, 

the sector needs to coordinate better to 

promote its strengths and opportunities 

more positively and truly embrace the 

required policies and actions, including 

foreign investment. 

In this edition of AgriThinking, Simone 

Menz explains a key driver of future 

competitiveness in Australian agribusiness, 

namely how Australian agricultural land is 

held and managed. Key trends, including 

the consolidation of land holdings, 

increasing corporatisation and institutional 

investment are closely linked to industry 

participants’ choice of investment 

structures. Simone explains the underlying 

trends and regulatory changes (including 

the Significant Investor Visa), and sets out 

some considerations relevant to structuring 

the ownership of agricultural land holdings. 

Building on Simone’s property perspective, 

Richard Snowden explains the drivers 

of investment structuring from a tax 

perspective. Richard provides an overview 

of the Managed Investment Trust regime 

and the Investor Management Regime, and 

notes some other existing tax concessions 

which are likely to be relevant to an 

investment in Australian agribusiness. 

Moving from investment structuring to key 

opportunities for Australian agriculture, 

Mark Schaub and Chen Bing from our 

Shanghai office discuss food safety in 

China. They outline the drivers for the 

recent focus on food safety in China and 

the regulatory state of play. 

Given increasing international demands for 

Australian food and agricultural products, 

Australian agribusiness has an enormous 

opportunity for exporting to international 

markets. However, the cross-border flow of 

goods can bring with it the risk of legal 

disputes with foreign counterparties, in foreign 

jurisdictions, and governed by foreign laws. 

Alex Baykitch and Daisy Mallett, in our final 

article, outline some arbitration options for 

resolving disputes in cross-border contracts. 

Lastly, Sydney-based partner Adrian 

Perkins talks about his interest in 

agribusiness, and provides his views on the 

current wave of mergers and acquisitions 

activity and the near term outlook. 

We hope you enjoy this edition of 

AgriThinking. As always, please be in touch 

if you have any questions or comments. 

Kind regards, 

Meredith Paynter 

Agribusiness Sector Leader 

T +61 2 9296 2277 

M +61 418 698 126 

meredith.paynter@au.kwm.com 

Scott Bouvier 

Agribusiness Sector Leader 

T +61 2 9296 2472 

M +61 407 894 528 

scott.bouvier@au.kwm.com 

www.kwm.com 

1





IN AUSTRALIA 







IN THE NEWS 


AGRIBUSINESS HIGHLIGHTS (CONT) 

• Funding of $38.5 million over four years 

to support environmental assessment 

and approval processes of projects, 

and to provide greater environmental 

protection for water resources from 

any adverse impacts of coal seam gas 

and large coal mining developments. 

• Certain agricultural production levies 

and export charges have been either 

changed or introduced to better fund 

R&D and industry membership of Plant 

Health Australia (PHA), which helps 

protect Australia’s biosecurity system. 

PHA levies have been introduced for 

chestnuts, fresh olives and sales of 

potted plants. R&D levies have been 

introduced for processing olives, and 

reduced for potted plants and chestnuts. 

AGRITHINKING 


THE CHANGING FACE OF AGRICULTURAL LAND HOLDINGS IN AUSTRALIA 

Agricultural land in Australia has historically 

been held by families, either directly or 

within a family trust, and a handful of 

pastoral companies. Leaving aside timber 

schemes, institutional investors have not 

been prominent in Australian agricultural 

or primary industry land holdings to date. 

Change is imminent, as the purchasers of 

agricultural land holdings today are more 

likely than ever before to be institutional 

and/or offshore investors with larger 

holdings. This has consequences for 

the nature of land holdings and farming 

operations in Australia. 

Why is this change occurring 

There are a number of reasons. A two-tier 

market has been established by the lending 

practices of Australian banks; lending 

criteria has tightened for lending to 

individuals or families for the purchase 

or operation of a single farm. Generational 

change in farming families also means that 

it is no longer assumed that the farm will 

remain in the family for future generations. 

There is a trend towards homogenization 

of fresh produce in supermarkets, which 

can only be met by having farming 

operations of a significant scale, and it is 

more efficient for major supermarkets to 

deal with fewer suppliers who can supply 

larger quantities of fresh produce. Food 

security and supply issues are also a factor, 

having particular relevance to Asian and 

Middle East investors, and they throw a very 

different investment driver into the mix. 

To protect the food supply chain, investors 

sometimes acquire other assets within 

the supply chain – for example, logistics 

and processing facilities. The ancillary 

investment into those other assets requires 

significant capital. 

