Buyer beware: investing in Australian agriculture takes more than just money

September 21, 2016 Eliza Newton 0 Comments

As Australia grapples with a decline in manufacturing and a weakening mineral boom, government policy has focused on developing Australia’s food export industry. Significant trade agreements have been signed and nationally lauded with speculation about development of Australia’s agricultural exports. 

This comes at a time of considerable uncertainty as the country emerges from the furore surrounding the blocked sale of the vast Kidman pastoral properties to a conglomerate of Chinese bidders. Additional attempts by Chinese investors to buy electricity provider, Ausgrid, were thwarted by Treasurer Scott Morrison on ‘national security’ grounds.

Added to the national foreign investment conversation was the release this month of an agriculture lands register which surprised commentators with data revealing almost 14 per cent of Australian farmland was foreign owned. Even more surprising was that China came in fifth on the register after the lead spot was taken by the UK.  (Had the Chinese been successful in their Kidman bid, they would certainly have come in second).

As the register reveals, Australian agricultural properties continue to be desirable investment opportunities for local and foreign buyers. Leading Australian business identities from the mining and retail sectors have recently made substantial purchases, with beef and dairy holdings the most popular.   As mentioned, Chinese investors have made significant purchases of properties considered ‘iconic’ to Australia’s rural heritage drawing heated and emotional discussion about prospect of foreign purchases of Australian prime agricultural land.

From the perspective of a foreign company looking to invest in Australia’s farm sector, a critical issue has been around the concept of obtaining a “social licence”. Many foreign investors, (most particularly and recently, Chinese corporations seeking to invest in Australia’s agriculture and agribusiness sectors) have failed because they have been unable to “secure” a social licence to operate an acquired asset.

A social licence to operate is difficult to define. It relates to the perceptions of local communities and other stakeholders and how they believe the investor will curate the asset, and care for the local environment and the relationships it has with the various stakeholders.  For a foreign investment bid to succeed it needs to address the myriad issues that could impact its social licence from the outset.

Despite the Kidman – and Ausgrid – examples, the Federal Government generally welcomes foreign investment, seeing it as an effective tool to support economic growth and innovation. Regardless of political assertions that ‘the door is very open to foreign investment’, many experts believe Australia could do more to be a competitive destination for foreign capital, and should enthusiastically welcome investment in agricultural assets and supply chains.

Following the Ausgrid decision the government appears to have become sensitive to suggestions it treats Chinese investors unfavourably. This week, Trade Minister Steve Ciobo hinted that the government could change its guidelines on foreign investment in critical infrastructure to ‘ensure’ Australia doesn’t discriminate against Chinese investors. He went on record that he ‘is proud to say that Australia has rejected only five foreign investment proposals in 15 years, with FIRB processing over 1000 a year.’

However, each case is reviewed against the national interest, with Prime Minister Turnbull recently taking a firmer stance on foreign investment. At the G20 meeting earlier this month, he noted that all countries, including China, were expected to respect Australia’s sovereignty when it came to foreign investment. Recalling the words of former Prime Minister John Howard on immigration, he said: “We decide who invests in Australia and the circumstances in which they invest.”

Importantly, the post-election Senate composition has given increased share of voice and voting power to senators championing populist views. New recruits such as Senator Pauline Hanson and her team are vocal opponents of foreign investment. Senator Hanson recently objected to the proposed sale of Ausgrid, urging people to lodge a protest with the Treasurer over the matter. Senator Jacqui Lambie is also deeply concerned about the sale of significant agricultural assets, and called for an overhaul of the FIRB. Further, Senator Nick Xenophon believes foreign investment laws are too lax and has pushed for reform.  Conversely, Liberal Democratic Senator David Leyonhjelm criticised the decision to block the sale of Kidman and Co, believing the cattle industry in Australia would not exist without foreign ownership.

It is also worth noting that the Government is considering holding a national symposium to address foreign investment in Australian agriculture, which may initiate regulatory changes. Queensland Liberal National Party Senator Barry O’Sullivan has been pushing for the symposium, compiling a list of close to 130 stakeholders representing interest groups such as the National Farmers Federation, Country Women’s Association, and local government. Senator O’Sullivan envisages the symposium would deliver a ‘set of measures and limits’ that would prevent ‘any vertically integrated foreign owned entities that can take commodities away with no profits recorded, and no contribution to Australia’s economic health’. The National Farmers Federation has also called for a clearer national interest test.

Interested foreign investors should be mindful of the following issues that can impact sales of Australian farmland:

  • Any foreign investment in agriculture is a political hot point. The Agriculture Minister, Barnaby Joyce, regularly voices concerns that resonate with his rural constituency.   Minister Joyce saw no joy in the register’s data, pointing out that foreign ownership has risen by around 2 per cent since 2013.
  • Xenophobia – more likely anti-Chinese sentiment than European or US.
  • Indigenous issues. This is not only related to land rights, but also some Aboriginal communities have demanded, and received, the right to purchase significant land holdings. Pastoral properties in these regions have been known to have special emotional, historic and cultural links with Aboriginal communities.
  • Regulatory issues with the Foreign Investment Review Board (FIRB). Agriculture and food industry investment receives special category attention.
  • Emotional sentiment that often surrounds the sale of a considerable property, that has long been in Australian hands.

Successfully purchasing an Australian farm or agribusiness concern in future won’t just be about obtaining FIRB approval on technical grounds. It may also be necessary to put forward a plan to address these various and sometimes-amorphous issues.

By Eliza Newton, Senior Account Director