Chapter 1

Introduction

Referral of the bill

1.1        The Foreign Acquisitions Amendment (Agricultural Land) Bill 2010 was introduced into the Senate on 24 November 2010 by Senator Nick Xenophon and Senator Christine Milne.[1]

1.2        On 10 February 2011, the Senate adopted the Selection of Bills Committee Report No. 1 of 2011 and referred the provisions of the bill to the Senate Economics Legislation Committee for inquiry and report by 15 June 2011.[2]

Conduct of the inquiry

1.3        As per usual practice, the committee advertised the inquiry on the committee's website as well as in The Australian newspaper. It also wrote to stakeholders, inviting written submissions by 25 February 2011. The committee received 11 submissions, which are listed at Appendix 1.

1.4        The committee held a public hearing in Canberra on 12 April 2011 where it took evidence from Treasury, the Australian Bureau of Statistics (ABS), the Australian Bureau of Agriculture and Resource Economics and Sciences (ABARES), the New Zealand Treasury and the New Zealand Overseas Investment Office, the Western Australian Farmers Federation, Mr Greg Mahony from the Australian Catholic University and the National Farmers Federation (NFF).

1.5        The committee thanks all who participated in this inquiry, and extends special thanks to the New Zealand Treasury and New Zealand Overseas Investment Office for their contribution to the inquiry. The committee also thanks members of the Parliamentary Library for their research assistance.

Overview of the bill

1.6        The bill amends the Foreign Acquisitions and Takeovers Act 1975 (FATA) to enable greater scrutiny of potential foreign investment of agricultural land. To this end, it proposes:

• to create a national interest test to be applied against proposed acquisitions of agricultural land;
• that any interest in Australian agricultural land greater than five hectares be subject to application to the Treasurer; and
• that the Treasurer be required to publish online the applications of interest in Australian agricultural land, and the status of the applications as they proceed.[3]

1.7        The bill includes both the acquisition of farm real estate and 'interests' in agricultural land such as management rights, leases of more than five years and profit sharing arrangements.[4] In doing so, the bill relates to the foreign acquisition of agricultural land as well as agribusiness.

Structure of the report

1.8        The report has four chapters: chapter 2 explores the main provisions of the bill; chapter 3 discusses issues raised regarding the bill; and chapter 4 discusses issues relating to the implementation and drafting of the bill.

Background

1.9        Between 2001 and 2008, there was a marked increase in foreign direct investment (FDI) in Australia. FDI in the mining sector has increased rapidly and although it has displaced manufacturing as the major recipient of FDI, manufacturing (including food processing) still accounted for the majority of FDI over the eight year period.[5] In this period, there have been significant investments by foreign governments and their related entities in the Australian resources sector, accelerated by Chinese state-owned enterprise investment in the resources sector.[6] ABS data on the stock of total investment in 2009 however, shows that the USA and the UK were Australia's top trading partners; their capital inflows were 59 percent and 21 per cent respectively. Japan was ranked third major trading partner and China ranked twelfth.[7]

1.10      ABARES gave the committee a broad overview of the role and history of foreign investment in Australian agriculture:

Anecdotally, from what we know to date, I think it has been a role that has fluctuated over time. We have seen at particular points in time increased investment by buyers from particular countries—in the early days, we saw strong investment by the UK, for example. Then we saw strong investment by the US. Japan has been a strong investor over time and now Brazil, for example, in the meat industry is a strong investor. Also, New Zealand in some industries has been quite a strong investor in Australia.[8]

The lack of specific data on foreign investment in agricultural land

1.11      The ABS recently reported on the proportion of foreign ownership of Australian business by employment size and industry. The survey does not directly address foreign investment in agriculture, but does include the manufacturing sector as a category which, as a component, includes food processing. The data, collected in 2008–09, showed that for manufacturing, 95 per cent of businesses are wholly Australian owned and only 2.6 per cent are more than 50 per cent foreign owned.[9]

1.12      The Australian and New Zealand Standard Industrial Classification (ANZSIC), used by the ABS for the collection and publication of statistics, does not have a specific category to address the agricultural industry. The ANZSIC classification of agriculture, forestry and fishing covers farm level activities, and food processing is included in the manufacturing category. Various other businesses in the agricultural supply chain would fall into other ANZSIC classifications such as transport, business services, finance and insurance.[10]

1.13      The sectors identified in the FIRB annual reports broadly align with the ANZSIC classifications meaning that 'agriculture, forestry and fishing' covers farms, and the 'food, beverages and tobacco' sub category of manufacturing covers food processing. The FIRB's statistics are not disaggregated to allow identification of FDI in other parts of the agricultural sector supply chain, such as input suppliers and marketing enterprises. Further, approvals reported by the FIRB may not reflect actual investment or long-term investment as approved proposals reflect a plan which may not necessarily be realised. In addition, many FDIs fall below the FIRB's threshold and do not feature in their annual statistics.[11]