The introduction of the Significant Investor 

Visa (or “SIV”) may facilitate further 

investment through fund structures as high 

net worth individuals, especially from Asia, 

seek to access this recently introduced 

immigration pathway into Australia. The SIV, 

once granted, allows the individual and their 

family to reside in Australia under a 4 year 

provisional visa, which can be extended for 

up to a further 4 years and then converted to 

a permanent visa. Importantly, an innovation 

points test, upper age limits and English 

language threshold requirements do not 

apply, and so the SIV is more flexible than 

other types of business or investment visas. 

The SIV requires investment by the 

individual of at least A$5m through an 

ASIC-regulated fund which holds certain 

types of assets, which can include 

agricultural real estate assets. 

The SIV has already attracted a lot of 

interest from high net worth individuals in 

China in particular, and it seems that 

immigration entitlements coupled with 

investment in the Australian agribusiness 

sector could be a powerful combination. 

Colliers International has observed 

a number of foreign investment trends 

in agribusiness recently, particularly in 

the wine industry. According to Angus 

Barrington-Case, Director of Rural 

and Agribusiness Valuation at Colliers 

International, “The link to Asian distribution 

networks gives an advantage to the offshore 

investor that Australian investors may not 

be able to capture. There have been 

a number of wine industry sales throughout 

Australia’s premium wine growing regions, 

typically within a two hour commute of 

Australian capital cities, that have occurred 

at rates a step ahead of the general market. 

These transactions demonstrate that in 

a number of instances, offshore investors 

have had a more positive view on the 

market than locals, or alternatively, greater 

access to funds to purchase the properties 

or better access to distribution networks.” 

Consequences of the change 

The nature of agricultural operations means 

they can be significantly impacted on 

a seasonal basis by factors such as 

weather, natural disasters and fluctuations 

in commodity prices. 

The resulting risks to cashflow are sometimes 

inconsistent with the investment criteria of 

www.kwm.com 

2





IN AUSTRALIA 







IN THE NEWS 


AGRIBUSINESS HIGHLIGHTS (CONT) 

• $25.4 million over five years to develop 

a pilot National Produce Monitoring 

program to identify risks associated with 

the use of agricultural chemicals and 

veterinary medicines that are currently 

not being assessed, particularly to the 

extent that they are used in relation to 

food sold for consumption. 

• Food Innovation Precinct funding 

confirmed – up to $4 million of funding 

per annum for 5 years. 

AGRITHINKING 


institutional investors. For this reason, it is 

becoming increasingly common for the 

acquisition of agricultural land holdings to be 

subject to a leaseback, so that the vendor 

pays a rental to the new owner of the land 

and continues to carry on the farming 

operations as a tenant of the land. The 

vendor (now a tenant) retains a level of risk 

and reward from the success or otherwise of 

those farming operations, and the new owner 

(now a landlord) has the benefit of a relatively 

consistent income stream that can be 

distributed regularly to investors. 

In recent times, there has been a trend 

towards sale and leaseback arrangements. 

Barrington-Case says “These transactions 

have typically occurred within the capital 

intensive sectors, such as horticulture and 

irrigated agriculture. There are also 

examples within the forestry and broad 

hectare sectors, however they are less 

common. In most instances, investors are 

looking for returns of between 8% and 

10% of total funds invested, which generally 

limits this kind of capital injection to 

vertically integrated businesses which 

can value-add the agricultural commodity 

or access global markets.” 

Therefore, for the right sector and asset, the 

benefits to the vendor are clear. Barrington- 

Case says “Given the current low returns 

within the Australian agricultural sector, 

many farm operators are highly leveraged. 

A sale and leaseback provides a capital 

injection to the business to ensure a viable 

operating future and retention of good farm 

management.” However, he warns that 

these transactions need to be assessed on 

a case by case basis, as they will not always 

provide the best outcome for either party. 

A sale and leaseback arrangement can 

also take advantage of the “flow-through” 

taxation status of trusts, so that income is 

taxed in the hands of the investors, applying 

any concessional rates and discounts 

available to those investors. 

There are a number of commercial and 

taxation matters to be worked through 

under a sale and leaseback arrangement 

involving an institutional investor as 

landlord, such as: 

• an appropriate allocation of risk and 

reward from the farming operations, 

which might be reflected in the 

rental structure; 

• ensuring that the income to the 

landlord can be properly characterized 

as rent, so that the Australian trading 

trust provisions are not triggered; 

• the extent to which produce from the 

farming operations is sold or processed 

through the marketing and supply 

chains of the landlord, to take advantage 

of the landlord’s scale of operations; 

• the extent to which the landlord is 

entitled to visibility and/or control over 

the farming operations, particularly 

towards the end of the lease; 

• ensuring that the landlord has 

appropriate rights in relation to material 

operational licences and permits, 

particularly water entitlements, so that 

the landlord ends up with a saleable or 

leaseable asset at the end of the lease; 

• retaining flexibility at the ownership 

level for new investors, and for 

existing investors to exit, ideally in 

a tax-efficient manner; and 

• achieving the right stamp duty and 

GST treatment for the arrangement. 

