Foreign Investment and Australian Agriculture
Foreign Investment and Australian Agriculture
Foreign Investment and Australian Agriculture
November 2011
2011 Rural Industries Research and Development Corporation. All rights reserved. The information contained in this publication is intended for general use to assist public knowledge and discussion and to help improve the development of sustainable regions. You must not rely on any information contained in this publication without taking specialist advice relevant to your particular circumstances. While reasonable care has been taken in preparing this publication to ensure that information is true and correct, the Commonwealth of Australia gives no assurance as to the accuracy of any information in this publication. The Commonwealth of Australia, the Rural Industries Research and Development Corporation (RIRDC), the authors or contributors expressly disclaim, to the maximum extent permitted by law, all responsibility and liability to any person, arising directly or indirectly from any act or omission, or for any consequences of any such act or omission, made in reliance on the contents of this publication, whether or not caused by any negligence on the part of the Commonwealth of Australia, RIRDC, the authors or contributors. The Commonwealth of Australia does not necessarily endorse the views in this publication. This publication is copyright. Apart from any use as permitted under the Copyright Act 1968, all other rights are reserved. However, wide dissemination is encouraged. Requests and inquiries concerning reproduction and rights should be addressed to the RIRDC Publications Manager on phone 02 6271 4165. Moir B, 2011, Foreign investment and Australian agriculture, RIRDC, Canberra, November ISSN 1440-6845 ISBN 978-1-74254-350-5 RIRDC Publication No. 11/173 RIRDC Contact Details Rural Industries Research and Development Corporation Level 2, 15 National Circuit BARTON ACT 2600 PO Box 4776 KINGSTON ACT 2604 Phone: 02 6271 4100 Fax: 02 6271 4199 Email: rirdc@rirdc.gov.au. Web: http://www.rirdc.gov.au Researcher Contact Details Brian Moir Department of Agriculture, Fisheries and Forestry Australian Bureau of Agricultural and Resource Economics and Sciences GPO Box 1563 CANBERRA ACT 2601 Phone: 02 6272 2075 Email: brian.moir@daff.gov.au
In submitting this report, the researcher has agreed to RIRDC publishing this material in its edited form. Electronically published by RIRDC in November 2011 Print-on-demand by Union Offset Printing, Canberra at www.rirdc.gov.au or phone 1300 634 313 ACKNOWLEDGEMENTS The author thanks Jammie Penm, Bruce Bowen, Peter Collins, Neil Thompson and Terry Sheales (ABARES) for their contributions to this work. The author also gratefully acknowledges the guidance provided by Simon Winter (RIRDC). A series of interviews conducted in Wellington, New Zealand, greatly contributed to the authors understanding of arrangements in that country. Staff at Australian embassies and high commissions in New Zealand, Argentina, Brazil, Canada and the United States most helpfully provided assistance and information. The authors understanding of foreign agribusiness companies in Australia was considerably enhanced through interviews with people in some of those companies. Their assistance is greatly appreciated.
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Foreword
On 23 November 2010, Assistant Treasurer, Minister for Financial Services and Superannuation, the Hon. Bill Shorten, and Minister for Agriculture, Fisheries and Forestry, Senator Joe Ludwig, announced an information-gathering process to address some emerging community concerns about foreign ownership of agricultural land and agricultural food production. As part of this process, the Rural Industries Research and Development Corporation (RIRDC) commissioned ABARES to undertake a research project to 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. The ministers also announced the collection of information on foreign investment to be undertaken by the Australian Bureau of Statistics (ABS). The ABS subsequently conducted a survey, and on 9 September 2011 released information on foreign ownership of land and water (ABS 2011c). This report presents the results of the study undertaken by ABARES with financial support from RIRDC. It reviews the historical significance of foreign investment in Australian agriculture, and to the Australian economy. It incorporates the survey results provided by the ABS, and presents case studies of foreign investment in farmland and agribusiness. It also examines the driving factors behind foreign investment in Australian agriculture and describes processes by which foreign investment in farmland is monitored and regulated in Australia and other selected countries. Craig Burns Phillip Glyde Managing Director Executive Director RIRDC ABARES November 2011
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Contents
Summary 1 Background
Impact of foreign investment in the Australian economy Foreign ownership and food security Factors driving foreign investment in Australian agriculture 1 7 8 13 13 15 15 16 17 18 18 22 24 26 27 29 31 33 35
Monitoring and regulation of foreign investment in agricultural land in other selected countries
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Concluding remarks
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References
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Tables
1 2 3 4 Foreign control/ownership of agricultural establishments/businesses, by number Agricultural land, Australian and foreign owned, by state Proportion of area of agricultural land fully Australian owned, by industry Foreign land ownership, Queensland 18 19 19 21
Figures
1 2 3 4 5 6 7 8 9 10 11 12 Food and Agriculture Organization (FAO) food price indexes FDI flows in and out of Australia Inward and outward investment stocks FIRB approvals FIRB approvals vs. actual investment, all sectors Grain handlers share of 200910 purchases from farmers Red meat throughput, foreign and Australian owned, 2011 Proportion of cattle slaughtered by ownership of abattoirs, 1990 Milk processing, Australian and foreign Sugar milling, foreign and Australian owned OECD FDI restrictiveness index: agriculture OECD member countries plus selected other countries OECD FDI restrictiveness index: agriculture OECD member countries 7 11 11 20 21 28 29 31 32 34 37 38
Boxes
1 2 3 4 Benefits of foreign investment Historical impact of foreign investment in agriculture Investment by foreign government entities in Australian agriculture Australian investment in foreign agriculture 9 12 24 36
Conversion ratios
1 hectare (ha) = 2.4711 acres (ac) 1 acre = 0.4047 ha 1 sq km = 100 ha
Summary
Background
Australia has always relied on foreign investment to meet shortfalls in domestic savings. Inflows of foreign capital increase investment in the Australian economy, increasing production, employment and income. Without foreign capital inflows, investment in Australia would be limited only to that provided by domestic savings, resulting in lower production, employment, income and taxation payments. Foreign direct investment typically, but not necessarily, introduces new technology, or better management skills or systems. Productivity gains achieved by a foreign-owned company may spill over to others in the industry and to other industries, thus increasing output and incomes. High international food prices have generated increased global interest in investment in agriculture. Australia, together with other countries, has experienced an apparent increase in investment in agriculture from other countries. While land in Australia is expensive relative to many developing countries, Australia offers foreign investors some advantages. For example, Australias infrastructure and agricultural input and output markets are well developed. In addition, skilled staff can generally be hired, and risks are low under Australias stable and transparent legal system and government. Some of the foreign interest in Australian agricultural assets comes from companies involved in the food supply chain, seeking to expand their activities by securing new or alternative sources of supply or by gaining access to additional markets. In other cases, higher food prices have signalled the potential for profitable investment in agriculture. Australias food security is likely to improve, because new investment in agriculture leads to increased food supplies. The flow of foreign funds into the broader Australian economy contributes to higher aggregate production and thus to higher incomes, which improve consumers capacity to purchase food.
