Dissenting Report by
Senator Nick Xenophon
and Senator Christine Milne
1.1
In 2008-09, 5,352 out of 5,821 applications from foreign investors
received approval by the Foreign Investment Review Board (FIRB), totalling
$181.4 billion, and out of the applications that were not approved, 341 were
withdrawn and 125 were exempt.[1]
1.2
However, it is important to note that only proposed investments in
Australian businesses, offshore companies that holds Australian assets, or
Australian assets specifically, and which are valued above $231 million are
ever brought before the FIRB for scrutiny under the current rules around
foreign investment.
1.3
In addition, US investors have a threshold of $1005 million for proposed
investments in Australian assets and proposed foreign investments by
state-owned entities, regardless of the value, are subject to application to
the FIRB.[2]
1.4
However, $231 million is a very high threshold and there are concerns
that significant purchases of values below this amount may be made, without the
Government, through FIRB, being made aware.
1.5
This is particularly significant in relation to agricultural land, and
the capacity for such foreign investment to have long-term market and food
security impacts.
1.6
Further, there are concerns of piecemeal purchases potentially being
made by foreign investors which, by not exceeding the $231 million threshold
individually, may be able to acquire large areas of prime agricultural land
over a period of time.
1.7
Finally, the lack of available information about foreign investment is
of key concern because it restricts Government's ability to have an informed
public policy framework to address longer term issues.
1.8
There is no question that foreign investment brings considerable
economic benefits to Australia.
1.9
As at 31 December 2009, the level of foreign investment in Australian
agricultural land specifically was valued at $1.897 billion.[3]
A quarter of that figure, some half a billion dollars, was in direct investment
and the leading investor countries were the US, the UK, Japan, Netherlands,
China and Singapore.
1.10
However, further detail about these investments is unknown – who bought
the land, what the land is used for, how much similar land has the same
investor purchased elsewhere in Australia, etc.
1.11
Quite simply, the current framework that deals with foreign investment
in agricultural land is grossly inadequate.
1.12
According to its website, the main functions of the Foreign Investment
Review Board are:
to examine proposals by foreign interests for investment in
Australia and, against the background of the Government's foreign investment
policy, to make recommendations to the Government on those proposals;
to advise the Government on foreign investment matters
generally;
to foster an awareness and understanding, both in Australia and
abroad, of the Government's foreign investment policy;
to provide guidance, where necessary, to foreign investors so
that their proposals may be in conformity with the policy; and
to monitor and ensure compliance with foreign investment
policy.[4]
1.13
Despite this, FIRB does not maintain an ongoing register of foreign
investors; what land is owned by such investors, what that land is used for,
how much land they own, etc. That is, once the application has been dealt with,
no data is retained to provide for future information gathering purposes.
1.14
Instead, FIRB says the Australian Bureau of Statistics (ABS) holds such
information. However, the ABS does not hold a specific register either, only
collecting information to allow a broad overview of foreign ownership by
sector.
1.15
As a result, Government and the Australian public are in an 'information
vacuum' when it comes to foreign investment in agricultural land.
1.16
Indeed, Mr Paul Morris, Deputy Executive Director of the Australian
Bureau of Agriculture and Resource Economics and Sciences (ABARES), told the
Committee:
Senator HEFFERNAN—Firstly, would it be fair to say for
your organisation that we really do not know who owns the agricultural land in
Australia?
Mr Morris—Yes.
Senator HEFFERNAN—And so if we went to the land titles
office, we probably would not be any further ahead in lots of instances.
Mr Morris—It depends. Bruce, you have had a look at
this, so maybe you can answer that question.
Mr Bowen—We have had a brief look at this and we will
look at it in a bit more detail. My understanding
is that there is a bit more information in Queensland, they
do have some registers about foreign ownership, but in other states there is
not much information collected at the land offices to determine whether it is
foreign owned or not. They often do not differentiate between urban land and
rural land as well, which makes it quite complicated to try to use that method
to find out information.
Senator HEFFERNAN—So to discover who owns the
agricultural resources in Australia, we would have
to build a new model?
Mr Morris—Other than for the various categories that
FIRB—the Foreign Investment Review Board—looks at, and Queensland seems to have
a bit more information than other states, if you really wanted to get detailed
information on the ownership arrangements, the current collections do not seem
to cover that.[5]
1.17
This Bill seeks to reduce the current $231 million threshold so that
more proposed foreign investments are brought to the attention of FIRB and are
also subject to a national interest test enshrined in legislation.