The structural changes in farm ownership 

are likely to contribute towards 

consolidation of agricultural land holdings 

in Australia. Ultimately, if this consolidation 

continues to occur, it should put the 

Australian industry in a more globally 

competitive position and allow food 

producers to focus on issues such as 

sustainable farming practices, resource 

management and productivity gains. 

Simone Menz 

Partner, Real Estate 

T +61 3 9643 4219 

M +61 412 603 499 

simone.menz@au.kwm.com 

www.kwm.com 

3





IN AUSTRALIA 







IN THE NEWS 

NATIONAL FOOD PLAN WHITE 

PAPER RELEASED 

Senator the Hon Joe Ludwig, Minister for 

Agriculture, Fisheries and Forestry, released 

the long-awaited National Food Plan White 

Paper on 25 May 2013. The White Paper 

outlined 16 goals and a number of new, 

supporting initiatives, including: 

• $28 million for a grants program for 

research into Asian markets; 

• A “What Asia Wants” study to identify 

food needs and preferences in the 

region and identify long-term risks 

and opportunities for the Australian 

food industry; and 

• A Productivity Commission review 

to identify priority areas for reforming 

food supply chain regulations. 

Read the announcement here. 

AGRITHINKING 


TAX & FOREIGN INVESTMENT IN AGRICULTURE 

Over recent years, various tax regimes have 

been introduced to encourage foreign 

investment in Australia and they have been 

used to invest in the agricultural sector. 

These include: 

• the Managed Investment Trust (“MIT”) 

regime; and 

• the Investment Manager Regime 

(“IMR”) (including the recent release 

of draft legislation in relation to the 

third (final) element). 

These new regimes, together with other 

existing tax concessions available to 

taxpayers engaged in a primary production 

business, should assist to provide a more 

favourable tax environment for foreign 

investment in Australian agricultural assets. 

This article provides a brief overview of 

the MIT regime and IMR and notes some 

other existing tax concessions which are 

likely to be relevant to any investment in 

Australian agribusiness. 

Managed Investment Trust (MIT) regime 

We have seen an increasing number of 

foreign investors use trust structures for 

their investments in Australian agricultural 

assets. Many of these structures involve 

the establishment of an Australian MIT 

often in combination with a stapled share 

in an operating company. 

One of the key benefits of using a MIT is the 

reduced rate of withholding tax (generally 

15%, although in certain limited cases 

for “clean building” MITs, the rate can be 

reduced to 10%) that is applied to certain 

distributions that are made to qualifying 

foreign residents. Examples include 

distributions of rental income from an 

investment in Australian agricultural land 

and distributions of capital gains which may 

be realised when underlying assets are sold. 

Another key benefit is the ability for the 

MIT to make a capital account election in 

relation to certain investments such as 

shares, units, real property or rights or 

options to acquire one of those assets. 

This is intended to remove uncertainty 

surrounding the tax treatment of such 

investments and preserve the capital 

gains tax exemption for foreign investors 

in relation to gains realised on those 

investments which are not taxable 

Australian property. 

Broadly, the key requirements which must 

be satisfied in order for a trust to be a MIT 

and be eligible for the reduced withholding 

tax rate include the following: 

• the trustee of the MIT must be an 

Australian resident, or management and 

control of the trust must be in Australia; 

• the MIT must not be a “trading trust” 

(i.e. it must not control an active 

business); 

• a substantial portion of investment 

management activities carried out in 

relation to the trust in respect of 

“Australian assets” must be in Australia; 

• the trust must be a “managed 

investment scheme” (“MIS”); 

• the trust must have a wholesale 

membership or be a registered MIS; 

• the trust must satisfy certain widely held 

requirements (generally 25 members, 

although deeming rules are available); 

• the trust must not be “closely held” 

(e.g. a foreign individual must not 

hold 10% or more); and 

• the trust must satisfy certain 

licensing requirements. 