Recent foreign buyers of agricultural land in Australia appear to fall into three main categories: 1 Agribusiness companies, private or government owned, seeking to extend their activities up the supply chain to secure sources of supply. Purchases by Hassad Food (Qatar, state owned) and Olam International (Singapore, publicly listed) fall into this category. 2 Investment or pension funds seeking profits from owning and operating Australian agricultural land, but where those operations do not form part of any larger agricultural or food business. Examples are purchases by the Westchester Group (owned by the Teachers Insurance and Annuity Association of America) and by the UK-based private equity investment company Terra Firma Capital. 3 Some of the most publicised purchases of farmland by foreign interests are those by mining companies. The public concern surrounding these cases is arguably more about land use than about foreign ownership. While there has apparently been an increase in foreign ownership of Australian agricultural land in the past few years, the trend has not always been upward. Foreigner investors sell as well as buy land, and foreign landholdings have expanded and contracted at different times. The results of the Agricultural Land and Water Ownership Survey released by the Australian Bureau of Statistics (ABS) on 9 September 2011 provide information on the foreign ownership of agricultural land in Australia as at 31 December 2010. The survey showed that, on 31 December 2010, 1percent of Australias 135648 agricultural businesses was wholly or partly foreign owned. Some 44million hectares, or 11.3percent of Australian agricultural land, was wholly or partly owned by foreigners, of which around half had majority Australian ownership. The Northern Territory had 20 businesses, accounting for 23.8percent of agricultural land in the Northern Territory, wholly or partly under foreign ownershipthe largest proportion among the states and territories. Victoria had the lowest proportion of whole or part foreign ownership of agricultural land, at 0.8percent. By industry, the highest level of foreign ownership was in the sheep, beef cattle and grains industries, and the lowest was in nursery and floriculture. The Foreign Investment Review Board (FIRB) provides data on approvals given by the Australian Government for foreign investment. However, these data capture only some foreign investment transactions, because investments in companies below the value of $231million by non-government foreign entities are not subject to approval. Only larger transactions and transactions by state-owned entities are reflected in the FIRB data. Further, these data cover prior approvals to invest but do not capture any subsequent activity such as resale to nationals, and thus do not reflect the stock of foreign investment. In 200910, only 1.6percent (or $2.33billion) of approvals for foreign direct investment was in agriculture, forestry and fishing, with a further 2percent ($2.82billion) in food, beverage and tobacco manufacturing. The United States was the country with the largest value of approvals in agriculture, forestry and fishing, followed by Malaysia (second) and the United Kingdom (third). Approvals for foreign investment have varied considerably from year to year, with a notable increase in approvals for agriculture, forestry and fishing in the three years to 200910.
The State of Queensland maintains a register of foreign ownership of land and water entitlements. Foreign ownership of farmland in Queensland declined by 25percent in 2003 and by a further 15percent in 2004, before increasing in subsequent years. In 2010, mining companies accounted for around 60percent by value of the foreign purchasers of farmland in Queensland.
Bundaberg Sugar Limited was acquired by Tate & Lyle (the UK) in 1991 and was subsequently sold to Finasucre of Belgium in 2000. CSR sold its sugar business, Sucrogen, to the Malaysian Singaporean company Wilmar in 2010. In 2011, Tully Sugar was bought by Top Glory (Australia), a subsidiary of the Chinese state-owned COFCO Corporation. The three foreign-owned milling groups account for almost 60per cent of Australias raw sugar production. The largest player in meat processing in Australia is the Brazilian-owned company JBS Australia, a division of JBS, Brazils largest multinational in the food sector, and the worlds largest meat company. JBS first invested in Australia in 2007, a move that was seen as giving the group more diversified sources of supply as well as access to the Japanese and South Korean markets, while at the same time opening a wider range of markets to Australian producers. Other foreign companies in the meat industry are Cargill, now in partnership with the Australian company Teys Australia, and Japans Nippon Meat Packers. Based on throughput, around 40percent of Australias red meat production is processed by foreign-owned firms. At a national level, regulation of foreign investment in Australian agriculture is greater than that of many other Organisation for Economic Co-operation and Development (OECD) countries. The FIRB examines all proposals from foreign government-owned enterprises, and all other proposals amounting to 15percent or more of a company valued at $231million or more (unless from countries with which Australia has agreed on higher thresholds, such as a threshold of $1005million for the United States). The Australian Competition and Consumer Commission (ACCC) assesses the impact that proposed investments would have on competition in the Australian market. Assessment by these bodies may result in the government refusing to allow a foreign investment, or in an investment proceeding only with modifications or safeguards in place. The ACCC is also responsible for ensuring the competitive behaviour of foreign-owned (as well as domestic) agribusinesses in the Australian marketplace.
Finally, in regard to state owned or sponsored investment in Australia, there are safeguard measures relating to purchase of land by foreign government-owned organisations. All investments by foreign governments and related entities, regardless of the value of the investment, are subject to examination by the FIRB. The FIRB makes recommendations to the Australian Government on whether such investments should proceed. The FIRB may seek advice from other agencies on national security, competition and other issues of potential concern before making a recommendation.
In Brazil, purchases of farmland by foreigners have been restricted since 1971. Now new restrictive measures to control foreign ownership of farmland are being introduced, with foreign ownership to be restricted to 25percent of the area of any municipality, with a maximum of 10percent to be owned by any one nationality. Argentina exercises no control over foreign investment in farmland; no specific process exists for foreign entities to obtain permission to buy farmland, and no official data are kept on land ownership by foreigners. However, in the light of increases in land purchases by foreign interests in the past few years, a Bill has been introduced in congress to limit the foreign ownership of rural land and to collect and maintain data on foreign ownership. If approved, foreign ownership of Argentinas total farmland would be limited to 20percent, and any given nationality will be able to own only up to 30percent of that limit. No single foreign entity will be allowed to purchase more than 1000 hectares of farmland in Argentina.
Concluding remarks
Foreign investment is a significant force in the development of the Australian economy, including in agriculture. Inflows of foreign capital increase investment in the Australian economy, leading to higher production, employment and income. Foreign ownership of agricultural land in Australia has gone through periods of expansion and contraction. It is understood to have been increasing in 2010 and 2011, in part because of purchases of land by mining companies. Foreign investment in Australian agribusiness appears to be higher than in farmland. Depending on the nature of the business, investment in Australia may provide foreign companies with larger and more efficient operations, access to the Australian market and new brands for products. It may also give foreign firms access to supplies of raw materials, possibly enhancing the flow of Australian exports to the investors country, and access to markets in third countries. In some cases it simply provides a foreign company with a profitable investment. The inflow of capital to Australia has improved capacity and efficiency in agribusiness activities. New investment by foreign owners has facilitated restructuring in sugar milling, and has expanded meat processing and grain handling capacity. The diversity of measures employed to regulate and monitor the ownership of farmland by foreigners in other countries reflects their diverse histories and cultural backgrounds. Concessions to concerns about sovereignty, distrust or fear of foreigners are likely to come at an economic cost to countries that restrict the inflow of foreign capital. The regular collection of information on foreign ownership might be considered as a means of providing transparency to the public and contributing to better-informed policymaking in the future. Funding the collection of data on ownership of land and water by an agency such as the ABS, possibly as part of the agricultural census every five years, would be one approach. An alternative would be to maintain registry data by collecting information at either the national or state level on transactions from buyers and sellers of land. However, collecting and maintaining data has a cost to the agency charged with such a responsibility, as well as to respondents providing information to that agency.
1Background
The spike in international food prices in late 2007 through 2008 and the resurgence of high prices since mid-2010 (gure 1) generated increased global interest in investment in agriculture. Private, institutional and sovereign investors have demonstrated an increased interest in agriculture. A number of countries that depend on food imports for a significant share of their food supplies and that have the resources to invest in food-producing assets in other countries have invested in agricultural land, mostly in Africa but also in Pakistan, Kazakhstan, Cambodia and Brazil. Major foreign investors in farmland have included the Gulf States, China and the Republic of Korea. Byerlee and Deininger (2011) identify three broad groups of investors: agribusiness operations seeking to expand or integrate their operations; financial entities such as pension and equity funds; and government-owned sovereign wealth funds. Lack of investment has, in the past, been identified as a fundamental cause of low productivity and stagnant agricultural production in developing countries. Increased foreign investment may be expected to bring new capital and technology to those countries, enhancing productivity and employment and contributing to global food security. As well as increasing production, which can be used for domestic consumption, foreign investment may facilitate export channels. It can also be expected to enhance the infrastructure of the host countries, and to generate tax revenues.
