Regulation of foreign investment in Australian agriculture is increasingly contentious – the sector is rife with disquiet and uncertainty. Reform appears inevitable. But what form will it take?
Foreign investment in Australian agriculture supports production, creates jobs and contributes to the prosperity of rural communities and the broader Australian economy. But how well is it working in practice? Recent acquisitions of agricultural assets have set minds thinking. And once they start, the issues come thick and fast.
Global food security
Spikes in international food prices and resulting social disruption has led some governments to sharpen their focus on food security. Might foreign stateowned investors be distorting local markets and restricting local supply by being motivated more by the desire to channel food production to customers in their home countries than by profit?
A Foreign Investment Review Board official told a Senate Committee back in 2011 that the Review Board (FIRB) 'considers whether an investment [by foreign government-related entities] is commercial in nature or whether the investor may be pursuing broader political or strategic objectives that may be contrary to Australia's national interest'.
Although food security is a major global issue, these concerns appear overstated given that the purchase of foreign farmland would seem an uncertain and inefficient device whereby foreign nations can improve food security.
Are the thresholds applied under the Foreign Acquisitions & Takeovers Act too high for the agricultural sector? Do they actually reflect the average value of agricultural assets or land holdings?
In recent election debates, Tony Abbott said that a coalition government would lower the threshold from AU$248 million down to AU$15 million. There have also been calls for the introduction of a spatial threshold for agricultural land. In 2011, a Senate committee suggested the same 5 hectare threshold that applies in New Zealand.
Opponents argue that lower thresholds may deter productivity-enhancing foreign investment and contribute to financing difficulties for Australian agricultural producers.
Defining 'rural land'
Foreign Acquisitions & Takeovers Act defines rural land as land situated in Australia that is used wholly and exclusively for carrying on a business of primary production, being a business that is substantial, with a commercial purpose or character.
The lack of clarity in this definition has caused inconsistencies in FIRB's capacity to consider acquisitions involving land.
Where successive acquisitions – by a single entity – sit below the threshold, each acquisition is regarded separately: no formula exists to trigger a review by FIRB of cumulative land acquisitions.
It is possible for a foreign entity to acquire large swathes of aggregated land holdings without ever being subject to FIRB scrutiny.
The Coalition has stated that it will establish a database capable of tracking acquisitions of land across Australia to inform public debate and policy. Some form of register is inevitable.
The sale of agricultural land and agribusiness is not currently treated as a sector-specific purchase (unlike media and aviation). To enable FIRB to apply heightened scrutiny to investment in the agricultural sector, sales of agricultural land and agribusiness will probably become sector-specific purchases, with FIRB applying specific statutory considerations and lower monetary thresholds.
Foreign investors may be subject to heightened disclosure for investments in the agricultural sector, such as a requirement that they disclose any direct or indirect ownership or source of influence by a foreign government.
There may be a move to codify the national interest test, including a requirement to provide precise, clear instructions to prospective investors about their obligations to FIRB and the Treasurer and how the national interest test is conducted. This is the least likely reform given the difficulty in defining the national interest and the political imperative to retain a flexible test to deal with changing circumstances and attitudes.
Substantive restrictions on foreign investment in Australia's agricultural sector are unlikely. Both the major political parties recognise that Australia lacks the investment capital required to develop its agricultural sector (and other sectors) and that foreign investment is therefore an essential component of our economic well-being.
The current position
The principal sources for regulation of foreign investment in Australia
- Foreign Acquisitions & Takeovers Act 1975 [FATA]
- Foreign Investment Policy Framework
Help for investors
See the Foreign Investment Policy Framework
This sets out how the Government will apply FATA
The Foreign Investment Review Board
The Foreign Investment Review Board assesses
- impact on Australia's national interest
- productivity of the land
- security of domestic supply.
FIRB looks at
- the quality and availability of agricultural resources
- land access
- productivity of the land
- water rights
- to whom the produce will be sold
- current land holdings of purchaser
- proposed land holdings of purchaser.
At stake is Australia's capacity to remain a reliable supplier of agricultural production.
The ultimate decision-maker
The Treasurer can block the acquisition of a business.
Private foreign investors
If the acquisition proceeds without approval, the Treasurer can order divestment if total assets exceed the (inflation-indexed) threshold of AU$248m
If the acquisition proceeds without approval, the Treasurer can order divestment if total assets exceed the (inflation-indexed) threshold of AU$1,078m
Foreign government investors
If the acquisition proceeds without approval, the Treasurer can order divestment regardless of the value of the assets.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.