For a trust to be a MIT and have the ability 

to make the capital account election, it must 

meet similar requirements to those listed 

above, with some exceptions. For example, 

in certain circumstances (e.g. where the 

only member of a trust is another MIT), 

a trust may be deemed to have satisfied 

some of the above requirements. 

www.kwm.com 

4





IN AUSTRALIA 







IN THE NEWS 

INCREASED MARKET ACCESS FOR 

AUSTRALIAN AGRICULTURE IN CHINA 

The Chinese Minister for Agriculture, Han 

Changfu and his Australian counterpart, 

Senator the Hon Joe Ludwig, have signed 

an agriculture agreement to expand 

co-operation in science, investment and 

trade. China also accredited 28 Australian 

cold store facilities and four red meat 

plants, which will facilitate continued 

growth in Australian beef exports to China. 

Read the announcement here. 

GRAINCORP PROVISIONALLY 

ACCEPTS BID FROM ARCHER 

DANIELS MIDLAND 

GrainCorp provisionally accepted an 

improved $3bn takeover bid by 

multinational grain giant Archer Daniels 

Midland (ADM). ADM has completed 

confirmatory due diligence and will make 

a formal takeover bid. 

AGRITHINKING 


For the purpose of making agricultural 

investments, a dual structure is often used 

– with the MIT holding the agricultural land 

holdings and a corporate entity conducting 

the business. In such a case, the corporate 

entity pays tax at the company tax rate 

(30%) on profits. This structure can also 

protect the land holding from claims relating 

to the conduct of the business. 

Investment Manager Regime (IMR) 

The recent release of draft legislation in 

relation to the third (final) element of the IMR 

should also be welcome news for foreign 

investors making investments in Australian 

agricultural assets. 

Generally, where a foreign fund meets the 

definition of an “IMR foreign fund”, 

Australian sourced capital gains and 

revenue gains made by the foreign fund in 

respect of passive portfolio investments 

(with the exception of certain real property 

interests) will be exempt from Australian tax. 

However, the changes do not affect income 

from dividends, interest and royalties that 

is subject to withholding tax. 

To be an “IMR foreign fund”, a foreign 

fund must: 

• not be an Australian resident at any time 

during the income year; 

• not conduct or control a trading 

business in Australia at any time during 

the income year (i.e. a trading business 

outside Australia is acceptable); 

• be resident in an information 

exchange country at all times during 

the income year; 

• pass a “widely held” and “closely held” 

test; and 

• give an annual information statement 

to the Commissioner each year and 

make available certain information to 

beneficiaries and members. 

Special rules also ensure that the IMR 

exemption only flows to foreign resident 

beneficiaries and partners where the 

IMR foreign fund is a trust or partnership. 

The benefit of utilising an IMR arrangement 

would be to allow management of the foreign 

fund’s Australian assets, without jeopardising 

the tax status of the foreign fund. 

Other tax concessions 

As noted above, there are already existing 

tax concessions that may be available to 

a taxpayer engaged in a primary production 

business. Some of these include: 

• annual deductions over 10 years for 

the cost of communication lines; 

• three year write-off for expenditure 

on water facilities; 

• outright deductions for 

landcare operations; 

• spreading of insurance recoveries 

for livestock; and 

• spreading or deferring the tax profit 

due to the forced disposal or 

compulsory destruction of livestock. 

These deductions can be significant, 

particularly for large agricultural operations. 

Richard Snowden 

Partner 

T +61 2 9296 2193 

M +61 413 943 370 

richard.snowden@au.kwm.com 

www.kwm.com 

5





IN AUSTRALIA 







IN THE NEWS 

GLENCORE TO SELL OFF 

MALT ASSETS 

Glencore has signalled plans to sell off its 

Australian malting assets which were 

acquired as part of the $6.1 billion takeover 

of Viterra in December 2012. 

COLES – MURRAY GOULBURN 

SUPPLY ARRANGEMENT 

Coles has announced that it will directly 

source $2.6 billion of milk from Murray 

Goulburn over 10 years from July 2014. 

As a result of the agreement, Devondale 

(Murray Goulburn Co-operative) will make 

the biggest milk processing investment 

since the dairy industry deregulated in 2000 

– two facilities in Melbourne and Sydney 

worth $120 million to supply Coles’ private 

label brands in Victoria and NSW. 

AGRITHINKING 


FOOD SAFETY LAWS IN CHINA 

It would be safe to say that when Hong 

Kong rejoined China as a Special 

Administrative Region in 1997 there was 

little thought, if any, paid to milk powder 

and its effect on relations with the mainland. 