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Some agricultural projects funded by foreign investment in developing countries have failed because the host countries lacked the capacity to process and manage large-scale investments, and because the investment proposals were not technically viable. Some significant land deals in developing countries such as Madagascar, Indonesia and the Philippines have also been cancelled in the face of local opposition (Deininger & Byerlee 2011; Hallam 2009). Recently there appears to have been an increase in interest in Australian agriculture from investors in other countries. While land in Australia may be expensive relative to similar land in developing countries, investment in Australia offers some advantages. Transport and communications and markets for farm inputs and produce are well developed. Skilled labour and managers are readily available, and sovereign risks are low under Australias stable and transparent government. Some investors are drawn to Australia because of its existing trade links with markets in Asian countries. While data on landholding by foreigners are limited, anecdotal evidence suggests that investors from Europe and North America, the Gulf States and Asia, including China, have shown increased interest in investing in Australian agriculture since the rise in global food prices in late 2007. Agribusiness companies, including Australian Meat Holdings, Tasman Group, Queensland Cotton, National Foods, Dairy Farmers, AWB, ABB, Sucrogen (formerly CSRs sugar arm) and Tully Sugar, have been the subject of foreign takeovers in the past few years. Some of the foreign interest in Australian agricultural assets is from companies involved in the food supply chain, seeking to expand their activities by securing sources of supply or by gaining access to additional markets in Australia or in third markets (such as those in Asia). In other cases, the increased food prices have signalled the potential for profitable investment in agriculture, and investment funds with little or no established interest in agriculture have sought to buy Australian agricultural assets.
FDI also introduces new technology and, by improving productivity, tends to have a larger impact, per dollar invested, on economic growth than does domestic investment. According to Vo and Batten (2006), FDI boosts economic growth through productivity gains arising from technology transfer and diffusion, including the introduction of new processes, managerial skills and know-how in the host countries, and because of this has a larger effect on economic growth than does domestic investment (Vo & Batten 2006). Foreign companies often bring technology with them. Technological spillovers flow beyond the foreign-owned firm, so that productivity through the industry involved will also improve. This happens as workers move between foreign and domestic firms; as supplying firms are provided with technology by their foreign-owned investors; and as other firms observe and adopt the practices by their foreignowned competitors. FDIs effect on trade is ambiguous, at least in the short term, depending on the nature of the investment. There is some international evidence that multinational firms are more exportoriented than domestic firms, and that this export orientation spills over to the domestic competitors, leading to higher exports. FDI may also lead to increased imports, especially of capital equipment and machinery, which are mostly imported into Australia. Foreign investment in export-oriented primary industries, by firms seeking to enhance their supplies of raw materials from Australia, can be expected to have a positive impact on commodity exports. Effects of foreign investment could be important in some developing countries if governments were to be tempted to reduce standards in order to attract investment (see OECD 1998) but this would be less likely to happen in Australia. FDI may lead to a loss of sovereignty in a country where governance is weak and lacks transparency and a large foreign company may be able to exercise influence. While concern about sovereignty appears to be the reason that the proposed Multilateral Agreement on Investment failed in 1998, it is unlikely to be a problem in developed democracies with strong and transparent regulatory mechanisms. Purchasing a property allows an owner, whether local or foreign, to exercise certain rights over that property, but any owner of property is bound to abide by a range of laws and regulations imposed by federal, state and local government.
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portfolio foreign investment in Australia direct foreign investment in Australia Australian direct investment abroad Australian portfolio investment abroad Source: ABS 5352.0
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FDI has been found to respond significantly to the investment provisions of preferential trade arrangements (Adams et al. 2003). Australia has signed such agreements with New Zealand, Singapore, Thailand, the United States and Chile, as well as the ASEANAustraliaNew Zealand Free Trade Area. Negotiations with other countries, including China, Malaysia, Japan, the Republic of Korea, Indonesia, India, and the Gulf Cooperation Council (GCC), are in progress (DFAT 2011). Depending on final agreements reached, there may be scope for increased investment flows, in both directions, between Australia and these countries. The World Investment Prospects Survey conducted by the United Nations Conference on Trade and Development in 2009 in the light of the global financial crisis provides an outlook on future trends in FDI by the largest transnational corporations (UNCTAD 2009). The global financial crisis had heightened perceptions of risk and reduced the availability of FDI flows in 2009, but global FDI was expected to progressively recover in subsequent years. The factors identified as favouring investment in Australia included the presence of a stable and business-friendly environment, quality of infrastructure, access to natural resources and government effectiveness. The size of the local market and market growth were important global determinants of FDI but were found to be less important in the case of Australia than in many other countries. Access to international and regional markets was not given in the above survey as a strong factor behind foreign investment in Australia. This result appears surprising, because a number of investors in agribusiness enterprises in Australia have cited links to Asian markets as important considerations for foreign investors in their decisions to invest. Companies active in food and agribusiness have expanded into Australia partly in response to deregulation of agricultural industries over the past decade, as they have sought various ways to expand their businesses, to reap economies of scale, and to capture additional sources of supply and additional markets. The higher global food prices since late 2007 have also stimulated global interest in investment in agriculture. There has been investment from state-owned and sovereign wealth fundowned food companies from, for example, Qatar, apparently aimed at securing their long-term food supplies. Some purchases of land have also been made by foreign investment companies with no established interest in the food chain, seeking to profit from holding and operating in Australian agriculture.
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The acquisition of an interest in agricultural land or a primary production business is subject to the same monetary thresholds that apply to other foreign acquisitions of Australian companies or business assets. Foreign persons are required to notify the government before acquiring an interest of 15percent or more in an Australian business or corporation that is valued above $231million. This monetary threshold is indexed annually on 1 January. Higher limits apply in the case of countries with which Australia has signed bilateral agreements, such as a threshold of $1005million for the United States. The threshold of $231million is above the value of most agricultural land transactions, with only large enterprises such as aggregations of properties in managed investment schemes being subject to FIRB examination. Investment proposals from foreign governments and their related entities are subject to close scrutiny. Government approval is required for all such acquisitions, regardless of value of land, as well as investment in companies and business assets, without reference to the monetary threshold ($231million in 2011). The Australian Government does not have a policy of not approving such investments but it looks at the overall proposal carefully. The FIRB considers whether the investment is commercial in nature or if the investor may be pursuing broader political or strategic objectives that may be contrary to Australias national interest. The FIRB defines agricultural land (rural land) as that used wholly and exclusively for carrying on a business of primary production. To be a business of primary production, the business must be substantial and have a commercial purpose or character. Sale of such properties to non-government foreign investors below the threshold value is not subject to FIRB scrutiny. However, properties of sub-commercial scale, including those operated for recreational or hobby purposes, are not classed as agricultural land, and purchases of such properties by foreigners, regardless of value, can be made only with government approval.
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total 100% joint and total 100% joint and number of Australian foreign agricultural Australian foreign establishments control control businesses owned owned
53 011 99.7 0.3 43 309 98.6 45 984 99.9 0.1 32 575 98.4 34 167 99.8 0.2 28 638 99.4 19 479 99.9 0.1 13 847 98.2 16 750 99.3 0.7 12 592 97.8 5 664 99.9 0.1 4 070 96.2 255 88.2 11.8 617 96.6 175 412 99.7 0.3 135 648 98.5 1.0 0.7 0.5 1.4 1.2 2.8 3.2 1.0
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This recent information on wholly or partly foreign-owned land may be compared with earlier ABS data for 198384 (ABS 1985). At the end of March 1984, 28.5million hectares, or 5.9percent of the total area of Australias agricultural land, was wholly or partly foreign owned. Foreign ownership, whole or part, amounted to 18.2percent of agricultural land in the Northern Territory, and 5.3percent in Queensland. In 1984, 0.3percent of agricultural establishments were under foreign control. The ABS data for 198384 also included information on the value of production under foreign control, and on the nationality of foreign land owners. Neither of these was covered in the 2011 survey. In 198384, agricultural establishments with foreign ownership (whole or part) accounted for 1.8percent of the total gross value of agricultural production. In some industries, however, foreign participation was higher, accounting for 14.3percent of the value of cotton produced, 8.7percent of pig numbers, and 5percent of meat cattle and calf
Total 100% Australian Foreign and Total 100% Australian Foreign and area part-foreign area part-foreign
NSW Vic Qld SA WA Tas NT Aust 000 Ha 64 016 14 255 158 110 62 063 114 287 2 162 71 666 486 559 000 Ha 63 290 14 198 149 743 59 372 110 733 2 116 58 617 458 067 % 98.9 99.6 94.7 95.7 96.9 97.9 81.8 94.1 % 1.1 0.4 5.3 4.3 3.1 2.1 18.2 5.9 000 Ha 56 187 12 245 138 706 45 131 84 657 1 841 59 223 397 991 000 Ha 54 541 12 059 122 337 39 654 77 377 1 737 45 102 352 808 % 97.1 98.5 88.2 87.9 91.4 94.3 76.2 88.6 % 2.7 0.8 11.8 12.1 8.5 5.6 23.8 11.3
ANZSIC code Industry 011 Nurseries/floriculture 012 Vegetables, mushrooms 013 Fruit and tree nuts 0131 Grape growing 014 Beef/sheep/grain a 0143 Beef feedlot 015 Other crops 016 Dairy cattle 017 Poultry 018/019 Deer, other livestock other Total
% % 99.8 99.0 99.9 97.7 99.2 92.0 95.6 96.2 93.9 88.2 96.1 95.2 94.6 99.7 94.2 99.1 96.3 99.9 98.7 99.7 94.5 94.1 88.6
a 94 per cent of Australias agricultural land is in ANZSIC 014: Sheep, Beef Cattle and Grain Farming. Sources: ABS 1985, 2011c
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numbers. The proportion of the value of agricultural production under foreign ownership was much smaller than the proportion of land owned by foreigners, suggesting that foreign ownership was concentrated in the less-intensive forms of agricultural production. In 198384, the United Kingdom and the United States were by far the largest foreign landholders, accounting for 70percent of foreign-owned agricultural land. The 2011 survey did not collect information on the nationality of foreign owners. Neither source provides information on the nature of the foreign entities involved, whether family, corporate or government-owned. The ABS also provides data on the international investment position in Australia (ABS 2011b). In 2008, foreign investment in agriculture, forestry and fishing amounted to $700million. However, this may be an underestimate of the actual foreign investment in agriculture first because smaller investments fall below the threshold of $35million for categorisation in the survey, and second, because investment in agriculture may be made in entities that are classified under headings other than agriculture, such as investment in a finance and insurance company that owns land. Other ABS publications provide data on foreign investment and the balance of payments (ABS 2011a), but these data are at an aggregate level and do not show investment in agriculture. Data on the characteristics of Australian business include information on foreign ownership (ABS 2011d).