1.18
The Bill is based closely on New Zealand legislation which requires that
any proposed foreign investment in non-urban land greater than 5 hectares be
subject to application to its Overseas Investment Office.
1.19
However, it became apparent during the Inquiry that this spatial figure
was inappropriate in the Australian context, and this Bill should therefore be
amended accordingly. But the merits of the New Zealand model should not be
discounted.
1.20
Interestingly, Australia's foreign investment threshold was, until very
recently, significantly less than $231 million.
Mr Di Giorgio— 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.
Senator O’BRIEN—So agriculture moved from being $3
million in 1986 to—
Mr Di Giorgio—In 1986 it was $3 million. Then you fast
forward to 1999, and they are both the same.
Senator O’BRIEN—It went to $50 million.
Mr Di Giorgio—That is right.
Senator O’BRIEN—So in 1999 it went to $50 million, and
then in 2005 there was a higher threshold figure for the United States, which
was part of the US FTA provision. Then, after that, when did it go to $100
million?
Mr Di Giorgio—It went to $100 million in December
2006. In September 2009 it went up to $219 million, and from then on it has
been indexed, hence the changed figure.[6]
1.21
In answers to Questions on Notice, Treasury advised that the progression
in value, especially between 2005 and 2006 when the threshold increased to $100
million, was to:
reduce the costs to business of complying with screening
obligations in relation to proposals that are routinely approved[7].
1.22
However, while the threshold may have risen to benefit foreign
investors, the question has to be what impact has it had on the ability of
Australian authorities to appropriately and accurately monitor what foreign investment
is occurring, when many investments in agricultural land as well as other
assets, can be made well below $231 million.
1.23
The leap in the threshold from 1975 does not appear to have been
properly considered or the subject of sufficient community debate.
1.24
Ultimately, foreign investment in Australia must be monitored to ensure
that such investment is in the national interest, especially when it comes to
agricultural land.
1.25
This Bill does not seek to dissuade foreign investment. It simply aims
to provide greater information about 'who owns what' to enable informed
decisions to be made about the national interest implications of such a
proposed purchase.
The New Zealand Model
1.26
New Zealand’s Overseas Investment Act 2005 established an Overseas
Investment Office to oversee foreign investments and also includes their
national interest test criteria, and a similar system was in place well before
that
1.27
In contrast, Australia's national interest test are 'guidelines' only.
1.28
However, as stated by Ms Toni Moyes, Analyst at the New Zealand
Treasury, during the Inquiry hearing, the New Zealand legislation is based on
the “guiding philosophy behind that regime is that foreign investment is
welcome in New Zealand but is also a privilege”[8].
1.29
Ms Moyes also told the Committee that:
New Zealand has a long history of regulating investment in
farmland, which reflects the traditional view in New Zealand that land
ownership should not be concentrated in the hands of a few but should be able
to be widely dispersed amongst the population.
1.30
While the majority report has suggested that imposing a lower threshold
may deter investors by sending out the ‘wrong signal’, the number of approvals
of foreign investment proposals in New Zealand suggests this is simply not the
case.
Mr Nees—In terms of your question, Senator Xenophon,
on whether we have assessed the impact of the five-hectare threshold on FDI,
again we have not done a systemic assessment of that. Through the recent review
that we did of the act we heard from investors that in some cases our regime or
that threshold was acting as a deterrent to investment. But it is very
difficult to say what we are missing out on, because we simply do not know how
many investors looked at our investment regime and decided not to seek approval.
However, as I mentioned before, we know that of those investors who do make an
application roughly 98 per cent are approved.
Senator XENOPHON—In terms of the mechanics of this,
how many applications would you get in a year, how quickly are they assessed and
what is the process? Is it a fairly seamless process? Do you tick a few boxes
as an initial screening? How efficient is it as a scheme and what feedback have
you had from foreign investors who are subjected to this threshold?
Ms McClure—There are usually between 150 and 200
applications per year. Of course, not all of those are farmland applications. I
would say probably half would be farmland applications[9].
1.31
The New Zealand model is robust, transparent and effective. Furthermore,
the OIO provides extensive detail about all applications it receives – whether
approved or not.
Senator XENOPHON—Of the 75 to 100 farmland
applications you would receive each year based on those figures, you would have
a couple each year that might be rejected. Is that right?
Ms McClure—Yes, that is correct.
Senator XENOPHON—Do you publish decisions for
rejections?
