Australia: It is time to make good on the innovation nation and welcome foreign investment in agriculture

At a time of national discussion about revenue and the inevitable restructure of Australia's economy with the end of the mining boom, it is no accident that Treasury issued its report on Thursday 18 February " Foreign Investment into Australia". The Report is a salient reminder of the essential contribution of foreign investment to Australia's economic growth and prosperity.

It seems trite to remind Australia that foreign investment is integral to the Australian economy, however as noted in the Report, the benefits of foreign investment are not widely understood. Australia is a resource rich country with a relatively high demand for capital and a small population (and pool of savings) and relies on foreign capital to finance the shortfall between national investment and national saving (the gap between the two has been on average about 4% of GDP in the last few decades). Foreign investment is regarded as among the most stable forms of capital inflow as, unlike debt and portfolio investment which can be recalled quickly, it usually involves a long term and substantial commitment from the investor.

In recognition of the importance of foreign investment, on 1 December 2015, the Australian Government modernised Australia's foreign investment framework – representing the most significant changes in over 40 years. The changes (despite the overstated concerns about their impact on foreign investment) provide foreign investors with a simplified legislative framework, with more clarity and greater certainty. They have already improved service delivery and removed routine cases from the system.

The most significant change relates to the approvals required for investment in agribusiness. Some labelled the Treasurer's press release for foreign investment in Kidmans as a sign that Australia had closed its doors to foreign investment in agribusiness. But does it mean anything?

At its heart is a misconception about the foreign investment in Australia and in Australia's farm land. According to the Report, the US is the largest source of foreign direct investment (FDI), followed by UK and Japan while China remains a relatively minor source at 4.4% of the total but is growing rapidly. The Report goes on to provide that agricultural assets in Australia are largely locally owned with local ownership of agricultural businesses exceeding 96% and just under 90% of Australia's farm land is fully Australian owned. The countries investing in Australian agricultural land include Canada at 25%; the United Kingdom, 22%; the US, 12%; the United Arab Emirates, 5%; New Zealand, 4.3% and Chinese investment is about 0.5 to 1% of all foreign investment in agricultural land.

Farming groups say Australia's agricultural sector is on the verge of a boom. Foreign investment is needed to ensure the industry can meet its full potential. Our farmers are old, and getting older, with the average age of Australian farmers at 52, twelve years above the national average for other occupations.

The retirement of all these farmers will produce skills shortages on a huge scale and it will also create a requirement for $400 billion in capital to transfer the ownership of these farms to new owners. There will be a need for $600 billion to fund capital upgrades to improve farm productivity. Foreign investment in Australian agriculture provides access to new technologies and grows local skills in agriculture and agribusiness. As well as providing greater links to global food chains, foreign investment provides new capital for agricultural expansion and, through recently negotiated free trade agreements, opens doors for Australian agricultural and related investors to actually invest into countries with whom Australia trades: see ANZ's Greener Pastures.

China today accounts for about 19% of the global population, yet has just 8% arable land. Unlike other countries with growing populations, there's no land left to till; years of chemical abuse in the countryside and industrial pollution that sowed heavy metals through rice paddies mean China's available farmland is actually shrinking.

"Buying the farm" is a simplistic reading of FDI in Australian agriculture and the needs of Australian agriculture. Indeed, "for China, [while] food security is always a politically important goal", says Deborah Brautigam, professor of international development at Johns Hopkins University's School of Advanced International Studies, "they are on a big buying spree to acquire technology, [and] they want to get intellectual property". Australia's offering combined with China's needs provides an opportunity for clever investment that does not need to alarm the community: see Why Is China Spending $43 Billion for a Farming Company?.

Take for example, the $43 billion bid by ChinaChem for Swiss agricultural company Syngenta which Syngenta's board of directors said in a release that it was "unanimously recommending the offer" to shareholders. Sygenta, one of the world's biggest producers of crop protection products, from pesticides to fungicides to novel types of seeds that can increase harvests of corn, rice, and wheat, had previously rebuffed a richer offer last summer from rival agribusiness giant Monsanto. Imagine for a moment if the struggling Nufarm had permitted SinoChem to complete its offer.

The Turnbull government has committed to an innovation nation including supporting agricultural technologies and start-ups. The Australian ag-tech industry is experimenting with sensor technology, drones and robotics, energy and water optimisation among other innovations – a clever country that could unlock significant productivity gains in the agricultural sector in Australia and abroad.

China's 13th Five Year Plan (to be finalised in March 2016) lists technology as a key area of focus including expansion of the online economy and the implementation of the Internet plus plan, increasing network speeds and lowering fees. The Chinese Government proposed to increase support for cyberspace innovation in industries, and supply and logistics chains. Chinese investors have previously focused on the acquisition of commercialised tech companies. However with a frothy US tech market Chinese investors are also beginning to see that Australia is a great source of ideas as the smaller market size forces Australian start-ups to build viable business models which are not predicated on blue sky projections: see The Year of the Monkey – Riding the third wave.

Investment in Australian agri-technology which supports efficient use of land or reclaims degraded land supports Australian agriculture and provides a real business rationale for Chinese investment.

By international standards, Australia's total level of FDI is not particularly high with Australia's FDI inflow well behind NZ and UK. Australia should be under no illusion that it is in a race for capital. If Australia is to derive the immense benefits from the Asian Century and make good on the promise to be an innovation nation, then we need to work at being seen to welcome foreign investment in Australian agriculture and promote Australia as an investment destination.

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.

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