However, recent restrictions introduced in 

Hong Kong on the sale and distribution of 

milk powder produced by mainland China 

suppliers has become a major, and indeed 

emotional, issue. When the 12 th Chinese 

People’s Political Consultative Conference 

National Committee (“CPPCC”) and 12 th 

National People’s Congress (“NPC”) (the 

highest authority of the PRC) commenced 

on March 5, 2013, baby milk grabbed the 

attention of representatives in both forums. 

When Australian food businesses think 

China they often think “food security” and 

the Chinese Government’s concern to 

ensure adequate food supplies. However, 

the Chinese consumer’s concern with “food 

safety” may be the far greater selling point. 

As a consequence of a spate of high profile 

safety scares affecting staples in the local 

diet, food safety is now very much a part of 

the public agenda in China. Even if this level 

of overt heightened awareness recedes, 

strong public sentiment will remain just 

beneath the surface, awaiting the next 

scandal. Food safety scandals have 

surfaced in China long before the recent 

milk powder concerns and include substandard 

baby milk produced in Anhui, 

Longkou noodles containing lead from 

Shandong, fake alcohol in Guangdong, 

eggs with melamine and even soy sauce 

made from human hair (we are still not 

clear how that works in practice). The list 

is long and a cause of grave concern for 

increasingly selective Chinese consumers. 

Consultations during recent NPC 

and CPPCC sessions regarding food 

safety were aimed at further promoting 

institutional reform and improving the 

regulatory and monitoring systems and 

food safety inspection techniques. 

Institutional reform 

The PRC Food Safety Law, which went 

into effect on 1 June 2009, consolidated 

hundreds of regulations and standards. That 

law governs the operation and activities of 

China’s 500,000 food-processing companies. 

However, the PRC Food Safety Law failed 

to consolidate oversight and implementation 

regimes in respect of monitoring and 

supervision functions. Several agencies 

remain responsible for food safety including 

the Ministry of Health, the General 

Administration of Industry and Commerce, 

the State Food and Drug Administration 

and the General Administration of Quality 

Supervision Inspection and Quarantine. 

The responsibilities in some cases overlap, 

while policies of various authorities are in 

some cases contradictory. 

The existence of multiple responsible 

oversight authorities remains one of 

the greatest obstacles to improved 

implementation of the PRC Food Safety 

Law. It appears that this has been widely 

recognized among the representatives 

of the NPC and CPPCC and it is expected 

that institutional reform will be forthcoming. 

Bringing food safety within the remit of 

a single government authority would avoid 

duplication of work, reduce the risk of 

contradictory or inconsistent application 

and enforcement, and reduce the likelihood 

of a failure to perform vital tasks. As part 

of the recent reform of PRC central 

government organizations announced in 

March 2013, the newly established State 

Food and Drug General Administration 

(a combination of the former State Food 

and Drug Administration and other central 

agencies) is expected to act as the sole 

authority responsible for the supervision 

of the new food safety regime. 

Need for improved regulation, 

deterrence and monitoring 

Although the PRC Food Safety Law 

stipulated a set of mandatory national 

food safety standards, it was still only 

an umbrella law which aimed to establish 

a framework for a comprehensive 

supervision system for food safety. 

Accordingly the promulgation of this law 

alone did not have an immediate effect 

www.kwm.com 

6





IN AUSTRALIA 







IN THE NEWS 

FARMERS OFFERED SHARE IN 

$30 MILLION TO UNDERTAKE 

CLIMATE CHANGE RESEARCH 

The Federal Government is offering farmers 

a share in $30 million of funding to undertake 

climate change research and test the 

program on-farm. Individual grants are 

available to farmers, land managers, 

non-government organisations and research 

and industry sectors. The grants are part 

of the Carbon Farming Futures Action on 

the Ground program. 

FARMER EXHAUSTS HIS OPTIONS IN 

DISPUTE OVER PATENTED SEEDS 

An American farmer recently lost his legal 

battle with seed giant, Monsanto, after his 

attempt to work around Monsanto’s seed 

licensing program was found to infringe 

Monsanto’s intellectual property. 

Read more about the dispute here. 

AGRITHINKING 


on China’s food safety landscape. In order 

to move forward, it will be necessary for 

China to make specific and detailed 

stipulations, while avoiding the confusion 

and contradictory characteristics of the 

previous patchwork of rules and regulations. 

An example of such a stipulation is the draft 

law regarding infant milk powder which is 

currently on the legislative agenda. 

Another reason why food safety issues 

continue to arise in China is that existing 

penalties for violations available to 

enforcement authorities are generally 

considered to be insufficient to create an 

effective deterrent. The Head of the State 

Administration of Industry and Commerce, 

Mr. Zhou Bohua, emphasized that the PRC 

Food Safety Law needs to be strengthened 

in this regard. Mr. Zhou expressed the wish 

that in the near future much more severe 

penalties are needed to deter potential 

offenders. An example given was that 

companies which are placed on the blacklist 

will be closed down. 

