Concerns on infant formula prices with Chinese go-ahead to buy Australia’s largest dairy

Posted by AFN Staff Writers on 24th February 2016

CowsThe Australian Federal Government’s Foreign Investment Review Board (FIRB) is allowing China’s Moon Lake Investments to acquire Australia’s largest dairy producer, Van Diemen’s Land Company (VDL).


The purchase price is AUD$280 million for operations covering 17, 800 hectares.


The deal is causing worry in Australia about upward pricing pressures from a shortfall in production of infant formula for Australia’s domestic market.


Market observers believe that the purchase will increase the diversion of Australia’s infant formula resources to the China market, and that this will push up prices in Australia. On the other hand, it has been described its good news for other dairy processors on the Australian mainland and Moon Lake Investments says it will continue to supply the milk produced at VDL under the same contractual terms are currently in place.


Moon Lake Investments is controlled by Chinese billionaire Lu Xianfeng.


VDL was established in 1825 and is located in northwest Tasmania. It is one of the oldest companies still operating in Australia.


The company runs 25 dairy farms, a dairy support unit and a heifer rearing operation. VDL says it is responsible for approximately 30, 000 dairy stock.


Treasurer’s assessment


Federal Treasurer’s Federal Treasurer Scott Morrison yesterday said in considering the approval of the acquisition he had carefully thought about any impacts to local jobs and economic development.


“Moon Lake Investments have given guarantees that all current VDL employees will be offered ongoing employment with Moon Lake on terms no less favourable than their current employment arrangements,” Morrison said.


“Moon Lake has also committed to undertake a number of investment projects in the VDL farms, which will provide additional economic activity to the Tasmanian economy, and based upon Moon Lake’s estimates will result in a near doubling of employment at VDL,” he continued.


Jobs for Tasmania


“This will guarantee more than 140 local jobs, generate an intended additional investment of over $100 million and an expected additional 95 jobs,” Morrison stated.


Promises by purchaser


The company has  assured the Federal Government it will honour the terms of all environmental and cultural agreements already entered into by VDL.  This includes agreements made with the local Aboriginal community.


New conditions with approval


Moon Lake’s foreign investment application is the first to be subject to new conditions requiring it to provide the Australian Federal Government with information on its investments. It must advise the Australian Taxation Office (ATO) if it enters into any transactions with non-Australian parties as transfer pricing or anti-avoidance measures may apply.


A breach of these conditions could result in prosecution, fines and potentially divestment of the asset.


Irony in history


VDL has been owned by New Zealand’s New Plymouth’s District Council, but ironically, it has never been owned by Australians since being established in Tasmania 190 years ago.


Moon Lake Investments


Moon Lake Investments is solely owned by Lu Xianfeng who is also now the managing director of Kresta Holdings, a window blinds retailer which operates across Australia and New Zealand. It employees over 700 staff. He also owns a Chinese-based company called Ningbo Xianfeng New Material, which manufacturer’s sunshade materials.


Moon Lake Investments was only registered as an incorporated business in Australia in October 2015 but is buying VDL which has been in operation since 1825.