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However, the data provided by FIRB on approvals for overseas investment in Australia are of limited value in developing an understanding of the
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amount of foreign investment in Australian agriculture. This is because, first, investments by non-government foreign entities below the value of $231million in 2011or more in the case of those subject to higher thresholds under bilateral agreementsare not subject to approval and are not captured in these data. Second, the FIRB provides data on prior approvals for foreign investment but does not track actual investments (gure 5). Approvals might be given for investments that subsequently are not made, or which might be made only partially. Assets, once bought by foreign entities, may subsequently be sold to nationals, or the owners may later become naturalised citizens.
The state of Queensland, under its Foreign Ownership of Land Register Act 1988 maintains a register of foreign-owned land, rural as well as urban, and water entitlements. Any transactions involving foreign individuals or companies must be notified to the titles office. The titles office reports each year to parliament on the transactions that have taken place within the year (to 30 June) and on the accumulated holdings by foreigners. Foreign landholding in Queensland increased through the first few years of the past decade, declined in the years to June 2004 and 2005 as foreigners sold off their holdings, then increased through the second half of the decade. The most recent data show that around 2.5percent of Queenslands land area is in foreign hands (DERM 2010), of which the United Kingdom accounts for almost half, with the United States, Germany, Netherlands, Switzerland and Hong Kong being other significant landholders.
The large increase in foreign holdings in 200809 was dominated by a single purchase, that of 90percent of the Consolidated Pastoral Company by the British private equity company Terra Firma Capital, involving approximately 2.6million hectares in Queensland. This company purchased a further 600000 hectares in 200910.
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In 2010, there were 43 purchases of farmland by foreigners in Queensland. Of the total value of farmland that changed hands, 14percent or $203million was accounted for by foreign purchasers. The average value of farms sold in Queensland in 2010 was $1.18million, but the value of farms bought by foreigners averaged $6.28million. In 2010, mining companies constituted a significant proportion (around 60percent by value) of the foreign purchasers of farmland in Queensland.
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Purchases by the UK-based private equity investment company Terra Firma Capital, which has investments in a range of sectors including energy, catering, housing and entertainment, also fall into this category (Terra Firma 2009). Terra Firma purchased 90percent of the Consolidated Pastoral Company from the Packer family in 2009 for $425million (Reuters 2009). Terra Firma is seeking to invest additional capital to increase productivity by making more efficient use of water resources (Terra Firma 2009). The pension fund MHPF, also based in the United Kingdom, purchased 11 rural properties in New South Wales for a total of $127million since 2007 (Chancellor 2011). Third, some of the most publicised purchases of farmland by foreign interests are those by mining companies. For example, the Chinese company Shenhua Watermark Coal bought 43 farms near Gunnedah, New South Wales, to explore for coal. Recent Queensland data suggest that around 60percent (by value) of foreign farmland purchases in 2010 were by mining companies. These purchases lead to concern about land being lost to agricultural production, although in some cases the new owners have leased the farms back to farmers. The public concern surrounding these cases is arguably more about land use and possible impacts on water and the environment than about foreign ownership. While there has apparently been an increase in foreign ownership of Australian agricultural land in the past two years, the trend has not always been upward. Foreigners, on occasions, sell land, and foreign landholdings have expanded and contracted at different times. As discussed above, the Queensland data on foreign ownership of land show that foreign holdings in Queensland contracted by 25percent in the year to June 2004, and by a further 15percent in the following year. Other examples include the BritishArgentine Vestey family, which once held a number of cattle properties in the Northern Territory totalling 63000 square miles (163170 square kilometres). Vesteys liquidated their holdings in 1992 (Milliken 1992). The Texas-based Tejas Land & Cattle Co sold its three stations in the Northern Territorys Victoria River district to the AAco in 2004. Two years later, the Sultan of Brunei sold three of the five NT cattle stations he had owned for two decades to a Queensland buyer. In 2005, Greek shipping magnate Gregory Hadjieleftheriadis sold off his Alice Springs Pastoral Co properties around Rockhampton (Agriculture Investment 2009). Foreign investment in agricultural land in Australia appears to have been increasing in 2010 and 2011. This trend may be expected to continue while food prices remain high and while investment funds in other countries continue to seek investment opportunities in agriculture. Should food prices experience a significant downward correction, or should economic conditions result in a contraction of the supply of funds in the investing countries, then the flow of investment funds into Australian agriculture may halt or possibly reverse.
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The process of international economic integration has been underway for decades (OECD 2007). Increasingly open economic policies and reductions in cost arising from advances in transport and communication have fostered globalisation. FDI is, together with trade, one of the key channels for international economic integration. Technology transfer has also become an increasingly important factor. Information and communications technology has made it possible for productive activities to be performed in any location that can help reduce costs. The various stages of a production process may be optimally located in different places as firms find it economical to source their inputs globally, leading to increased trade of raw and intermediate goods as well as final product. Domestic production in any country increasingly relies on foreign inputs. Participation in economic integration was once largely restricted to OECD countries but now increasingly involves others, particularly the large emerging economies like Brazil, China, India and the Russian Federation. The globalisation of value chains is motivated partly by the need to increase efficiency, as strengthening competition in domestic and international markets forces firms to lower their costs. Sourcing inputs from more efficient producers, either domestically or internationally, is one way to achieve this. Gaining economies of scale from expansion of the firm is another. Other important motivations are entry into new emerging markets and access to strategic assets that can help tap into foreign knowledge. Investment in Australian agribusiness has given foreign companies access to the Australian market or to Australian sources of supply, and in some cases it has given those companies access to markets in third countries, especially in Asia. The globalisation of markets and advances in technology have been important factors behind changes in the agribusiness sector. But the progress of market liberalisation for agricultural produce has been slower than for industrial goods, having first entered multilateral trade negotiations with the Uruguay Round only in 1986 (Dunne 2001). Privatisation of agricultural production and the supply chain in those countries where such enterprises were formerly under state control gave a further boost to the growth of international agribusiness companies (Swinnen & Maertens 2006). State-controlled vertical coordination gave way to opportunities for supply chains in those countries to be integrated into multinational enterprises. Foreign investment in Australian agribusiness, as with foreign investment in other sectors, has increased the supply of capital in the economy. Higher investment has led to greater
26
production, employment and income. The foreign companies engaged in agribusiness activities have typically financed expansion in productive capacity or restructuring in an industry to improve efficiency and viability. Deregulation of Australian agricultural industries stimulated foreign investment. Processing plants and exporting organisations, whether cooperatively owned by producers or in the hands of private or public companies, became valuable and marketable assets. Faced with the opportunity of realising attractive benefits from selling these assets, shareholderswho, in many cases, were agricultural producerschose to sell their grain marketing, dairy processing and sugar milling assets to foreign buyers. The major companies investing in Australian agribusiness display a range of structures. They include private companies such as Cargill and Finasucre, public companies such as Wilmar and Parmalat, at least one farmer cooperative, Fonterra, and a state-owned conglomerate, COFCO. Foreign investment in agribusiness has typically been made by companies involved in the same or similar business in other countries seeking to expand their activities at an opportunistic time. However, Kirin (a brewing company) and Wilmar (active in a number of commodities not including sugar) each branched out into new sectors when they invested in Australias dairy and sugar sectors, respectively. In a very few cases, agribusinesses have been bought by foreign companies where they do not form part of an existing agricultural or food business, as in the case of Harmony Capitals investment in meat processing.