Food safety legislation in China has 

traditionally been reactive, focusing solely 

upon monitoring food-related disease/ 

contamination and assessing food safety 

risks as they arise. China will need to 

establish a system that holistically deals 

with all aspects of the food supply chain 

and can accurately track the origin of 

different types of food and inputs. Although 

this approach is common in the West, 

China needs to establish a system which 

is not purely reactive. 

Lastly, PRC food safety inspectors need 

better technology and techniques in order 

to work more effectively and to win 

consumer confidence. For example, in 

a recent incident the inspection authority 

was unable to differentiate gutter oil from 

“normal” cooking oil. The authorities will 

need to invest in food safety inspections 

in order for the improvements in regulation 

and institutional reform to be meaningful. 

Conclusion 

Continued consumer concerns and 

feedback from recent NPC and CPPCC 

sessions make it clear that measures will 

be taken to strengthen food safety in China. 

For Australian food companies, stricter 

testing and improved supervision is likely to 

result in a more level playing field in China 

for their products. Additionally, compliance 

requirements are likely to increase the cost 

of production for Chinese producers and 

lead to pressure to open the Chinese 

market to high quality imported products. 

Although Australian producers are likely to 

be a beneficiary of China’s improved food 

safety regime, the ultimate (and rightful) 

beneficiaries of improved food quality and 

safety will be the “lao bai xing” constituting 

the rank and file of Chinese consumers. 

Mark Schaub 

Partner 

T +86 21 2412 6003 

M +86 137 0177 9782 

schaub@cn.kwm.com 

Chen Bing 

Legal Counsel 

T +86 21 2412 6361 

M +86 159 2133 1001 

chenbing@cn.kwm.com 

www.kwm.com 

7





IN AUSTRALIA 







IN THE NEWS 

AUSTRALIA: A NET FOOD EXPORTER 

Australia had a substantial food trade 

surplus in financial year 2011–12 of 

$19.2 billion, an increase of 14.6 per cent 

from financial year 2010–11. Australia 

exported more than $30.5 billion worth of 

food, which represents the highest food 

export value in a decade. In the same 

period, the total value of farm and fisheries 

food production in Australia increased by 

3.4 per cent to $42.6 billion. 

AGRICULTURAL LAND TRUST SELLS 

OFF FORESTRY PROPERTY WORTH 

$28 MILLION 

In April 2013, Agricultural Land Trust sold 

$28.15 million worth of forestry property, 

including nine properties in Victoria and five 

properties in Western Australia, to an 

undisclosed global investor. The properties 

are currently leased to Elders and Global 

Forestry Partners. The sale reflects an 

agreement between the Agricultural Land 

Trust and its bankers to undertake an orderly 

divestment of properties with sale proceeds 

applied to reduce debt. 

AGRITHINKING 


ARBITRATION FOR CROSS-BORDER COMMODITIES CONTRACTS 

With the current growth in Australian 

agricultural exports, we are seeing an 

increasing number of disputes between 

Australian companies exporting 

commodities and the foreign companies 

they supply. Disputes have various origins, 

but often arise where purchasers have 

entered into contracts at the top of the 

market, and the market subsequently drops. 

In such scenarios, purchasers may default 

on their contracts, with the intention of 

purchasing the commodity elsewhere at 

lower prices. These defaults may be one-off 

occurrences, or they can be wide-spread 

involving purchasers across a commodity 

seeking to avoid their contracts. 

Whether companies decide to pursue legal 

proceedings to enforce contractual rights 

or not, they all want to have the option 

to do so. Some exporters are willing to 

renegotiate their contract pricing in light 

of new market conditions, while others 

insist on their contractual rights. For many 

companies, this decision is strategic and 

depends on the nature of their relationships 

with their purchasers, and whether it is 

important to have a reputation in the 

market for enforcing their contracts. 

When considering your options for 

enforcing legal rights against a foreign 

contracting party, the starting point is to 

consider the dispute resolution clause 

(often a so-called “boiler-plate” clause at 

the back of the agreement that no one 

paid any particular attention to at the 

drafting stage!). Contracts for the sale 

of commodities across borders typically 

require disputes to be resolved using 

international arbitration. International 

arbitration is the dispute resolution method 

of choice for international contracts for 

the key reason that a judgment from 

an international arbitral tribunal (called an 

“award”) is enforceable in the courts of 

148 countries. By contrast, a judgment 

debt from an Australian court is 

meaningless in the courts of most foreign 

countries (including most of our major 

trading partners, such as China). Another 

advantage of international arbitration is that 

you avoid litigating in the home courts of 

your contractual counter-party. In many 

jurisdictions, this would raise concerns 

about the ability to receive an impartial 

and timely decision, and the potential 

home-town advantage of the local party 

(particularly where the local company 

has government links). 