1.14      In his Second Reading Speech, Senator Xenophon informed the Parliament that as at 31 December 2009, the level of FDI in Australian agricultural land was valued at $1.9 billion. He continued:

...while we know these broad figures, what we don't know is the detail. And it is concerning that we may be selling off our agricultural land, and have no way of knowing to whom... we have to acknowledge that our poor foreign investment standards put our own agricultural industry at risk.[12]

1.15      Despite the lack of detailed and current data available, there seems to be a perceived increase in sales of Australian agricultural land and interests. This has increased public debate about Australia's food security and increased public concern about FDI in agricultural land.[13]

Public concern over FDI and food supply

1.16      Treasury has noted that the Australian government heeds public attitudes on FDI in developing foreign investment policy. In a 1999 paper on foreign investment policy in Australia, Treasury noted:

While recognising the strong benefits of foreign investment, particularly direct investment, to Australia, the Government continues to recognise community concern about foreign ownership of Australian assets. One of the ongoing objectives of the Government's foreign investment policy is to balance these concerns with the benefits of FDI.[14]

1.17      Opinion polling has found that Australians hold mixed views of the benefits of FDI. A 2008 Lowy Institute foreign policy survey found that 90 per cent of respondents said the federal government has 'a responsibility to ensure major Australian companies are kept in majority Australian control' and 'a majority of Australians oppose major foreign investments by companies, banks or investment funds controlled by governments'. However, the survey also found that 75 per cent of Australians recognise that foreign investment leads to job growth and wealth creation.[15]

1.18      Mr Tom Switzer of the Institute of Public Affairs has argued that opinion polling has consistently shown that Australians are overwhelmingly sceptical of foreign investors, particularly Chinese nationals. He claims that Australians tend to hold 'paradoxical views on the global economy: they see the benefits, but still oppose closer global engagements'.[16]

The problem is that public opinion is a double-edged sword. Polls here consistently show that foreign investment taps deep feelings of identity and violation in the community. They also reveal that Australians know that investment has been crucial to the nation's prosperity.[17]

1.19      Public attitudes to FDI have received more attention in recent years following increased foreign investor interest in resource-based projects in the Murray Darling Basin (MDB). The MDB produces over one-third of Australia's food supply. There is a long history of mining in the MDB with significant gold, copper and coal mining operations in the region. While mining operations account for 0.26 per cent of land use in the MDB, there is concern that mining will have adverse affects on agricultural production in the region.[18] The Liverpool Plains situated in the Namoi region in north-eastern NSW is renowned for its agricultural productivity. In 2009, the Senate Environment, Communications and the Arts Committee reported on the impact of FDI into mining in the region:

The Liverpool Plains has been at the centre of escalating tensions between local farmers and members of the coal mining industry – specifically BHP Billiton and Shenhua Watermark Coal Pty Ltd... Local farmers are concerned that coal mining will pollute the underground aquifers and surface water flows that are vital to their livelihood. They claim pollution could have potentially adverse impacts on one of Australia's most productive agricultural communities...[19]

1.20      In evidence to the current inquiry, Mrs Sue Wilmott expressed her concerns about Australia's food supply and the need to regulate foreign investment:

Secure, affordable fresh food for ALL Australians is seriously being compromised by the Federal and State Governments total lack of vision and initiative to legislate to protect our unique rich prime agricultural regions such as the Liverpool Plains in the NW of NSW.

Given that this vitally important food bowl is currently under threat from coal and coal seam gas mining we seek assurances that the Liverpool Plains will be quarantined as a food producing region critical to the future food security of this nation.

...

Along with mining expansion throughout the country, foreign investors are also being encouraged to buy up huge areas of land. Add to this the impacts of urbanisation on land previously used for agriculture, global warming and climate change issues plus ever increasing expanding population growth globally, we clearly see that our governments face some challenging times ahead where visionary, tough decisions will be required.[20]

1.21      Mr Patrick Bourke, another submitter to this inquiry conveyed apprehension about current FDI patterns from the Gulf State, Qatar:

Today the world faces a world food crisis and it is very important that Australia secures its food supply. Countries like Qatar are securing its food supply by buying Australian farms. Whilst this is very good for Qatar and other countries who purchase large Australian farms, it means that Australia has less agricultural production for its own people. If the present trend continues in Australia then Australia's food supply and exports will be placed at risk.[21]

Senate Committee inquiries

1.22      The Senate has held a number of committee inquiries relating to FDI.[22] In 2010, the Senate Select Committee on Agricultural and Related Industries heard evidence that rising land prices, unmatched by rate of returns, are forcing young farmers to face borrowing costs to enter the industry that exceed the profits to be made from farming. As a result, alternatives to the traditional family farming business structure are being explored as an effective means to bring capital and expertise together in the agricultural sector.[23]

