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There are fears and misconceptions when it comes to the importance of foreign investment in Australian agriculture, but the truth is Australia’s policies about the scrutiny of proposed investments are restrictive compared to other similar countries.
Australian agriculture needs significant capital investment to be able to expand to meet growing demand for our products. Where opportunities for domestic investment in agriculture are limited we should look overseas for sources of investment.
While superannuation funds have been identified as a possible source of domestic investment, currently there is very little fund investment in Australian agriculture. This is possibly because funds are required to invest in liquid assets that achieve an annual rate of return around 15%, while farms are illiquid assets generating lower rates of return. Other barriers to superannuation investment include limited listed agricultural companies, and unwillingness to become actively involved in management.
Foreign investment is therefore necessary to bridge the gap in domestic savings allowing the sector to meet rising demand. But, the lack of clarity and transparency in Australia’s foreign investment policy could deter potential investors from choosing Australia to invest in.
Over a couple of months last year, I researched how foreign investment is perceived in the agriculture community and whether these perceptions hold true when comparing Australian foreign investment regulations with those of other countries. I investigated the policies of other developed, agricultural economies – New Zealand, Canada and America.
The Foreign Investment Review Board will assess proposals by foreign investors if the investment is over $55 million for an agribusiness, or over $15 million for agricultural land. For foreign government investors, a $0 threshold applies. Higher thresholds apply to certain trade agreement partners including Chile, the USA and New Zealand.
If a proposed investment is over the threshold the FIRB advises the Treasurer whether it is in the national interest. The national interest test is considered on a case-by-case basis, and is discretionary, with no requirement for publication of reasons for a decision.
A Register of Foreign Ownership of Agricultural Land was introduced in July 2015 with data showing foreign ownership levels to be released periodically. At June 2016 only 13.6% of Australia’s agricultural land was held by foreign interests.
+ Transparency (approvals and rejections published online)
+ Automatic approval of beneficial investment
+ Limited opportunity for Ministerial discretion
- No threshold, increased scrutiny
In New Zealand proposals by foreign investors to purchase agricultural land require consent from the Overseas Investment Office. Consent will be granted automatically if proposed investments meet legislated criteria. Decisions to grant or to decline consent are published online monthly.
+ Approval of beneficial investment
+ Clearer investment criteria
- Limited transparency
The review threshold in Canada depends on whether the investor comes from a WTO member country. An investment will be approved if it is likely to be of net benefit to Canada, taking into account legislated considerations.
+ Notification requirement only
- Disparity between states
In America there are no restrictions on foreign investment in agriculture at the national level, but individual states may impose their own restrictions. All foreign investments in agricultural land are subject to reporting requirements.
The comparison revealed that Australia’s review threshold for agricultural land and agribusiness is more restrictive than Canada and America’s, but less restrictive than New Zealand’s. In New Zealand, all proposed purchases of agricultural land are reviewed. However, the publication of approvals and rejections of proposals and the reasons for these decisions in New Zealand puts it ahead in terms of the clarity and transparency of its review scheme.
The Australian regime is ambiguous in comparison, and creates confusion as to what investments will or will not be accepted. The discretionary nature of Australia and Canada’s review processes makes it difficult to find consistency in the application of the relevant test.
Despite the FIRB asserting that a flexible approach is preferable as rigid rules might stop valuable investment, there must be some regularity in the national interest test’s application so foreign investors can deduce with some certainty whether or not their proposal is likely to be accepted. While Canada’s scheme is also discretionary, the inclusion of factors for consideration in the legislation adds some level of clarity in comparison with Australia.
An area where Australia does measure up is in relation to our reporting requirements. Despite the lack of detail in the Register of Foreign Ownership of Agricultural Land, it is useful to show trends in foreign land ownership that is lacking in Canada and New Zealand.
In its current form, our foreign investment review scheme risks deterring foreign investors to invest in other countries with less confused and restrictive assessment criteria. This is problematic as domestic investment is not meeting the capital required for the sector’s growth. Australia needs greater clarity, predictability and transparency in its review regime if it wants to attract much-needed foreign capital.
Nina is a fifth year commerce/law student at the Australian National University. As part of her degree she undertook an internship at the NFF in the second half of 2016, which involved looking at a cross-country comparison of foreign investment in agriculture. As a result of the internship Nina was awarded the CBE Outstanding Intern of the Year Award.