Disputes are not usually front of mind when 

negotiating commodities contracts but, 

from a risk management perspective, it is 

crucial to have the ability to enforce your 

rights (if it comes to that). When negotiating 

cross-border contracts, the two most 

important issues to consider from an 

enforcement perspective are: 

• ensuring that the entity you are 

contracting with has assets (and ideally, 

is a substantial entity which is unlikely 

to be able to wind up or dissipate its 

assets in the event it has the prospect 

of an adverse award against it); and 

• agreeing an appropriate approach to 

international arbitration as the dispute 

resolution mechanism. 

Arbitration: the rules of engagement 

When agreeing to have contract disputes 

resolved by means of international 

arbitration, there are a range of options – 

from industry association arbitration 

(such as under the International Cotton 

Association, Grains and Feed Trade 

Association or Federation of Oils, Seeds and 

Fats Association), to arbitration administered 

by an arbitration institution (such as 

the Australian Centre for International 

Commercial Arbitration, International 

Chamber of Commerce, London Court 

of International Arbitration, Singapore 

International Arbitration Centre etc). 

Industry association arbitrations can be 

a sound option for resolving simple or low 

value disputes. In particular, many industry 

association arbitrations have quick and 

cost effective procedures for small claims 

(typically less than $25,000) which often 

provide for document-only arbitrations in 

order to avoid the delay and expense 

www.kwm.com 

8





IN AUSTRALIA 







IN THE NEWS 

CUBBIE STATION SELLING WATER 

BACK TO THE FEDERAL GOVERNMENT 

The new owners of Cubbie Station, the 

96,000 hectare property in south-western 

Queensland, have indicated that they 

intend to sell water back to the Federal 

Government less than two months after 

paying $232 million for the cotton farm. 

TPG ACQUIRES INGHAM POULTRY 

FOR $880 MILLION 

TPG acquired Ingham Enterprises’ 

poultry business for $880 million in March 

2013, outbidding other bidders including 

US private equity firm Blackstone. The 

Ingham family will retain ownership of their 

racing business, as well as a substantial 

property portfolio. 

AGRITHINKING 


associated with oral hearings. This can 

be a real advantage of industry association 

arbitrations, as the expense and time 

involved in an arbitration administered by an 

arbitral institution can be disproportionate 

where the value in dispute is small. 

Another important feature of most industry 

association arbitration is that they generally 

provide a mechanism for black listing bad 

debtors. If an industry association member 

fails to make payment in satisfaction of an 

award issued by the association, they can 

be ‘black listed’ on the industry website or 

in the industry publication, so that other 

members are cautioned against doing 

business with that company. From a 

commercial perspective, this can be a very 

useful stick in encouraging compliance with 

arbitration awards. However, there is always 

the risk that a company, which has an 

award issued against it, will wind up in order 

to avoid paying its debt, and re-incorporate 

under another name to avoid the negative 

consequences of being black listed. 

In assessing the choice between arbitration 

under industry association arbitration rules 

and arbitral institution rules, you should be 

aware that many industry association rules 

restrict the involvement of lawyers in the 

arbitration process. Depending on the type 

of dispute, this may or may not be an 

attractive feature. The theory behind this 

rule is that by limiting legal representation, 

the dispute will be resolved more efficiently 

and commercially. However, this limitation 

on the involvement of lawyers can be a real 

burden for smaller companies which do not 

have the in-house resources or expertise to 

deal with these disputes. In any event, it is 

worth keeping in mind that most industry 

association arbitration rules do not prevent 

companies being advised by lawyers and 

obtaining their assistance in drafting 

submissions, even if those lawyers are not 

formally on the record. Many rules also 

permit legal advisers to attend the hearing 

to advise, even if they are not permitted 

to make oral submissions at the hearing. 

Another factor to note is that usually 

arbitrators appointed in industry arbitrations 

are non-lawyers. An advantage of this is 

that these arbitrators are often familiar 

with the industry practice and terms of 

trade, however if complex legal issues are 

involved, the arbitrators may be ill-equipped 

to resolve the dispute. A common complaint 

is that in such circumstances, industry 

arbitrators are prone to ‘split the baby’ 

and award something to both parties 

rather than resolving the dispute on its 

merits. With international trade becoming 

more complex, this can be a substantial 

disincentive to engage in industry 

association arbitration. 