27
12%
other
Trade contacts with Asiain this case, Indiawere cited as a reason behind the 2007 acquisition of Harvest Grain Australia Pty Ltd, a pulse company in Horsham, Victoria, by the Agtech Income Fund of Canada through its company Alliance Pulse Processors. Alliance subsequently made acquisitions in South Australia to further expand their business (Agtech 2007). In 2010, Alliance purchased Balco Grain Services and Northern Yorke Processors. The transaction gave Alliance growth beyond its Canadian and US operations and, by diversifying into another region, offered it greater stability of supply (Alliance 2010). Emerald, a grain marketing company established in 2004, formed a partnership with the Japanese company Sumitomo Corporation in 2010. Sumitomo is the largest importer of wheat into Japan, and the partnership provides growers with improved access to Japan and other Asian markets where Sumitomo is active (Winney 2011). The joint venture between Elders and Toepfer International also provided international expertise and market access to an Australian company (Elders 2011). Other foreign-owned companies operating in the Australian grains market include Glencore International (Switzerland), Bunge Ltd (United States) and Louis Dreyfus (France). Winney (2011) noted that of the 23licensed wheat exporters operating in Australia today, only 12 are Australian-owned. The entry of foreign companies into the Australian grain handling and export sector has generally occurred after review by the regulatory authorities, the FIRB and the ACCC. Investment in Australia has allowed those companies to expand and diversify their sources of supply, thus increasing the scale of their operations and reducing the impact that a poor harvest in one region of the world will have on their global operations. In some cases, buying an Australian company with existing marketing links to third countries, particularly in Asia, has provided additional markets for those companies. Investment in new grain handling, storage and port facilities by companies such as Viterra and Cargill has enhanced Australias grain handling capacity.
28
JBS claims to be the worlds largest meat company and is active in meat production in Brazil, Argentina, the United States and Australia. Investment in Australia is a part of its international growth, and was seen as giving the group access to the Japanese and South Korean markets, while at the same time opening a wider range of markets to Australian producers (ABC 2007). JBS has invested in expansion and improved technology in its plants, providing benefits to cattle producers, workers, and the economy generally at the regional level (ABC 2010). For example, at the time JBS bought and injected funds into the Rockdale Beef feedlot and
29
abattoir at Yanco there were fears that it might close (The Rural 2010). The purchase was welcomed in the region for the benefit it would have to the local economy, particularly its impact on employment. The second largest group in Australian meat processing is Teys Australia A Cargill Joint Venture, a partnership formed in May 2011 between the Australian family company Teys Bros and the US privately held company Cargill (Cargill 2011a). Prior to this, Cargill owned two abattoirs, while Teys had four; the new venture now owns abattoirs that, in 2006, accounted for 16percent of Australias red meat slaughter. Cargill has interests in a range of industries, largely in the agricultural and food sectors. Its meat interests include beef, pork and poultry in the United States, Europe, Argentina, and Asia (Cargill 2011b). The Japanese-owned Nippon Meat Packers Australia, with abattoirs at McKay, Oakey and Wingham, produced 5.9percent of Australias red meat in 2006. Nippon Meat is the longestestablished major foreign player in Australian meat processing. It is a wholly owned subsidiary of Nippon Meat Packers a Japanese publicly listed company (Nippon 2011). While clearly well placed to supply meat to its parent company in Japan, Nippon also exports to other Asian countries and to North America. Private equity investor Harmony Capital purchased the beef processing plant of Kilcoy Pastoral Company in Queensland in 2007, and it took full control of Harvey Beef in Western Australia in 2009 after being a part-owner for several years. Harmony is based in the Cayman Islands, with branches in Singapore, Hong Kong and Sydney. It appears to be the only significant foreign investor in the Australian meat industry not to have an established interest in meat industries outside Australia. A 1991 report into foreign investment in the beef industry (Young & Sheales 1991) provides a basis for a review of changes that have occurred in the industry since that time. Of the 77 beef export abattoirs operating in Australia 20 years ago, 27 had some level of foreign ownership. Foreign ownership of abattoirs at that time was dominated by Japan, the United Kingdom and the United States (gure 8). New Japanese investment in the Australian beef industry had accompanied growth of the Japanese market for Australian beef. Japanese investment in the supply chain was, in part, aimed at controlling the quality of the product imported into Japan and ensuring the security of supply. Japanese companies exporting from Australia were able to benefit from their knowledge of the market and gain advantage. However, the particular circumstances of the export trade to Japan that existed in the 1980s are no longer apparent, and little growth in Japanese investment in the Australian meat industry has occurred since. Recent information from AUS-MEAT indicates that there are 52 beef export abattoirs (AUS-MEAT 2011). Thus there are now fewer abattoirs producing more beef than at the end of the 1980s. The level of foreign ownership is now higher, with a rather different set of countries involved. Brazil was not present in 1990, but JBS of Brazil accounted for around 24percent of Australias red meat processing in 2011. The United States had a small share (2.3percent of beef processing, only in Queensland) in 1990, while Cargills (US) half of the TeysCargill joint venture amounted to 8percent of Australias red meat processing in 2011. The Japanese share of 6percent in 2011 is a little smaller than the share reported for 1990.
30
79.9%
79.8%
UK owned other
31
Kirins major shareholders are Japanese financial institutions (Kirin 2010). Its home market had been shrinking as the Japanese population and consumption of beer, which accounts for 60percent of the companys revenue, has been falling. Thus the company sought to further its expansion into other markets (Pearson & Fenner 2008). Unlike Fonterra and Parmalat, Kirin had not been active in dairy products prior to its investment in the Australian dairy industry. In purchasing National Foods, Kirin was diversifying into a new area, not expanding an existing value chain. Kirin has since made investment in its facilities, including an announced $132million in cheese manufacturing in Tasmania in 2011 (Lion 2011). The rationalisation of its holdings has resulted in winding down at some sites, but might be expected to strengthen the operations longterm viability.
7%
Source: ABARES estimate
Parmalat is the third of the major foreign dairy manufacturers in Australia. The then-Italian company acquired Pauls, a company operating in Queensland and northern New South Wales, in 1998. Parmalats new investments in Australia in 2010 amounted to 27.4million Euros ($A40million) on expanded capacity at several plants, following investment of 8.9million Euros ($A16million) in 2009 (Parmalat 2010, 2011). In July 2011, the French company Lactalis took control of the international Parmalat group, with a shareholding of 83percent (AFN 2011). Foreign ownership of milk processing capacity appears to have been beneficial for the industry. The three major foreign investors, Fonterra, Kirin and Parmalat, have, in common with others such as Murray Goulburn, injected funds to improve efficiency and maintain their profitability while at the same time engaging in some winding down of existing, out-of-date capacity.
