Agricultural land, agribusinesses and the foreign investment review process
This chapter considers the evidence regarding the foreign investment
review process in relation to agricultural land and agribusinesses. In
particular, it considers the evidence for and against the Government's decision
to lower the thresholds for foreign investment in agricultural land and
agribusinesses. It also examines the Government's announcement of the
introduction of an agricultural land register, along with the decision to alter
the definition of agribusinesses to take in first stage producers.
The blocked sale of S. Kidman and Co. Ltd
As one of Australia's largest beef producers, S. Kidman and Co. Ltd has
a herd of around 185,000 cattle and controls pastoral leases covering
approximately 101,000 square kilometres. Its land holdings cover three states –
Western Australia, South Australia and Queensland – and also extend into the
In addition to Anna Creek station, located in outback South Australia and the
largest property in Kidman's portfolio, the company also owns and manages a
further 15 properties of various sizes.
As Australia's largest private land owner, the company holds about 1.3 per cent
of Australia's total land area, which equates to approximately 2.5 per cent of
the nation's total agricultural land.
The company's cattle stations produce beef for export to Japan, the US and
South East Asia.
On 19 November 2015, the Treasurer, the Hon. Scott Morrison MP, announced
that, after receiving advice from FIRB, he had decided to block the proposed
sale of S. Kidman and Co. to unnamed foreign investors on the grounds that the
sale would be contrary to Australia's national interest.
The Treasurer highlighted the fact that the proposal included the
entirety of the company's largest property, Anna Creek station, a sizeable
proportion of which is located within the Woomera Prohibited Area (WPA) in
South Australia. According to the Treasurer, the WPA contains a significant weapons
testing range, and is therefore a highly sensitive part of Australia's national
defence architecture. The Treasurer stated that:
Given the size and significance of the total portfolio of
Kidman properties along with the national security issues around access to the
WPA, I have determined, after taking advice from FIRB, that it would be
contrary to Australia's national interest for a foreign person to acquire S.
Kidman and Co. in its current form.
The Treasurer also stated that foreign investors that had sought
approval of their investment proposals voluntarily withdrew their applications
after being informed of his decision.
According to some media reports, which have not been confirmed by the
Government, the major bidders for S. Kidman and Co. were two privately-owned
Chinese companies, Genius Link Asset Management and Shanghai Pengxin. The
companies are reported to have submitted bids of between $350 and $370 million.
Following the Treasurer's decision, some media outlets reported that S. Kidman
and Co. has decided to remove its Anna Creek and The Peak properties from a
future sale of the company's land holdings. Further, it was reported that the
process of soliciting fresh bids is currently underway.
It was reported that the company might now only offer its Anna Creek and The
Peak properties to local investors, in an effort to comply with the
requirements of the Treasurer's decision.
At the time of writing, the Treasurer has not made an announcement on
whether a revised investment proposal from a foreign investor will be approved.
There is also no publically available information on which foreign investors,
if any, have submitted applications to FIRB to purchase S. Kidman and Co.
Lower investment thresholds and the agricultural land register
Australia's foreign investment review framework
is particularly significant in relation to agricultural land and agribusinesses.
Proposals for foreign investment in both categories are assessed on the basis
of criteria that are different than those that apply to other types of foreign
investment, such a general business acquisitions, where thresholds of either
$252 million or $1.094 billion apply. This is dependent on whether the investor
is from a non-FTA country or a country with which Australia has a FTA,
Amongst a number of legislative changes
introduced in 2015, the Government lowered the threshold for investments in
agribusinesses to $55 million. To meet the threshold test for FIRB scrutiny,
the total value of an acquisition – along with the total value of the other
interests held by the person (and their associates) – in the entity or
business, or previously acquired from the entity or business, must be more than
Additionally, foreign investment in agricultural land will now be screened at a
cumulative threshold of $15 million, unless the investor is from Chile, the US
or New Zealand, in which case the threshold increases to $1.094 billion.
One of the Government's key reforms was the
introduction of a register of all foreign-owned agricultural land in Australia.