Ms McClure—Yes, we publish decisions both for
rejections and when consent is granted.
Senator XENOPHON—And they are publicly available?
Ms McClure—Yes. Every month we post every decision
that we make on our website.
Senator XENOPHON—If an application is rejected, it
could be subject to judicial review. Is that right?
Ms McClure—Yes, that is correct.
Senator XENOPHON—And how often do you get judicial
review applications against your decisions?
Ms McClure—Over the last five years we would have had
probably three or four.
Senator XENOPHON—So it is pretty rare.
Ms McClure—Yes.
1.32
Again, this Bill does not seek to deter foreign investment rather it
simply aims to enable greater scrutiny against the benchmark of the national
interest.
1.33
While the New Zealand legislation requires that any interest in
non-urban land greater than 5 hectares to be subject to application to the
Overseas Investment Office, it became apparent through the Inquiry that this
figure may not be appropriate in Australia.
1.34
In its submission, the West Australian Farmers Federation suggested that
the figure should instead be based on a monetary value, given “the larger size
of Australian farms (compared to that of New Zealand)”.
1.35
It is therefore proposed that a monetary figure of $5 million would more
appropriately reflect the difference in size between Australian and New Zealand
agricultural allotments and the Bill should be amended accordingly. Indeed, a
$5 million threshold reflects broadly the inflation-adjusted figure for the
1975 threshold of $1 million.
Food security
1.36
Food security is becoming an increasingly crucial strategic policy
consideration. The United Nations predicts that up to 25 percent of global food
production could be lost by 2050 as a result of climate change, water shortages
and environmental degradation.[10]
1.37
In light of these factors, it is becoming increasingly apparent that
Government policy must be amended to more appropriately reflect the very real
challenges that Australia faces in terms of food security.
1.38
In recent years, countries including China, Japan and Qatar have been
increasingly engaging in the purchase of Australian agricultural land.[11]
1.39
Some of the reasons for these purchases are discussed by Mr Charles
McElhone of the National Farmers’ Federation (NFF) in its submission to the
Inquiry:
1.40
As food security concerns escalate around the world, Australian
agriculture and its supply chain is increasingly seen as being a strong
investment prospect for international investors[12].
1.41
Mr McElhone continued:
Rather than being underpinned by genuine commercial forces
where profits are the driver, food security has emerged as a new factor for
investment. With state owned enterprises entering the market, it is becoming
blurred as to whether all of this investment is still interested in the
profitability of the venture, or rather in ensuring that a consistent stream of
food can be delivered to its people.
1.42
The shift in motives for investment in agricultural land is not
adequately recognised in the current legislative and policy framework.
1.43
Furthermore, as conceded by Mr Patrick Colmer, General Manager of the
Foreign Investment and Trade Policy Division of the Department of the Treasury
in his appearance before the Select Committee on Agricultural and Related
Industries Inquiry into Food Production in Australia, current legislation
allows foreign entities to gradually acquire adjacent parcels of land, so long
as each individual purchase comes under the $231 million threshold:
CHAIR (Senator Hurley)—But you would understand that,
for under $200 million, you can buy a lot of agricultural land, and you could
have huge parcels separated in lots of $50 million or $100 million and you
could sell out an entire region and it would never come on your radar. That is
what New Zealand is facing up to now—a 17,000-cow dairy is not $200 million
worth of dairy. So what do you do about it? We are very grateful for your being
here today, because this committee is receiving evidence about the future of
the global food task and the difficulty that places like China are facing with
an impossible task of achieving three times above their capacity to produce
food to feed their own population. They are searching globally for that solution,
and one of the solutions is simply to go and buy other people’s land and send
the tucker back home. I just think we ought to be able to supervise that, but
at the present time we cannot.
Mr Colmer—Yes, at the present time the act does not apply.[13]
1.44
Australia's current foreign investment policy and framework for the
purchase of agricultural land is ad hoc, fails to take into account long-term
strategic interests and lacks transparency. This Bill provides an opportunity
to remedy these defects using as a template the proven and effective approach
that has applied in New Zealand for a number of years.
Recommendation 1
1.45 That the Bill be amended to change the threshold from a spatial
threshold of 5 hectares to a monetary figure of $5 million.
Recommendation 2
1.46 That the Bill be passed with amendment.
Senator Nick Xenophon
Independent Senator for South Australia |
Senator Christine Milne
Australian Greens Senator for Tasmania |
Navigation: Previous Page | Contents | Next Page