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Food security has been driving investment in agricultural land around the world. Australia is no exception as a destination for foreign capital in the agricultural sector. Indeed, it has been a feature of agricultural production in this country since white settlement.
However, the recent Federal election has cast foreign investment into the spotlight, with foreign acquisitions of Australian farm land becoming an election issue on the back of concerns about domestic food security and sovereignty. There have been calls to increase scrutiny by Australia’s foreign investment watchdog, the Foreign Investment Review Board, of investment in the agricultural sector, particularly by sovereign wealth funds and foreign state-owned entities.
Those calls have not abated after the drawn-out election result became known and Labor formed government with the support of key independents, importantly several from rural and regional electorates.
While the government’s view to date has appeared to be that there is no special case for agriculture in a foreign investment context, it now seems likely that changes to the Foreign Acquisitions and Takeovers Act 1975 will continue to be agitated on the back of food security and sovereignty concerns.
So what has been the impetus for investment in agriculture and why are some seeing it as a concern?
Macro trends underpin investment
Data from the Population Reference Bureau has put a figure of around 80 million new mouths to feed each year around the world. Coupled with that increase, is a scarcity of rural land as urbanisation increases. For the first time, the world population is evenly divided between urban and rural areas. By 2050, urban residents are likely to make up 70 percent of the world’s population (UN Population Division, World Urbanization Prospects).
One of the inevitable consequences of this macro trend in population development is that pressure is being exerted on arable farming land as expanding cities see fertile soils being utilised for construction and housing. Other fundamentals underpinning the flow of capital into agriculture and farm land include:
These now widely reported and well understood fundamentals make agriculture a compelling investment proposition, which has not been lost on astute investors with patient capital and an eye on the macro trends in population growth and food securit
These are key drivers for investment in Australian agriculture as they have been in other places around the world. Australia also has particular attributes that make it stand out as a destination for foreign investment in agriculture, including:
How does Australia currently regulate foreign investment of farm land?
The Foreign Acquisitions and Takeovers Act includes a requirement to give prior notification to the FIRB of an acquisition by a foreign person. It is an offence under the Act to enter into an acquisition without giving prior notice and obtaining a statement of non-objection. However, the acquisition of “rural land” is not subject to the notification requirement under the Act. Rural land in this context is land that is used wholly and exclusively for carrying on a substantial business of primary production.
What becomes relevant then are the monetary thresholds after which FIRB approval is required. An application does not need to be submitted for approval for acquisitions involving existing Australian corporations or businesses, or proposals to establish new businesses, which are valued below the relevant monetary thresholds. While there is no notification requirement, an acquisition of an interest in rural land and/or a primary production business is still subject to the same monetary thresholds that apply to other acquisitions of Australian companies or business assets. The relevant threshold for non-US investors is $231 million. For US investors it is $1,004 million. Irrespective of the thresholds, the Act does give the Treasurer powers to make orders in the national interest prohibiting a proposed acquisition, or, if an acquisition has proceeded, requiring the foreign person to dispose of the assets acquired.
What concerns have been raised about foreign investment?
In the lead up to the recent federal election, calls from several quarters came to reform Australia’s regulation of foreign investment in the agricultural sector. For example, independent Senator Nick Xenophon has been agitating for legislative reform to the foreign investment regime to provide for a national interest test for foreign investment in Australian farm land. The premise has been that Australia should be “selling the food and not the farm”.
Most of the concern appears to have been centred around foreign state-owned entities, such as sovereign wealth funds buying up rural properties. The well reported acquisitions by Qatar-based Hassad Food, as well as Chinese interest in Queensland sugar assets being cases in point. Though, foreign investment has not been restricted to foreign state-owned entities. The range of buyers has included pension and other funds, private individuals and families and investment consortia.
Senator Xenephon has called for a Senate enquiry into the issue. He is not alone in his stance on foreign investment and its implications for Australia’s food security. Liberal Senator Bill Heffernan has also been vocal in his call for scrutiny of acquisitions of farm land. Citing maintenance of competitive trade and strategic sovereignty, Senator Heffernan has also called for amendments to the Foreign Acquisitions and Takeovers Act to provide for mandatory reporting of land acquisitions.
The shift of power in Australia’s Federal Parliament, which is now largely in the hands of a few independents representing rural and regional constituencies, has sent signals of a more protectionist stance for Australian agriculture. Whether the mooted changes to Australia’s foreign investment regime will see the light of day in view of the current government’s ambitious legislative agenda remains to be seen. Issues such as the National Broadband Network and resources tax are likely to occupy much of the parliamentary agenda in the short-term.
As a part of any prudent assessment of an investment in Australian agriculture and agribusiness, foreign investors should however remain cognisant of the prospect of legislative change to Australia’s foreign investment regime as it relates to agriculture.
Some balance is also needed in the sometimes heated debate over foreign investment in Australian farm land. Foreign investment in Australian agricultural has been a key feature of the sector since its inception. If capital does not flow from domestic sources, be they private or institutional, then it seems inevitable that the need will be met by foreign capital. Capital flowing into agriculture, has in the past, and will into the future, bring appreciable benefits in the form of jobs and investment in rural and regional economies, as well as innovation and intellectual property, which are keys to sustainable agricultural production and the imperative of feeding a growing world population.
About the author
Simon Venus is a Partner at Australian national law firm Piper Alderman and is head of the firm’s Agribusiness Practice Group. His practice focuses on the agribusiness sector including businesses adding value both inside and beyond the farm-gate in the food, fibre and beverage value chain. He has acted for foreign investors in Australian farm land over the last 10 years, including advising on Australian domiciled investment structures, acquisition due diligence and execution, as well as a wide range of corporate and commercial matters in the agribusiness sector.
Simon is also a director of the Agribusiness Association of Australia Limited. The author’s views are his own.