1.23      The Victorian Farmers Federation (VFF) also identified difficulties for people to enter the agricultural industry 'from scratch' without coming from a farming family whose land is passed on and that, consequently, there would be an expansion of leasing and share farming arrangements in Australia. Nonetheless, they did not consider that corporate farming would overtake the traditional family farm model:

...even though there has been quite a lot of commentary in the media over the last probably 10 years about corporate farming, I still believe that the majority of agriculture in Australia will remain in family farm hands. That is the culture of the industry and I suspect it will stay that way. There will undoubtedly be large investments made by non-family farmers, but I think the majority of agriculture will still operate on land and systems conducted by family farms which may by their very nature be corporate in size and structure anyway.[24]

1.24      The Select Committee heard from the Kondinin Group Ltd (KGL), which expressed the need for the agricultural industry to adopt new ways of attracting capital to achieve economies of scale in production:

Farmers over the last five or six years have seen quite an upward swing in terms of land values and the amount of capital employed in running a farm. There has been a lot of consolidation and farms have been growing, but now there are real capital constraints on farmers being able to swallow up neighbouring farms or grow to an efficient scale. That is an area that as a nation we really need to have a proper look at and we need to ask: is there some opportunity for large-scale collaborative investment schemes that could be put in place that do not necessarily mandate but have a function of investment into restructuring agriculture, both from the point of view of a sound investment and the point of view of restructuring our industry at a landholding level and at a supply chain level?[25]

1.25      Among other matters, the Select Committee recommended that:

...an audit be undertaken to establish the extent of foreign ownership of commercial agricultural and pastoral land, and ownership of water, in Australia, with particular emphasis on ownership by sovereign and part-sovereign-owned companies.[26]

1.26      In 2009, the Senate Economics References Committee noted in its report Foreign Investment by state-owned entities that Australia is reliant on FDI due to shallow domestic markets, and that FDI is critical to the development of Australia's industries and infrastructure. The committee asserted that it is imperative that Australia be seen as a country that welcomes FDI.[27] While the committee was satisfied with the regulatory framework for assessing FDI proposals,[28] it recommended reform in the following areas:

• that FIRB develop a more effective communication strategy in its role to 'foster an awareness and understanding, both in Australia and abroad, of the policy and the FATA'[29]; including providing additional information on how FDI decisions are made and the emergence of sovereign wealth funds and state-owned entities;
• that FIRB produce a more timely annual report in order to enhance the parliamentary scrutiny of the FDI review process; and
• that the FATA be amended to deal with complex acquisitions where takeovers of smaller strategic assets may be masked by an application which, in total, does not represent more than 15 per cent, and therefore does not trigger review.[30]

Recent government responses on FDI

1.27      In past years, Australian governments have made reforms to the FDI screening framework to ensure it is consistent with the national interest.[31] In its evidence to this inquiry, Treasury informed the committee of some of these developments:

When the first foreign takeovers Act was introduced, in 1975, there was a rural land threshold of $1 million, and the general business threshold was $2 million. That remained the case until 1985, when the general business threshold was increased to $5 million while, as I understand it, the rural land threshold remained at $1 million. That changed again in April 1986, when the rural threshold was increased to $3 million—so it went to $3 million and the business threshold stayed at $5 million. As I understand it, that essentially remained the case, though I will probably have to check this, until September 1999, when the two thresholds were harmonised at $50 million. In 2005 there were higher thresholds for the US enterprises. In December 2006, both thresholds were increased to $100 million.

...

In September 2009 it went up to $219 million, and from then on it has been indexed, hence the changed figure.[32]

1.28      In 2008, a government media release outlined the principles guiding consideration of foreign government related investment in Australia. The principles set out the main factors used to determine whether investment proposals by foreign governments and their agencies are consistent with Australia's national interest. [33]

1.29      In June 2010, the federal government announced action to strengthen the transparency of its foreign direct investment policy. In a media release, it listed the factors that the government typically considers when assessing FDI proposals. These factors included:

• national security;
• competition;
• other government policies, including taxes;
• impact on the economy and the community; and
• character of the investor.[34]

1.30      Most recently, the federal government has moved to address emerging community concerns in the area of FDI by commissioning a joint research and data gathering project by the ABS and the Rural Industries Research and Development Corporation (RIRDC). The project will 'consider the role and history of foreign investment in the development of agriculture in Australia, the extent of foreign ownership of Australian agricultural land and the factors driving foreign investment in Australian agriculture.'[35] The ABS is undertaking a new survey, the Agricultural Land and Water Ownership Survey (ALWOS), with results expected to be available by the end of September 2011.[36] RIRDC will be working in conjunction with ABARES and is expected to complete its work in October 2011.[37]

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