32
33
In June 2011, Sucrogen made a $115million cash bid to purchase the business assets of the Proserpine Co-operative Sugar Milling Association Limited. Shortly before the growers voted on whether or not to accept this offer, Tully Sugar made a rival offer, and on 31 August the bid by Sucrogen was rejected. Both Tully and Sucrogen made revised offers in September 2011. The three foreign-owned milling groups, Sucrogen (Wilmar, SingaporeMalaysia), Bundaberg (Finasucre, Belgium) and Tully (Top Glory/COFCO, China), now undertake around 60percent of Australias raw sugar production, with the Sucrogen mills accounting for around 43percent, Bundaberg for 11percent and Tully for 5percent (gure 10).
5%
11%
Sugar production has declined through the past decade as a result of low sugar prices, and a process of rationalisation has taken place, with a number of mills closing. The availability of additional capital from new foreign owners has facilitated this rationalisation and maintained efficiency in the industry. The foreign-owned company Bundaberg has closed several mills, while investing in the capacity of others at the same time. The foreign-ownership experience of Sucrogen and Tully is rather recent, but they are likely to have the capacity to invest where needed. The Proserpine mill has a high level of debt, and its prospects would be improved should it come under new ownership with sufficient liquidity.
34
35
Inquiries by parliamentary committees are conducted on an ad hoc basis when public concerns arise about developments in an industry. An example is the Senate Economics Committee Inquiry into competition and pricing in the Australian dairy industry (Senate Economics References Committee 2010). These mechanisms amount to a considerable level of scrutiny of foreign investment proposals and operations of foreign-owned agribusinesses in Australia. With such scrutiny, it appears Australias regulatory framework is likely to be sufficient to ensure Australias national interest in relation to new foreign investment in agribusiness and the competitive behaviour of foreignowned agribusinesses in the Australian market.
36
Monitoring and regulation of foreign investment in agricultural land in other selected countries
The OECD has undertaken a study at national level of the restrictiveness on FDI in each of its member countries, as well as in some selected major non-OECD countries (Kalinova, Palerm & Thomsen 2010). The authors summarised their results in the form of an index, with separate results for each of 22 economic sectors, including agriculture. Countries were scored in a range of 0 to 1, where 0 indicates that there are no restrictions on foreign investment, and 1 indicates the most restrictive. Across all sectors as a whole, Australia had a score of 0.128, and ranked as the twelfth most restrictive of the 48 countries considered in the analysis. Australias restrictiveness was highest in the air transport, communications and real estate sectors. In the case of agriculture, Australia has a score of 0.075. When 14 major non-OECD countries are included in the analysis together with the OECD members, Australia ranks as the seventeenth most restrictive of the 48 countries (gure 11). Countries such as Japan (with a score of 1), Korea (0.5) and New Zealand (0.3) are considerably more restrictive than Australia, and Brazil, at
0
0 = no restrictions
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
1 = most restrictive
37
0.095, is slightly more restrictive. However, 26 countries in the study have scores of zero, being considered to have no restriction on FDI in agriculture. Among the 34 OECD member countries, Australia is the tenth most restrictive for FDI in agriculture (gure 12). More than half the OECD countries have no national level restriction on FDI in agriculture. However, this assessment can be misleading in some cases. For example, the United States and Canada have quite restrictive conditions on foreign ownership in some states and provinces. Comparisons of the measures employed by different countries need to be treated with caution. No two countries have the same history, traditions, economies or culture, and the measures employed in one country may have only limited application in another. It is nevertheless useful to review the types of measures that are used, illustrated in the five countries discussed below, as representing a range of alternatives that may have a broader applicability in some form.
0
0 = no restrictions
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
1 = most restrictive
38
New Zealand
Among the 34 OECD member countries, New Zealand is the seventh most restrictive recipient of FDI in agriculture according to the OECD (Kalinova, Palerm & Thomsen 2010). New Zealands Overseas Investment Act 2005 (OIA) derives from a history of intervention in land ownership quite different to that of Australia. Until the 1990s, acquisition and use of farmland, even by New Zealand citizens, was restricted. From 1877, New Zealand had legislation to encourage closer settlement and discourage aggregation of holdings. The Land Settlement Promotion and Land Acquisition Act 1952 sought to prevent the purchase of land by an intending purchaser who already owned sufficient land to support a family. It also required a purchaser to live on the land and actively farm it. Some of the provisions of this Act were relaxed over time, but until 1995 all purchases of farmland in New Zealand, including by New Zealanders themselves, required statutory approval in order to avoid undue aggregation of land holdings (Hansard 2011). The Act was repealed only in 2005, when some of its provisions were consolidated into the OIA (Heatley & Howell 2010). The stated purpose of the OIA is to acknowledge that it is a privilege for overseas persons to own or control sensitive New Zealand assets by requiring overseas investments in those assets, before being made, to meet criteria for consent; and by imposing conditions on those overseas investments. The OIA controls foreign investment in sensitive land, and has less stringent controls over business investment. Any parcel of non-urban land of 5 hectares or more is defined as sensitive (in some situations such as foreshores, land subject to a heritage order, or land adjoining reserves or parks or heritage land, areas of 0.2 and 0.4 hectares fall within the definition of sensitive) and comes within the ambit of the Act. Thus, with the exception of some very small holdings, all farmland purchases in New Zealand by foreign entities are subject to the provisions of the OIA. A list of criteria is used by the Overseas Investment Office (OIO) in considering an application for foreign investment. These include elements such as mechanisms offered by the proposed purchaser for the protection of New Zealands indigenous fauna and flora and of its monuments and icons; provision for control of pests, fire and erosion; and the provision of public walking access. Potential economic benefits are assessed, but these are interpreted narrowly; on employment, for example, the administrators of the Act seek details of people to be employed by the potential investor. Introduction of new technology, access to overseas markets, and potential value-adding are among the points considered, together with a catch-all promotion of New Zealands economic interests. The process does not specifically recognise the broader benefits of foreign investment flowing into the economy in generating employment and boosting incomes. Investment by foreign governments appears not to be a matter of particular concern to New Zealand, and is treated the same as investment by foreign individuals or foreign companies.
39
The set of criteria used to test whether an investment proposal is of benefit to New Zealand has been changed on several occasions. Changes in December 2010 gave additional flexibility to the Minister for Finance and the Minister for Land Information in assessing applications. In this respect, the New Zealand practice is unlike that of Australia, where the FIRB explicitly does not have a set of codified criteria to apply in assessing foreign applications for investment. The overwhelming majority (98percent) of applications by foreign investors to purchase farmland are approved. However, there is no information on the extent to which potential investors might be deterred by the existence of the OIA, although it appears likely that the cost and time involved would have a negative impact. The cost of submitting an application amounts to around $NZ20 000 in fees, and preparing the application could cost up to an additional $NZ50 000 in legal and other expenses. The approval period may take one or two months or longer, although it was announced in 2010 that processing times had dropped to an average of 38 days from 63 days in the previous year (English 2010). Potential investors might also be deterred by the public disclosure of the transaction that results from the process. There is no indication of how the type of investors who proceed with an application may differ from those who are deterred. Some 10percent of applications are withdrawn after being lodged. To the extent that foreign investment is effectively deterred by the Act, the economic cost could be considerable. New Zealand is considered to be short of capital. It has a small pool of savings available for domestic investment and incoming capital is of considerable benefit to the economy. In addition, the particular provisions of the Act lead to some distortions. The Act deters investment in land relative to other capital. Some joint ventures have been artificially structured to leave a land ownership component in New Zealand hands with other capital owned by the foreign investor. Foreign debt is not restricted by the OIA. To the extent that the OIA restricts foreign equity in New Zealand land, it is likely to have increased foreign debt. Increased use of debt in place of equity will lead to upward pressure on domestic interest rates, increasing the risk of exposure to economic shocks (Nixon 2011). Information on approvals for foreign investment is available to the public via the OIO website. However, the administration of the OIA does not lead to the maintenance of data on the foreign ownership of land in New Zealand, as there is no information collected on transactions subsequent to the OIO approval process. Approvals do not necessarily result in purchases; land purchased by foreigners may subsequently be sold to New Zealand citizens, and foreign land owners may become citizens. While there is a lack of hard data, there are indications that foreign ownership of land is fairly low in New Zealand. For example, around 600 dairy farms change hands annually, with a maximum of 0.5percent of these going to foreign purchasers (Dave Heatley pers. comm.).
