Foreign investors in the past year have spent a record $12 billion buying up Australian farmland and agricultural businesses, but have put off investing a further $14 billion until the outcome of a Senate inquiry in March 2012, says a new report by Ferrier Hodgson.
The purpose of the Senate inquiry is to determine whether the current foreign investment threshold of $231 million, the benchmark where transactions require the approval of Foreign Investment Review Board, should be adjusted since the vast majority of agribusiness transactions fall below this mark. The inquiry kicked off in July and will make its findings known next March, having pushed back an earlier November 2011 deadline.
According to Ferrier Hodgson, an argument against foreign investment on the basis of “food security” is hard to support:
“It is hard to imagine a day when Australia’s bountiful produce will be unable to meet domestic demand. Of significant concern to the agribusiness sector are media reports suggesting that as much as $14 billion of potential foreign investment has been put on hold pending the outcome of the inquiry.
“The delay or denial of that sort of investment would have a damaging impact on any industry. If nothing else, it has injected the sector with uncertainty about the future and clouded the outlook for many Australian agricultural businesses.
“As the emotive rhetoric surrounding the topic continues to ratchet up, we are waiting to see whether the Senate committee’s report in March 2012 will suggest changes to the current national interest test and/or the current review limits for foreign investment.”
The influx of foreign funds has coincided in a turnaround in the fortunes of the sector over the past 12 months. Ferrier Hodgson argues that foreign investment brings with it significant benefits including delivering “capital to a sector that sometimes struggles to find funding from other sources”. “This flows through the broader rural economy to provide regional spending and employment,” it says.
In addition, foreign money also impacts on rural land values, “with the purchase prices offered by foreign investors providing a valuable exit strategy or succession plan for farmers looking to wind up their involvement in the sector”.
“At the same time, foreign investors can bring to regional communities foreign expertise and access to global markets. This is particularly valuable in the processing sector, where new markets and modern processes can breathe life into stagnant businesses that have failed to maintain pace with innovations in their specific niche.”
Significant foreign buyouts of the past 12 months have included CSR Sugar in NSW sold to Wilmar International of Singapore for $1.75 billion, wheat producer AWB sold to Agrium Inc of Canada for $1.2 billion, with its commodity business subsequently sold to US-based Cargill for $79 million, and 252,000 hectares of farmland in Victoria’s Western District sold to Canada’s Alberta Pension Fund for $415 million.
Thai sugar giant Mitr Pohl is currently seeking shareholder approval to acquire north Queensland-based MSF Sugar, which dates to 1886, for $313 million. If successful, the Thai company will acquire more than 6000 hectares of agricultural land, four sugar mills and other infrastructure assets. Other Australian agribusiness acquired by offshore entities in the past 12 months:
- Tully Sugar in Queensland sold to China Oil and Food for $136 million.
- 8500 hectares of farmland in Victoria’s Western District sold to Hassad Foods of Qatar for $35 million.
- Larundel Estate in Victoria sold to Chinese interests for $14 million.
- The former Kyabram Dairy Research Centre in Victoria sold to Chinese interests for $1.8 million.
- A Chinese government-controlled mining entity purchased 43 farms near Gunnedah, New South Wales, in relation to potential coal deposits, for an unknown price.
- Mount Falcon Station in New South Wales sold to Chinese interests for an unknown price .
- Great Southern land group sold four Victorian properties to Chinese interests for an unknown price.
- AAco, Australia’s oldest continuously operating company, sold 19.9% to an international conglomerate owned by Middle Eastern and Malaysian interests.
Foreign investment is nothing new to the Australian agribusiness sector as British, American, New Zealand and Japanese companies have held significant investments for decades. It is not surprising that overseas entities recognise Australia as an attractive place to do business because it has:
- A stable economic and political system
- A reputation for high quality and safe production
- High productivity and well-developed managerial skills
- Close proximity to Asian markets
- A strong history of animal health (e.g. no foot-and mouth disease)
- Counter-seasonal to the northern hemisphere
*This article was originally published at Property Observer
As a bushie and a recovering economist I have some ambivalence about foreign ownership of agriculture. It is not a position I am particularly comfortable with actually. But I think food is different.
The history of foreign owned and controlled agriculture has a nasty history – who can forget that at the height of the Irish famine the English landlords were exporting grain.
I am not directly suggesting that this is likely to happen again. But who knows? We live in a world were food production will most likely be unable to keep up with demand.
The other thing I am awkward with regarding agricultural foreign investment is the large-scale, broad-acre, capital-intensive agriculture it often brings with it.
Perhaps I’m becoming a Luddite – but the impact of a well-capitalised efficient progressive exporting operation near a country town sees a massive shift in the local economy and society over time. It depopulates the place. And everything shrinks.
And it homogenises the landscape. And depending again on what is being grown or produced these operations – feed lots, laser-levelled rice farms, cotton from one horizon to the next, sprays, additives and … Perhaps it was prescient that we were originally christened “New Holland”. Now slap a few CSG pipelines all over it and you get the picture. The factory-isation of the Australian countryside.
Perhaps this is inevitable. I suspect not actually given the total reliance of such a system on a cheap source of energy to move stuff about.
Part of the problem in this issue is how we look at agricultural policy in this country. It’s all about making a quid. It has always concerned nothing more than making a quid. It does not link in with any sort of regional development policies, notions of decentralised populations, services. It does not look at environmental issues and rehabilitation. It does not look at long term productivity. It does not look at national interest. It does not look at food miles.
Anyway, it’s one of the downsides of rampant capitalism I guess. Just because our local investors don’t want to touch anything as unpredictable as agriculture and prefer to stick their dough into holes in the ground or real estate, I guess the foreign investors get a walk up start, picking up some very smart medium to long term bargains.
Aren’t we mugs?
Agree, Peter. Food security will be an increasing issue over time and a ‘national interest’ test needs to be considered now.
“It is hard to imagine a day when Australia’s bountiful produce will be unable to meet domestic demand.”
Not at all.
I think it is time we took stock of how and where we produce food. Also time to consider the one key component of food production – phosphate. The world’s major resources are not in Australia ( the major one is in the Western Sahara).
“Aren’t we mugs” asks Peter. Well if we sell the farms and the means to produce food then we undoubtedly are. The $231 figure should be changed to reflect Australia’s real needs in 2050 (a date when the phosphate supply may be close to its economic end)
All this activity going on in the food chain is part of Canberra’s active “Sell Australia” policy – a truly unimaginative way of conducting the business of country management – where bit by bit, every asset we have falls into foreign hands. “Asset sales”, that’s how we get by.
In many – indeed, if not the majority of land deals in a high dollar sense, it seems all too clear that the new owners are not really commercial entities at all – rather, they are foreign governments in the guise of corporations – thus profit making is not their motive. Colonisation by way of buyouts guarantees their future presence here, much like colonial America of the 17th and 18th centuries, which traded effective control in this way, also in a similar manner NZ was purchased from the Mauri’s which in the long run proved cheaper than a costly war.
As with our mineral assets, which now have a 85% foreign ownership/control – so will the land itself go. Indeed, lazy minded, cash hungry politicians seeking results during their short terms of office guarantee it.
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In 1964 Donald Horne wrote a best selling book called “The Lucky Country”…. a title abused for decades
What Donald Horne really said, was …..
“Australia is a Lucky Country, run by second rate people, who share in its luck”
Well I’m of the view the current crop of today’s children will see and end to it – Their legacy, courtesy of the neanderthals we have running the show at a time when the world wants every asset we have