On the basis of the Register of Foreign Ownership of Agricultural Land Act
2015, the ATO will create and administer a comprehensive register of data
relating to the purchase, sale and transfer of Australian agricultural land by
foreign persons. As a consequence, all foreign persons, companies and trustees
will be required to notify the ATO if they:
have an existing interest in agricultural land;
have a new interest in agricultural land;
no longer have an interest in agricultural land.
The deadline for foreign investors to notify the
ATO of their existing interests in Australian agricultural land, as defined by
the three criteria outlined above, passed on 29 February 2016.
As part of its suite of reforms to the foreign
investment review framework, which included changes to the FATA and its
associated regulations, the Government also introduced a new definition of
agribusinesses, which now encompasses first stage processors 'beyond the farm
According to the Hon. Barnaby Joyce MP, Deputy Prime Minister and Minister for
Agriculture and Water Resources, this introduces a common sense definition of
agribusiness that will see the lower threshold of $55 million apply to proposed
foreign investments in a larger range of agribusinesses.
According to section 12 of the Foreign
Acquisitions and Takeovers Regulations 2015, a business should be defined as an
agribusiness for the purposes of foreign investment review if certain criteria
Two specific criteria apply in the case of an Australian entity:
the value of the assets of the entity and
subsidiaries of the entity, used in carrying on an agribusiness, exceeds 25 per
cent of the total asset value of the entity; or
the earnings before interest and tax derived by
the entity and its subsidiaries in the above classes, in the most recent
financial year for which there are audited accounts, exceeds 25 per cent of the
total earnings for the entity.
In the case of an Australian business, rather
than an Australian entity, FIRB provides the following definition of an
for an Australian business, the value of the
assets of the business used in carrying on an agribusiness exceeds 25 per cent
of the value of the total assets of the business.
In addition to the requirements set out above,
regulation 12 stipulates that an agribusiness must fall within the following
categories, as defined by the Australian and New Zealand Standard Industrial
any class of Division A;
1111 meat processing;
1112 poultry processing;
1120 seafood processing;
1131 milk and cream processing;
1133 cheese and other dairy product
1140 fruit and vegetable processing;
1150 oil and fat manufacturing;
1161 grain mill product manufacturing; and
1181 sugar manufacturing.
In order to illustrate the practical
implications of the new definition of an agribusiness, FIRB has provided the
following hypothetical explanatory scenario:
Agversity is a diversified Australian
business and the parent entity of the business. The business has operations in
both dairy product manufacturing and transport logistics. A German corporation
is proposing to acquire 15 per cent of the securities of Agversity (which is an
Australian entity) for $70 million. Agversity’s most recent audited financial
statements show that in the last financial year:
10 per cent of the value of its total assets
were used in its dairy manufacturing operations; and
its dairy manufacturing operations accounted for
more than 40 per cent of its total earnings before interest and tax.
As the proportion of Agversity’s total
earnings before interest and tax derived from its dairy manufacturing business
exceeds 25 per cent and the German corporation is proposing to acquire a direct
interest (more than 10 per cent), the proposal is both a notifiable and
Concerns regarding the thresholds to agricultural land and
In its submission, the Business Council of
Australia (BCA) maintained that significant levels of capital investment, including
from foreign investors, are required to ensure that productivity and yield are
increased. According to the BCA:
The ability of businesses to access finance
is critical to their ability to undertake the investment necessary to improve
their productive capacity and productivity. Yet access to finance is the most
commonly cited barrier to innovating by Australian businesses and the factor
which most adversely affects international competitiveness by Australian
exporters. A 2013 survey of food and beverage businesses by Grant Thornton
found approximately 16 per cent of Australian executives indicate that sourcing
capital is a constraint on business growth.
Yet the BCA argued that the Government's
decision to lower the threshold for foreign investment in agribusinesses and
agricultural land will have the unintended effect of sending 'a strong negative
message about Australia's attitude towards foreign investors. This risks having
a chilling effect on future investment'.
The BCA maintained that the newly-introduced
cumulative threshold of $15 million for foreign investment in agricultural land
is unlikely to bring any significant public benefit, and is likely to increase
the number of investment proposals that will need to be submitted to FIRB. The
BCA further argued that this will have the effect of increasing costs, creating
a climate of greater investment uncertainty, and will ultimately produce a
chilling effect on foreign investment in the Australian agricultural sector.
