Chinese companies and investors are on a global tear buying farms, dairies, vineyards, seed companies worth billions of dollars all over the world. As these deal can reach in the hundreds of millions of dollars (or more) the commission can be substantial indeed. Traditionally land is sold at 10% commission , 5% to Sell Side, 5% to Buy Side. Besides the monetary compensation, working on a deal like this will allow you to meet many new valuable contacts and teach you things you could never learn selling residential properties.
To get started, you need to consider the factors driving this trend. Why are Chinese companies buying soy, wheat and corn, dairy, vineyards, pork producers and farmland?
Here is a list a few of the factors:
- Looming food shortages- The Chinese government sees that rising middle class and it’s ever increasing desire for better lifestyle, more meat, more protein and knows it has to do something. There simply isn’t enough food in China.
- Only 8% of Chinese land is arable. And much of that is polluted from industry. So Chinese companies must look abroad. Cleaning up polluted soil is a long term, expensive process but food needs are much more pressing.
- “Pork is considered a national security issue in China” Speaks for itself.
- Too many people, not enough food: China has more than four times as many people to feed.
- Increasing pollution means that China’s available farmland is actually shrinking.
- Low agricultural productivity: China’s tiny independent farms rely on ancient technology and human labor. Meanwhile, salaries are rising rapidly.
- Food scandals: Never ending food scandals due to small unregulated food producers. Just prior to the Beijing Olympics, China had the mother of all food scandals. Infant formula companies had cheated so badly on ingredients and quality that some powdered milk had no dairy content. Zero. Zippo. No milk. Just chemicals like Melamine. And babies died. A lot of them. 300,000 babies got sick, 54,000 hospitalized and 12 died due to the toxic chemical concoction they consumed. And it isn’t much better today. Food scandals in China never stop whether it’s oil from the sewer (Google China’s gutter oil for videos describing this abomination. Anyway, these scandals are real. And it’s so bad that many Chinese are immigrating abroad to escape. Others are buying baby formula from abroad. Everyone is looking for a way to avoid these poorly regulated, never ending food scandals. Why do they continue?
- Never ending demand for more and higher quality food: Rising Chinese wages, increased demand for meat, high quality food. And it’s only just beginning. At this point, Chinese still consume less than half the amount of meat annually of Americans. But the gap will surely close.
So now you are convinced that the demand is real. What to do next?
First, you need to brush up on some basics on land sales. (I teach this in my course) It’s also good to know something about your area’s agricultural production and the soil productivity index.
After you are comfortable that you can successfully conduct the basics of a legal land transaction, you need to determine which land or company in your area is the most attractive to potential Chinese investors. And therefore the most worthy of your time investment. How do you do that? By looking at past deals: Consider both the land or company being sold and the buyer. Why did they purchase that particular asset? And finally by locking down an exclusive agreement to sell to a PRC or Hong Kong entity.
It does you no good if you contact a potential Chinese buyer with an attractive company or farm if they buy it through someone else. You can avoid that gruesome situation (which I have encountered many times) by getting an airtight, exclusive agreement to sell to a Chinese or Hong Kong company. This is an essential step as you will be very likely investing significant time and energy into marketing a farm property in China.
There are many benefits to a farm owner in finding a buyer in China. One is simply that the book value from a Chinese companies perspective could significantly differ from local buyers. Simply getting an offer from a Chinese company can greatly increase eventual sales price even in the case that the target is eventually sold to a local competitor. The offer is seen as another take on “book value” and gives the company leverage. Also, as is the case with many of the examples below, the sales price to a Chinese buyer is often 30%+ higher than a local offer.
Or the offer from the Chinese company might have other incentives that make it superior to a local offer. For example, a guarantee to invest $XXX into R&D in X number of years can help a local firm to compete on a larger playing field.
So you could potentially get a higher price and better terms than a local investor. And many farm owners are now aware that Chinese firms are interested and will take you up on your offer to market their farm in China.
Obviously you want to be as efficient as possible with you time so it’s important to look at previous deals that give you an idea of which Chinese firms have bought in the past and why. So I made a list of some large deals in various countries that might give you a head start. Of course, you want to research in depth to find all the Chinese companies that have invested in your area and what they bought.
The best rule for “who will buy my farm?” is “who has bought a farm before in my country?” So if Bright Foods has purchased several farms in your country, why not contact them first? It really pays to do this research. In the graphic above you can see a list of successful sales of properties, buyers, locations and prices which might give you some ideas about who the most likely buyer could be. Also please peruse the list at the bottom for more ideas in the US, France and several other countries.
You only want to talk to companies that have the financial strength to acquire the company or land you want to sell. Luckily, most of the firms that are big enough to buy a major food producer or large farmland are public and you can see their rating on Fitch, Moody’s and Standard & Poor and the like. If they are an unknown Chinese firm, beware.
However, if the company is unknown to you and they have scant information about them online, you can also consider the person behind the deal. In other words, if the CEO is well known and has worked on many deals in the past, then it passes my test. If you are dealing with him or her directly. Never believe middlemen. Especially in China. Go straight to the source.
Call the company try to get the highest ranking manager that you can. I know this is counterintuitive and that many will tell you that the only way to get into a Chinese company is through a connection, but this hasn’t been my experience. Over the last 27 years, I have worked on selling a Chinese animal drug company, a Beijing based tire company, a Singaporean supply chain company to a Chinese firm and many more. And I can tell you, I only want to talk to the top manager, myself. And I’m not afraid of calling the CEO: Directly.