In conclusion, arbitration is the most 

effective method for resolving cross-border 

disputes. However, given the range of 

options available, it is advisable to ensure 

that the procedures you are going to 

be bound by (in the event of a dispute) 

pursuant to the arbitration clause in your 

contract will be best suited to the sorts 

of disputes that are most likely to flow from 

your contract. 

Alex Baykitch 

Partner 

T +61 2 9296 2118 

M +61 407 270 771 

alex.baykitch@au.kwm.com 

Daisy Mallett 

Senior Associate 

T +61 2 9296 2643 

M +61 419 388 606 

daisy.mallett@au.kwm.com 

www.kwm.com 

9





IN AUSTRALIA 







IN THE NEWS 

TWO NEW DEVELOPMENTS 

IN THE AUSTRALIAN ANTI-DUMPING 

FRAMEWORK 

Two substantial developments in the 

Australian anti-dumping framework were 

announced on 29 May 2013, which are 

important steps forward in bolstering 

Australia’s anti-dumping reforms. 

Read more about the developments here. 

FRUIT AND VEGETABLE 

WHOLESALER, MORAITIS, SOLD 

The wave of Asian investment in the local 

food and agribusiness sector continues. 

Hong-Kong listed Chevalier Group’s 

Australian investment holding company, 

King Bid Co, has bought a 70 per cent 

stake in Australia’s largest fruit and 

vegetable wholesaler, Moraitis Group, from 

the Moraitis family and Catalyst Investment 

Managers at a deal value of $211 million. 

AGRITHINKING 


Q&A: 

ADRIAN 

PERKINS 

Adrian is a partner in the Sydney office 

of King & Wood Mallesons where he 

specialises in mergers and acquisitions, 

joint ventures, major projects, private 

equity and commercial agreements. Adrian 

has particular expertise in the agribusiness, 

resources, energy, infrastructure, industrial, 

consumer and financial services sectors. 

Where did your interest is agribusiness 

first stem from 

I grew up in Nambucca Heads and studied 

law at UNE in Armidale so I have always had 

a strong connection with agriculture and 

agricultural communities. I also married into 

a family that runs a beef cattle farm at Adelong 

in the Riverina. I enjoy working on the farm and 

have just come back from a week of drenching 

yearling steers and heifers! 

Why do you enjoy working in the 

agribusiness sector 

Agribusiness is integral to our lives and there 

is more to it than meets the eye – the value 

chain stretches from farm to consumer and 

the transactions in between are interesting 

and various. 

Over the past 12 months, there has been 

a significant uptick in M&A activity in the 

agribusiness sector. Do you expect this 

activity to continue and in which industries 

are we likely to see more consolidation 

The Federal Government has adopted a 

facilitative stance to foreign investment in 

Australian agribusiness and I think the trend of 

offshore investment is set to continue. Food 

export industries, such as livestock, dairy and 

grain, and the logistics, storage and handling 

infrastructure to support them, will see 

continued investment activity as Asia looks 

to Australia as a key source of quality food. 

I also think joint ventures between offshore 

investors and local owners will increase as 

offshore investors recognise the value that local 

knowledge, connections and management bring 

to the table. Joint ventures are common in the 

mining sector for the same reason, and I believe 

they translate well to the agribusiness sector. 

When looking to invest in Australian 

agribusiness, what are the key considerations 

investors should keep in mind 

There are many issues to consider and it 

depends on the agribusiness investment. In 

general terms, my top 5 is: (1) regulatory issues 

like foreign investment approval should be top of 

mind; (2) tax and investment structure; (3) having 

a clear public relations strategy; (4) conducting 

a sensible due diligence investigation into 

what you are buying; and (5) ensuring you 

can retain good local management. 

The Australian Government recently 

announced it had signed a strategic 

partnership agreement with China. 

How do you think Australian agribusiness 

can benefit from closer ties to China 

China is a massive consumer market. It also 

has a strong track record of capital investment 

in Australian business. PRC Government 

endorsement is critical to successful business 

dealings with Chinese counter parties. In my 

view, the strategic partnership agreement 

strengthens Australian producers’ ability to 

compete in the Chinese market and attract 

capital investment to Australian business. 

It’s a great leg up for Australian agribusiness. 

For more information contact Adrian 

Perkins on +61 2 9296 2283 or 

adrian.perkins@au.kwm.com 

www.kwm.com 

10

AgriThinking - Autumn 2013 - Mallesons

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