In his evidence to the committee, Mr Troy
Setter, CEO of the Consolidated Pastoral Company (CPC), also took the view that
further development and growth in the Australian agricultural sector will depend
on ready access to significant levels of capital, including foreign capital
Mr Setter further maintained that any government policy settings that hinder
the flow of capital into the sector, regardless of whether that flow is
domestic or foreign, will have a negative effect on the future competitiveness
of Australian agriculture.
Additionally, Mr Setter observed that Australian
capital markets do not have sufficient capital available to provide for the current
and future needs of the agricultural sector, and that foreign investment is
therefore of paramount importance for future development. He maintained that
impediments to foreign investment are likely to have far-reaching consequences:
There is simply not enough capital available
in the Australian capital markets. The Australian rural family farm cannot
handle a debt increase of the magnitude needed to unlock Australia's potential.
Australia is at a crossroads, with strong global demand for clean food
products. Detailed plans for developing the region's agriculture are academic
if foreign investors are prevented or hindered from investing in our region.
Mr Setter argued that the difficulties involved
in achieving the required development through an increase in debt financing are
insurmountable, and that attracting foreign investment has become one of the
few effective ways of securing the future of Australia's agricultural sector.
He added that it has been CPC's experience that FIRB's review process, especially
in relation to its complexity and inconsistency, has made it difficult to
attract sufficient levels of foreign capital investment. Mr Setter further maintained
that this is likely to be a significant hurdle into the foreseeable future:
It is not only CPC's view but also CPC's
experience that the complexities and inconsistencies in the current foreign
investment regime have the potential to stifle foreign investment in Australian
agriculture and derail the government's broader policy agenda on developing
Northern Australia and agricultural competitiveness.
In addition, Mr Setter argued that the
Government's recent changes to the investment thresholds for agricultural land
and agribusinesses, rather than introducing greater clarity into the review
process, have produced further inconsistencies. According to Mr Setter, the
changes have led to an overall lack of policy logic in the investment review
Mr Setter also maintained that the new thresholds serve as a significant
disincentive to further foreign capital investment in the agricultural sector:
I have experienced firsthand the active discouragement of
foreign investment... The inconsistencies that they have [in the thresholds] are
certainly challenging for us to look at. We have Chile, the United States and
New Zealand with a threshold of close to $1.1 billion. We have Singapore and
Thailand at $50 million. We have China, South Korea, Japan, Ireland and the
United Kingdom at $15 million cumulative. It is CPC's view that this highlights
a lack of policy logic in the new system—that it is not standard across the
In particular, Mr Setter singled out four
elements of the current review process as the principal obstacles to attracting
sufficient foreign investment into the Australian agricultural sector:
the frequently lengthy timeframe of FIRB's
the largely ad hoc character of the assessment
the lack of clear direction in relation to the
application process; and the
general and unfocussed nature of the national
Given the difficulties involved in using greater
debt financing to achieve an increase in productivity and competitiveness, Mr
Setter argued that the most significant flaw in FIRB's assessment process
remains a lack of transparency, principally in relation to the review process
itself, along with a lack of consistency in the application of investment
thresholds, which are currently highly differentiated:
To break it down into a couple of parts, the
consistency and transparency of the application process would be first,
up-front. At the moment, how the process actually works is not transparent...I
would welcome the consistency of the amount per country or per type as a
standard rate. For us, the $15 million add-on to do new business is difficult.
If you were to go and lease a large property, purchase a large property or
start to invest in some infrastructure, in today's market $15 million is not a
lot of money. To then spend three or four months waiting for a FIRB response
takes you out of any commercial level of negotiations, at that speed.