40
Overseas investment in business in New Zealand, including agribusiness, where ownership of sensitive land is not involved, is a simpler process. Foreign investments of less than $NZ100million are not scrutinised, and the evaluation of those of $NZ100million or more involves only a four-point check of business experience and acumen, financial capacity, good character, and eligibility under the Immigration Act2009. Despite this relative freedom to invest in assets other than land, foreign ownership in agricultural processing and marketing appears to be lower than in Australia. The dominant player in New Zealand agribusiness is Fonterra, a dairy processing company owned on a cooperative basis by New Zealand milk producers. Fonterra processes around 90percent of New Zealands milk, and is active in a number of other countries, including Australia. There is some foreign investment in the remaining 10per cent of the dairy industry. Meat processing is dominated by two cooperatives and family-owned businesses, with one company, ANZCO, being jointly owned by Japanese and New Zealand interests. However, foreign investment in forestry and in wine production appears more significant.
United States
Under the Agricultural Foreign Investment Disclosure Act of 1978, it is compulsory for all foreign persons who acquire or transfer an interest in agricultural land to report that transaction within 90 days. Landowners who become or cease to be foreign persons, and foreign persons holding land that becomes or ceases to be agricultural land, must also file a report. Based on these disclosures, the US Department of Agricultures Farm Service Agency prepares a report each year on foreign holdings of agricultural land as at the end of February (agricultural land is defined to include forestry land). The most recent report, with data for 28 February 2010 (USDA 2011), shows that foreign entities held 22.7million acres (9.2million hectares), a slight increase from the previous year. These foreign holdings amount to approximately 1.8percent of all privately held agricultural and forest land in the United States. Canada was the largest source of foreign landholders in the United States, followed by the Netherlands, Germany and the United Kingdom. Australians held 46000 acres, one-fifth of 1percent of the foreign-owned land in the United States. Forest land accounted for 55percent of all foreign-held agricultural and forest land. The proportion of privately owned agricultural and forest land held by foreigners varied considerable between states. In Maine, 14.7percent of privately held agricultural and forest land was foreign-owned, and in Hawaii the proportion was 8.8percent. In half the states, however, the proportion of agricultural and forest land held by foreigners was at or below 0.5percent. Over the past 10 years, foreign landholding in the United States has increased slowly. In 1981, 12.7million acres (5.1million hectares) or 1percent of the agricultural and forestry land was foreign-owned. By February 2010, this had risen to 22.7million acres (9.2million hectares) or 1.8percent of the agricultural and forestry land. The Committee on Foreign Investment in the United States is a government interagency committee chaired by the Secretary of the Treasury that reviews proposed foreign investment from a national security perspective. It takes a particular interest in computing technology and natural resources, and in activity by agencies of foreign governments. It does not appear to have relevance to purchases of agricultural land. 41
The US Federal Government does not impose restrictions on the ownership of farmland by foreigners, except that transactions must be reported. It is unlikely that this reporting requirement would act as a deterrent to foreign land purchases to any significant extent. It requires only the completion of a return within 90 days of purchase, and details of individual owners of land are not made public. Although the Federal Government does not restrict ownership of farmland by foreigners, around half of the individual states of the United States do have some form of restrictions. Under current laws, aliens (non-US citizens) may not own farmland at all in Nebraska, North Carolina or Oklahoma. A number of states forbid non-resident aliens from owning farmland Colorado, Hawaii, Iowa, Michigan, Minnesota, Mississippi, Missouri, New Hampshire, North Dakota and Vermont. Some states impose limits on the area of land that aliens can own Arizona (640 acres), Louisiana (640 acres), South Carolina (500000 acres) and Pennsylvania (5000 acres). Some states impose limits on the area that non-resident aliens can own Pennsylvania (100 acres), South Dakota (160 acres) and Wisconsin (640 acres). Alaska, Idaho, Indiana, Kentucky and Oregon insist that alien land purchasers have the intention of becoming citizens, and New Mexico restricts ownership of farmland to those who qualify for citizenship. Alaska, Nebraska, North Carolina, Virginia and Wyoming allow ownership of farmland by aliens only if those aliens are subjects of countries where US citizens are allowed to purchase land. Arkansas, Iowa, Missouri, Ohio and Wisconsin have requirements for aliens to report details of land purchases to state or county authorities (National Association of Realtors 2006). The impact of these diverse restrictions is not easy to assess. Maine has no restrictions and a high level of foreign ownership, which has declined a little in recent years. Other states with no restrictions, such as Massachusetts and Connecticut, have very low and stable levels of foreign ownership. Some states that are moderately restrictive, such as South Carolina and Wisconsin, have experienced foreign ownership increases over recent years.
Canada
FDI in Canada is governed by the Investment Canada Act. The Act provides for a foreign investment review process to ensure that the investment is likely to be of net benefit to Canada. Only transactions where asset value reaches certain thresholds are subject to review. In 2011, the threshold for any direct acquisition of a Canadian business by an investor from a Word Trade Organization (WTO) country is C$311million. For investments from non-WTO member countries and investments in certain sectors (cultural businesses, transportation, financial services, or the production of uranium) the threshold for direct investments is C$5million. Farming property is exempt from the provisions of the Act, but may nevertheless be subject to review if, for example, land is included as part of a larger investment. In general, a non-resident of Canada can acquire, hold and dispose of real property in the same manner and under the same conditions as a Canadian citizen or resident. However, the provinces have the right to restrict the acquisition of land by people who are not citizens or permanent residents, or by corporations and associations controlled by them.
42
In Prince Edward Island, Manitoba, Saskatchewan and Alberta there are measures to control purchases of land by foreigners. In Alberta, for example, the Agricultural and Recreational Land Ownership Act and regulations were passed to ensure that Albertas rich soil and picturesque recreation areas continue to be owned and enjoyed by Albertans and other Canadians (Service Alberta 2011). The Foreign Ownership of Land Regulations, which came into force in 1979, are intended to monitor and control foreign acquisition of privately owned agricultural and recreational land (referred to as controlled land) in Alberta. The law is designed to prevent non-Canadians from buying significant amounts of prime agricultural and recreational land in Alberta. However, it is not intended to discourage foreign investors from investing in manufacturing plants, processing operations, recreational developments and new home subdivisions or from expanding existing plants. Generally, these arrangements prevent non-residents or foreign-controlled corporations from owning more than two plots of land exceeding 20 acres (8.1hectares) in total. The average size of a farm holding in Alberta in 2006 was 1055acres (427 hectares), 50 times the maximum area allowed to foreigners (Statistics Canada 2006). All transactions reported to the Land Titles Office in Alberta must be accompanied by information on the citizenship or residence status of the parties, whether Canadian or foreign. Of a total of 16 825 transactions in the three years to June 2011, 545 (3percent) were from foreign entities. Applications from foreign entities for transactions that exceed the limits of these regulations can be considered by Cabinet. These might allow transfers between family members, or allow other proposals that result in significant economic investment in Alberta. In the five years to June 2011, 47 such exemptions were granted. In June 2011, foreign holdings in Alberta amounted to 295 130 acres (119439hectares), equivalent to 0.2percent of the total land area of Alberta, or 0.6per cent of the area of land held as farms in Alberta. Agriculture in Alberta is conducted on a smaller scale than in Australia, and farms generate lower incomes. More than half of Albertas farmers depend on off-farm jobs to supplement their incomes (Statistics Canada 2006). Restrictions on foreign investment would have served to keep agriculture in Alberta on a smaller scale, with a lower capital than would otherwise have been the case. The regime applied in Alberta would probably not be appropriate to Australias agriculture, which has a stronger commercial focus.
43
Other provinces that control purchases of land by foreigners are: Saskatchewan, where under provisions of The Saskatchewan Farm Security Act, foreign individuals and companies are ineligible to own more than 10acres (4 hectares) of farmland. Manitoba, which restricts ownership of agricultural land by foreigners to 40acres (16 hectares) under its Farm Lands Ownership Act. Prince Edward Island, where the Lands Protection Act means that non-resident buyers cannot purchase more than 5 acres of land, or land with a shore frontage greater than 165 feet (50 metres), without the approval of the Regulatory and Appeals Commission. In each of these provinces, while there is legislation to prevent foreign ownership of more than a specified small area of land, there are provisions by which application can be made for exception. Ontario imposes some restrictions on investment by corporations incorporated outside Canada but foreigners are otherwise free to invest in land in that province. Other provinces (British Columbia, Quebec, Nova Scotia, Newfoundland and New Brunswick) have no restrictions on foreign ownership of real estate, including farmland.
