Executive Summary
Foreign investment has long been an important feature of
Australian agriculture. It has provided a key source of capital for Australian
farmers and has promoted the growth of the Australian agricultural sector.
Foreign investment has improved agricultural productivity, has generated many
opportunities for Australian agricultural businesses, and assisted job creation
and economic sustainability for many rural communities.
Foreign investment will also be essential to further development
of Australian agriculture and will greatly assist Australian businesses to make
the most of opportunities in the Asia Pacific region in the coming century.
However, future foreign investment in Australia also
presents challenges for the agricultural industry and Australia's national
interest. While genuinely commercial foreign investment should always be
welcomed, the growing global food task appears to be leading to an increasing
trend of foreign governments and associated entities considering investment in
Australia for food security purposes. The committee notes that non-commercial
foreign investments, motivated by factors such as food security rather than
commercial returns, have a great potential to distort the capital market and
the trade in agricultural products to the detriment of Australian farmers and
Australia's economy. In addition, as noted in the committee's interim report,
foreign government‑owned companies and foreign multinational businesses
can use complex corporate structures and mechanisms such as transfer pricing to
minimise their tax liabilities in Australia and, as a consequence, erode
Australia' revenue base. The committee is acutely aware that the future global
food task, driven by world-wide population growth and combined with shrinking
areas of prime agricultural land, will require dramatic increases in
agricultural productivity in the next few decades.
Fortunately, as a net exporter of food, the future global
food task also provides significant opportunities for Australia. The committee
believes that with the right agricultural policy settings—including appropriate
and clear foreign investment policies—the agricultural sector and the whole
Australian economy can benefit greatly.
Australia is not alone as a country that has had to manage
significant foreign investment in agricultural land and businesses. Nor is
Australia the only country facing challenges from the global food task. The
committee believes that Australia needs to be mindful of international trends
and as such the committee considered the regulatory framework in countries
facing similar issues to Australia. To this end this report outlines (in chapter
two) the regulation of foreign investment in agriculture in countries including
the United States, New Zealand, Brazil, Argentina, China and India. It also
notes possible impacts of international free trade agreements on Australia's
foreign investment regulations.
Being mindful of international developments and the context
of the growing global food task, the committee was able to more fully examine
Australia's current regulatory framework. In short, the committee found that
Australia's current framework for foreign investment (as per the Foreign
Acquisitions and Takeovers Act 1975 (FATA) and related regulations and
policy)[1]
was significantly deficient in effectively managing a number of key challenges
facing Australian agriculture. Therefore, the committee recommends that the
government make a comprehensive update of the FATA and related policies to
address the key findings of this report.
Key Findings
Information Gaps
The first key finding of the committee's inquiry is that there
is a significant lack of detailed and accurate information regarding foreign
investment in the Australian agricultural sector (discussed in chapter three). This
issue was widely identified by submitters and witnesses and acknowledged by the
government as it took actions to address these gaps. The committee examined
these steps by the government (notably the ABS agriculture survey and the
subsequent ABARES report about foreign investment in Australian agriculture)
and found they did little to genuinely improve knowledge of the issue. However,
the committee also noted the government's progress to date towards a register
for foreign investment in agricultural land. The committee strongly supports
the register and urges that the government adopt the committee's
recommendations in this regard. The committee believes that the register must
provide consistent and transparent information about the current and future
trends of foreign ownership of Australian agricultural assets. The committee
also hopes that the publication of the register will provide a more informed
debate, and that this will dispel some of the myths that currently surround
this subject.
The transparency and scrutiny of
the national interest test
The second key finding (discussed in chapter four) is that while some submitters and witnesses supported the current
FIRB arrangements, there were significant shortcomings in the transparency of
the FIRB process and in the scrutiny of the national interest test. In
addition, the committee found that the compliance mechanisms for appropriately
dealing with any conditions placed on foreign acquisitions need strengthening. The
committee also examined these issues through two short case studies—the recent acquisitions
by Hassad Australia and the sale of Cubbie Station. In these cases, the
committee found that it was the actions and initiatives of the companies
themselves, rather than the FIRB oversight process, that helped determine how
rigorously the national interest test was applied to proposed foreign
investments.
The FIRB review investment
threshold
The third key finding (discussed in chapter five) is that
the current investment threshold that triggers a FIRB review of proposed
private foreign investments in the agriculture industry is far too high. The
current threshold rate of $248 million only covers a very small number of
agricultural acquisitions. This was exacerbated by the limitations of FIRB to
monitor cumulative purchasing strategies which may result in large aggregate
holdings of agricultural land. Furthermore, committee found that the high
threshold level means that potentially large impacts on local economies may
often also fall outside of the FIRB review process.
Definitional issues – rural land,
urban land, and direct investment
The fourth key finding (also discussed in chapter five) is
that the definitions of key terms in the FATA and the AFIP were inappropriate
or inadequate for managing current foreign investment challenges in agriculture.
In particular, the committee considered that the definitions of 'rural land'
and 'urban land' in the FATA do not match with commonly understood meanings of
the terms and that this has led to the inappropriate classification of land
that may be considered for FIRB review. The committee considers that this potentially
undermines confidence in the current regulatory framework. Furthermore, the
committee found that the term 'direct investment' as defined in the AFIP did
not appropriately cover certain cases of foreign government investors. The
committee is pleased that the government has amended the AFIP in March 2013 to
address this issue.
Foreign Investment and future
agricultural developments
Finally, the committee examined the role of foreign
investment in major agricultural developments in Australia's northern regions
through the case study of the Ord irrigation development (see chapter six). The
committee considers that foreign investment can make a major contribution to future
agricultural developments in Australia, including the Ord irrigation area. This
in turn can lead to significant benefits for Australia's economy and future food
security. However, the committee also considers that to maximise the benefits of
such developments there are challenges to be overcome such as: limited access
to long-term capital investment; restrictions from land tenure arrangements;
and the trade and transparency of water entitlements. These issues need to be
addressed by encouraging and properly regulating both domestic and foreign
investment in the national interest.
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