The concern raised by Mr Setter in relation to
the process that underlies the foreign investment review framework was shared
by EABER. In its submission to the inquiry, EABER maintained that one of the
major weaknesses of the current review process is the fact that Australia's
foreign investment review framework is based on a series of thresholds that are
not the result of conscious policy design, but flow from the ad hoc
requirements of separate FTAs. According to EABER:
An investment regime that discriminates against capital based
on the accident of the sequence of trade agreement negotiations is piecemeal,
protectionist, and not logically defensible. Unilateral action to equalise
foreign investment screening thresholds will lead to a more coherent and
rational Australian investment policy, and is a show of good faith that will
advance Australia’s position in future trade and investment negotiations. There
is no good reason not to treat agricultural land and agribusiness investment in
the same way as other business investments, but if a lower threshold is set for
agricultural investment, it should apply uniformly to all investors.
The Agricultural Management Company (AMC), which specialises in the
management of agriculture sector assets, expressed a similar concern in its
submission to the committee. According to AMC, the foreign investment review
framework is rendered less effective than it could be by the fact that its
central processes, including the Treasurer's power to make a determination on
the basis of an unlegislated national interest test, are largely undefined.
They therefore lack the transparency that is sought by foreign investors and
frequently demanded by the Australian public.
AMC further argued that:
The term “National Interest” is inadequately defined, if at
all, by the Act, although factors for consideration are loosely outlined in
Australia’s Foreign Investment Policy (November, 2015). The Policy leaves
ultimate judgement to the Treasurer without the requirement for clear
justification of reasoning or decisions made. Decision-making that is open to
interpretation and unjustified does not portray the message of transparency and
accountability that Australia proudly promotes as a point of difference and
will deter investment interest in Australia...The Foreign Acquisitions and
Takeovers Act 1975 allows the Treasurer to review proposals that meet certain
criteria, although these ambiguous criteria do not provide support for
justifiable decision-making, or clarify judgement reasoning for investors or
investment proponents. The reputation risk for both investors and investment
proponents is high under this structure and deters some investors from
investing in Australia for fear of generating a poor reputation.
In its submission to the inquiry, the National Farmers' Federation (NFF)
raised its own concerns about the openness of FIRB's review process. In
relation to the transparency and effectiveness of the national interest test,
NFF argued that the various elements that form the test should be publicised,
to the greatest degree possible, in order to ensure that potential investors
and the agricultural sector clearly understand the criteria that will be
applied in assessing applications.
NFF also maintained that the changes to the way in which the national interest
test is publicised must be accompanied by a series of additional reforms to the
review process itself, including the publication, as is currently the case in
New Zealand, of the reasons behind FIRB's decisions:
More specifically, the NFF seeks a number of changes to the
operation of the FIRB. Upon making an approval decision, the FIRB should make
publically available a thorough explanation with regards to their decision
making process. Included in this should be a specific explanation of the
interpretation of the National Interest Test and the weightings placed on the
various criteria. Clearly articulating the outcomes of applications will not
only give confidence to the sector, but will ensure future investors have a
clear understanding of what is expected of them when seeking to invest. This
will in turn improve the quality of application received by the FIRB,
benefiting both the regulator and the applicant.
NFF also expressed the view that, since the agricultural sector is
actively seeking capital investment, including foreign investment, FIRB's
membership should be expanded to include a board member with specific expertise
The Australian Food and Grocery Council (AFGC)
criticised the Government's new definition of agribusinesses. The AFGC
maintained that an extension of the definition of agribusiness beyond the 'farm
gate' is likely to produce uncertainty about the possibility of further scope
creep, which could have the effect of diminishing the attractiveness of the
agribusiness sector to potential foreign investment. The AFGC maintained
For the purposes of the FIRB review, the
definition of agribusiness should capture all primary production businesses.
The definition of agribusiness should not capture first stage downstream
businesses beyond the farm gate. To extend the definition goes beyond the
government's commitments made in the context of agriculture.
For the AFGC, one of the dangers of the
Government's decision to extend the definition of an agribusiness 'beyond the
farm', so that it captures some first stage processors, is that it risks
creating a climate of greater investment ambiguity and confusion. This is
likely to weaken further the FIRB assessment process.
Importance of foreign direct investment to the
The Australia and New Zealand Banking Group
(ANZ) has highlighted the importance of foreign direct investment for the
continued growth and future prosperity of Australia's agricultural sector. ANZ
pointed out that the agricultural sector requires very high levels of capital
investment. It notes that foreign direct investment is a significant source of
much-needed capital, yet attracting capital investment from foreign entities
and individuals is a competitive process.