Brazil
Purchases of farmland by foreigners have been restricted in Brazil since 1971. According to the OECD (Kalinova, Palerm & Thomsen 2010), Brazils FDI restrictiveness index in agriculture is just a little higher (that is, more restrictive) than Australias. Now Brazil is introducing new restrictive measures to control foreign ownership of farmland. In August 2010, then-president Luiz Inacio Lula da Silva approved a juridical opinion that restricts foreign ownership to 25percent of the area of any municipality, with a maximum of 10percent to be owned by any one nationality. Previously, up to 40percent of the land in any municipality could be foreign owned. The new rules have taken effect in advance of a Bill that will pass through Congress possibly in the second half of 2011. Land designated as rural must be used for creating agricultural or industrial projects with previously agreed statutory objectives, and the nature of the projects must have received approval by the Federal Ministry of Agrarian Development. Additionally, registration processes for foreigners buying land have become more onerous, placing additional demands on Brazilian bureaucracy as well as on investors. The new arrangements also extend to local companies with majority foreign ownership, which were previously not covered. The stated intention of the new measures is to give Brazil greater control and monitoring over the sale of land to foreigners. The Attorney-General referred to the principle of sovereignty over internal economic affairs. However, agribusiness groups see the new measures as populist and are concerned that Brazil will lose out on considerable foreign investment in agriculture.
44
According to INCRA (Brazils National Institute for Colonization and Agrarian Reform), more than 10.7million acres of farmland in Brazil are currently owned by foreign individuals, which amounts to 1.6percent of Brazils agricultural area. However, this estimate does not include land held by Brazilian companies that are partly or wholly foreign owned (Gomes 2010).
Argentina
Argentina exercises no control over foreign investment in farmland; no specific process exists for foreign entities to obtain permission to buy land, and no official data are kept on land ownership by foreigners. However, a Bill has been introduced in Congress to limit the foreign ownership of rural land and to collect and maintain data on foreign ownership. The Protection of National Dominion over the Ownership, Possession or Tenancy of Rural Land Bill was introduced by Argentine President Cristina Fernndez in April2011, with the stated aim of monitoring and regulating the foreign ownership of rural land, as well as the concentration of land in the hands of interests that might compromise strategic development objectives. The Bill was introduced in the light of apparent increases in purchases of land by foreigners, particularly from the United States, and concerns about loss of sovereignty. The Bill defines rural land as all establishments located outside urban areas, regardless of their location within the national territory or their intended use. It does not seek to affect acquired rights or promote xenophobic legislation which opposes responsible foreign investment. If the Bill is passed, foreign ownership of Argentinas total rural land would be limited to 20percent of the total area, and any given nationality will be able to own only up to 30percent of that limit (that is, 6percent of Argentinas total rural land). The Bill also states that any foreign entity will be allowed to purchase only up to 1000hectares of rural land in Argentina. Foreign interests will have to seek prior consent from the Interior Ministry for the acquisition of rural land within a National Security Zone, those stretches of land along national (land and sea) borders, or circumferences of land around military or civil facilities, which are of interest for national defence purposes. The Bill does not specify what the process will be for land outside a National Security Zone. If the Bill is passed, the criteria to be applied to applications for permission by foreigners to buy land will include: the location of the land and its size as a proportion of the local municipal district the municipality and province where it is located the quality of the land the ownership of other rural lands by the applicant the amount of land to be purchased and the amount of land already owned by the applicant the amount of land owned by the applicants countrymen.
45
At present no official data are available on the number and size of agricultural landholdings held by foreigners in Argentina. If passed, however, the Bill will mandate the undertaking of a survey within 180 days to determine the situation of foreign land ownership in Argentina and existing foreign owners of rural land will have to declare their holdings. An unofficial estimate of rural land held by foreigners by the Argentine Agrarian Federation is around 20million hectares, or around 7percent of the national territory, up from 7million hectares in 2000 (Mercopress 2010). Press reports on agricultural land held by foreigners in Argentina have cited USmillionaire Douglas Tompkins, who owns 700000 hectares, mostly in Corrientes province, US businessman Ted Turners 40500 hectares, and the Benetton familys ownership of 900000 hectares of land in Patagonia. The Australian company LIAG owns 160000 hectares in Argentina.
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6 Concluding remarks
Foreign investment has been a significant force in the development of the Australian economy, including in agriculture and agribusiness. The inflow of foreign capital has contributed, and continues to contribute, to investment, boosting employment and incomes. The development of the beef industry and the introduction of cotton growing are two notable beneficial examples of the outcomes of foreign investment in agriculture. In the past, foreign ownership of agricultural land in Australia has gone through periods of expansion and contraction. Data for Queensland show an increase early in the 2000s, followed by a decline and then a further increase late in the decade. Foreign investment in farmland is understood to have been increasing in 2010 and 2011, in part due to purchases of land by mining companies. At the end of 2010, around 11percent of Australian farmland was owned, wholly or partly, by foreigners. Foreign investment in agriculture, as in the economy at large, tends to be concentrated in larger enterprises. Significant foreign investment has taken place in Australian agribusiness in recent years. Depending on the nature of the business, investment in Australia may give a foreign company a larger and more efficient operation; it may provide access to the Australian market for its products, and provide it with additional brands; it may give foreign firms access to supplies of raw materials, and thus enhance Australian exports to the country of the foreign investor; and it may give the foreign investor access to markets in third countries. In some cases, it simply provides a foreign company with a profitable investment for its own or its clients funds. The inflow of capital has boosted capacity and improved efficiency in agribusiness activities. New investment by foreign owners has facilitated restructuring in sugar milling, and expanded activity in meat processing and in grain handling and transport capacity. At the same time, Australian companies have significant investments in farmland and agribusiness enterprises in other countries. In boosting incomes and increasing agricultural production, foreign investment is likely to improve the food security of Australians by enhancing their ability to buy the food they need. Australias relatively small contribution to the food security of other countries may also be enhanced. The Foreign Investment Review Board assesses all investment proposals from foreign government-owned enterprises, and all other proposals of 15percent or more of a business where the total assets exceed $231million (in 2011), unless subject to higher thresholds under particular bilateral agreements. The ACCC assesses the impact that proposed investments would have on competition in the Australian market. Assessment by these bodies may
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result in the government withholding approval for a foreign investment, or in an investment proceeding only with certain modifications or safeguards in place. A number of other countries employ measures to regulate and monitor foreign ownership of farmland. These restrictions on foreign investment, reflecting the diverse histories and cultural backgrounds of those countries, are likely to result in economic costs to those countries in the form of reduced production and income. Many OECD countries do not have national policies restricting foreign investment in agriculture. However, some, such as the United States and Canada, have restrictions in various states and provinces. Any measures that put further barriers in the way of foreign investors and reduce the flow of foreign capital into Australian agriculture would adversely affect the performance of the agricultural sector. Lower investment would result in lower output, exports and incomes than would otherwise be the case. Opportunities for improved efficiencies could be lost, and distortions, such as increased use of foreign credit, would be encouraged. The regular collection of information on foreign ownership would be one way of providing greater transparency to the public, and may contribute to better-informed policymaking in the future. The funding of periodic collection of data on ownership of agricultural assets by, for example, the Australian Bureau of Statistics, possibly in connection with the five-yearly agricultural census or through sample surveys in intercensal years, may be an option worth considering. An alternative would be to collect information on transactions from buyers and sellers of land in order to maintain a registry (or a registry in each state) of foreign land ownership. This could be part of the operations of a normal land registry office such as that maintained by Queensland, or a separate registry of foreign ownership of agricultural land as used in the United States. Collecting and maintaining data has a cost, to the agency charged with responsibility for it as well as to respondents providing information to that agency. Such data collection and maintenance should be initiated with an understanding of relevant costs and benefits.
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