I once got the president of a Chinese hotel chain on the phone in one phone call. And we did a deal. He was a very cool guy actually. And spoke perfect English. And we hit it off from the first call. So don’t be afraid to call. I’m not saying it will work for you. There is no guarantee. But I can tell you this. I’m so sick or hearing that this and that can’t be done in China, by people who have never done a successful deal, that I want to scream. I say, ignore the naysayers and reach out in anyway you can.
Of course, if your wife has a good friend who is the president of the firm you want to contact, by all means use her. Or if you have another such connection. But I’m guessing you don’t. So call, email, add on WeChat and do your darndest to get them on the phone or in a chat. This is what stops most people from doing a deal in China. They think it can’t be done.
I’m not saying that everyone will take you seriously. Of course they won’t! And many will hang up on you. But if you are a dealmaker and not an order taker, you know what you need to do. Bang the phone and add everyone you can on WeChat. Try a Google ad, try a Facebook ad, try the phone, but try.
Chinese business is changing fast. Modern Chinese businesses are interested in strategic assets that make their company more efficient, fulfill a need or help them to compete globally. And because of these problems, a line manager is working late in China. Someone is worrying. Someone is stressing out. If you have the solution to their needs, they will talk to you.
Dealing with Chinese investors is not like Martians. They have a need; You have a solution. So buck up your confidence and go present it. Remember, you’ve done your homework. You know their situation. And you have the perfect target for them to acquire. And you know why. And that confidence shines through. Everyone, Chinese included, like to have their problems solved. So if you can solve a baby formula’s companies problems, let them know.
One interesting thing about doing deals in China is that, in my experience, Chinese investors are less concerned with your background than people in your area. They are much more concerned with what you can do for them. This works both ways. So if you have decades of experience selling farms and agricultural firms and vineyards, they might not be that impressed. It’s all about what you can offer them. Of course they do look at your background but I’ve found that working with Chinese buyers and investors to be the best way to break into a new market. That’s what happened to me when I moved to China and started a real estate firm.
The buyers and sellers were more interested in was what I could offer them than which university I went to or who my friends were. (Well after we became friends they wanted to know that information) but until we started working together in ernest, they didn’t really care.
Working with Chinese investors is one of the best ways to break into the ‘old boys network’ selling commercial real estate, farmland, companies and developing properties. Think about it, if you were the president of a family owned firm, and someone came to you with a Chinese company that was willing and able to purchase your company, would you turn them away just because you never heard of them?
There are other more dire factors driving farm owners to sell land to Chinese buyers. The rate of rural suicide in Australia is among the highest in the world as farmers battle the stress of years of drought, failed crops and mounting debt. And they are open to solutions to their problems.
If you find yourself saying, “why would they work with me? I’m just a broker, woman, man whatever” remember that you are simply listening to the voice of fear. It tells you that you can’t do it. You’re not enough. You need this and that and then you can do it. Don’t listen to this voice. When you are brokering a deal or investment, it’s very similar regardless of the deal size. You need an exclusive agreement to sell. You need to know who is most likely to buy and you need to know why. And you’re off and running.
It all starts with knowledge. Knowing who is buying, who might sell, why they might buy and why they might sell. I’ve done some research for you below but do your research to really get a bead on a slam dunk deal. And work on that first. Get the low hanging fruit.
This has been a very short introduction to the mindsets and some of the steps in selling land and farms to Chinese investors. If you want to market large investment opportunities to deep pocketed Chinese investors, there are a number of things you can do to increase your chance of success. For more info click here
Tasmania’s 17,800ha Van Diemen’s Land Company bought by Moon Lake Investments controlled by Lu Xianfeng.
Price: $280 million
Specifics: Tasmanian Land Company, which has a 30,000 strong dairy herd across 25 farms. Moon Lake to invest A$100m in the dairy, create an extra 95 jobs and maintain the same level of milk supply in Australia in his decision.
Why? Incredible demand for baby formula and endless scandals in China.
Chinese firms bought 50 farms in Victoria in 2014. Also Australia’s largest cotton farm in 2013
Smithfield Foods bought by Shuanghui
Why global reach and pork technology
Price? $7.1 billion a 30 percent premium over Smithfield’s publicly traded share price.
Syngenta bought by ChemChina President Ren Jianxin
Price: $43 billion
Why? seeds that can increase harvests of corn, rice, and wheat. (agricultural efficiency-technology to boost productivity-“increase global crop yields” to increase both productivity and quality)
Chinese investing in Wheat, barley and rapeseed, vineyards in the Bordeaux area, a big dairy cooperative in Normandy
Hongyang bought 5200 acres of farmland: They paid over twice the market price. Future? Chinese plan to ultimately buy 50,000 acres in France.
Silver Fern Farms (SFF) bought by Shanghai Maling, a listed subsidiary of Bright Food (Group) Co, China’s largest food company.
Deals that were blocked on national security or other sensitive grounds:
New Zealand rejected an NZ$88m ($US59m) bid by a subsidiary of Shanghai Pengxin for the 13,800-hectare Lochinver sheep and cattle station
Shanghai Pengxin, from acquiring S Kidman & Co, a company controlling land about three-quarters the size of England
Keep in mind that although those deals were blocked, Shanghai Pengxin and Bright Foods are hot to invest. If you have a deal that isn’t sensitive but still is attractive to either one, go for it. Of course, they will be sensitive to the possibility of a deal being blocked so you need to be prepared when you talk to them. You need to be able to explain how this fits their goals and also is considered “safe” by your countries government.