In particular, ANZ estimated that, by 2050, the
shortfall between capital requirements and available domestic capital in the
agricultural sector is likely to be $850 billion. Given the mismatch between
available domestic capital and the projected investment needs of the sector,
attracting foreign investment is a workable solution to the lack of a
sufficient domestic pool of capital.
ANZ argued that, in an increasingly competitive global environment, the
Government's foreign investment review framework needs to ensure that Australia
remains an internationally attractive destination for foreign direct
Australia needs to be an attractive
destination among the nations competing for capital. In relation to the
agricultural sector, Australia is estimated to account for less than five per
cent of global institutional investment. Competition for institutional
agricultural investment is increasing with nations in Asia, South America and
Africa seeking investment to develop their economies.
ANZ argued that the current foreign investment
review framework, in which the Treasurer bases decisions on a broad national
interest test, strikes an appropriate balance between the legitimate demands of
the national interest and the need to attract sufficient levels of foreign
direct investment into the agricultural sector.
Support for the
thresholds on agricultural land and agribusiness
The Deputy Prime Minister and Minister for
Agriculture and Water Resources, the Hon. Barnaby Joyce MP, has argued that the
Government's reforms strike an appropriate balance between facilitating foreign
capital investment in the agricultural sector, which is a Government priority,
and ensuring that all investments are in Australia's national interest. He further argued that
the Government's reforms have introduced a greater degree of transparency into
Australia's foreign investment review process by achieving the following
a more realistic, cumulative, threshold of $15
million for agricultural land purchases by foreign investors that are required
to be scrutinised and approved by the Foreign Investment Review Board (FIRB),
compared with the previous level of $252 million; this came into effect from 1 March
a more realistic threshold of $55 million for
agribusiness purchases by foreign investors that require FIRB scrutiny and
approval, also compared to the previous level of $252 million;
a common sense definition of agribusiness to
capture first stage processors beyond the farm gate, to which the new $55
million threshold will apply and which was previously lacking;
a register of all foreign ownership of
agricultural land, which will paint a clearer picture of the level of foreign
ownership in our nation.
According to the Treasurer, the unique nature of
the Australian agricultural sector means that the previous threshold of $252
million was not ideally suited to ensuring that foreign investment proposals
are effectively assessed. Many farming businesses are smaller than their
counterparts in other industries, and should therefore be treated differently
under Australia's foreign investment review framework:
While foreign investment in agriculture
provides important economic benefits, we have acted to improve scrutiny and
transparency around foreign ownership of Australia’s agricultural production. The
average farming business is smaller than other businesses in the economy and
applying the general business threshold of $252 million excludes a large part
of the agricultural sector from foreign investment screening.
Despite calling for changes to FIRB's review
process, NFF expressed its general support for the legislative changes
undertaken by the Government, arguing that the revised thresholds will allow
FIRB's assessment process to give more thorough consideration to the benefits
and risks of foreign investment in the agricultural sector.
NFF observed that the Government's introduction
of an agricultural land register will eventually produce a significant
repository of statistical data, which will provide an important evidence base
for future policy development in the area of foreign investment in agricultural
land and water resources.
Additionally, the NFF maintained that the land registry will be an important
resource in helping to allay community concerns about foreign investment in
agricultural land, thereby strengthening the transparency and openness of
FIRB's review process.
NFF took the view that the Government's changes
to the thresholds and its introduction of the agricultural land register are
both likely to enhance the effectiveness of the FIRB's review process:
The NFF welcome the recent amendments to the
Foreign Acquisitions and Takeovers Act. Our view is that safeguards enacted by
the amendments, including the $15 million cumulative screening threshold for
agricultural land and $55 million for agribusiness, will help ensure that due
consideration is given to foreign ownership coming into the sector.
Furthermore, the establishment of the land and water ownership register will
also provide valuable data and facts to help inform any policy debate and
decisions that may be required in the future.
The NFF maintained that the changes are not only
significant for potential foreign investors, allowing them to gain a clearer
understanding of the Government's requirements for investment in Australia, but
also increase the public's confidence that Australia's national interest is
being protected and furthered.
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