In brief

  • The Coalition has recently released a discussion paper on foreign investment in the agricultural sector, focussing on matters including whether the approval thresholds for agricultural acquisitions are too low.
  • The recent Senate Committee hearings on foreign investment have seen an interesting dialogue on the role of SOEs in the Australian M&A landscape.

From Opposition discussion papers, to public comments by senior officials through to Senate Committee hearings, there have been a number of interesting developments in relation to Australia’s foreign investment policy. The main areas of interest have been foreign investment in the agricultural sector along with continuing debate around the policy towards State Owned Enterprises (SOEs).

Coalition policy discussion paper – agricultural land and agribusiness

Earlier this month, the Liberal and National parties released a discussion paper on foreign investment in Australian agricultural land and agribusinesses.

The issue of foreign investment in the Australian agricultural sector has been a topical one for some time. The discussion in recent years led to the federal government commissioning a report by the Australian Bureau of Agriculture and Resource Economics and Sciences (ABARES) on foreign investment agriculture, which was released in January 2012. The Coalition’s discussion paper quoted from the ABARES report, where that report stated:

‘… There is no systematic source of data on the foreign ownership of agribusiness companies. Nor is there regular information on the nationality of foreign investors or about the type of entity involved. The extent of investment by foreign government entities is not known.’

It was against this backdrop that the Coalition released its discussion paper.

While the opening lines of the discussion paper are that the ‘Coalition unambiguously welcomes and supports foreign investment’, the paper identifies a number of policy concerns. These include that the thresholds for investment in foreign acquisitions of land are calibrated at too high a level (in each case, subject to some exceptions, effectively $244 million). One stated consequence is that there is scope for even very substantial agricultural landholdings to be acquired by foreign interests without FIRB’s review.

The discussion paper raises the following issues for comment:

  • whether there should be a national register of foreign ownership of land in Australia,
  • what thresholds would be appropriate before FIRB needs to be notified of a foreign acquisition and whether acquisitions of agricultural land ought to be added to a list of sensitive sectors that attract a heightened degree of scrutiny from FIRB,
  • what thresholds should apply for agribusinesses,
  • whether notions of food security ought to expressly be part of the Treasurer’s thinking when the national interest test is considered in relation to these acquisitions, and
  • the inclusion on FIRB of people with agricultural experience.

Submissions are due by 31 October 2012.

It will be interesting to see what emerges from the Coalition’s review. On the one hand, there is a call for a greater scrutiny of foreign investment in the agricultural sector, particularly in relation to SOEs. However, matters will be complicated by the fact that not all within the Coalition’s core rural constituencies would support greater scrutiny. Simply put, lower approval thresholds and greater scrutiny may reduce the universe of buyers that farmers can find for their properties and the prices they will receive.

Senate hearing

On 6 July 2011, the Senate referred to the Senate Standing Committees on Rural and Regional Affairs the examination of the Foreign Investment Review Board national interest test. The terms of reference said the inquiry was to report on matters including:

  • how the test was applied to purchases of Australian agricultural land by foreign companies, foreign sovereign funds and other entities in the past 12 months,
  • how the test was applied to purchases of Australian agribusinesses by foreign companies, foreign sovereign funds and other entities in the past 12 months,
  • the role of the government, regulators and receivers, including their obligations under the Corporations Act 2001 and/or the Foreign Acquisitions and Takeovers Act 1975, including the role of the Australian Securities and Investments Commission, in upholding the test,
  • the global food task and Australia’s food security in the context of sovereignty,
  • the role of the foreign sovereign funds in acquiring Australian sovereign assets, and
  • how similar national interest tests are applied to the purchase of agricultural land and agribusinesses in countries comparable to Australia.

In conducting this inquiry, the Committee was asked to examine ways of improving the transparency of decisions made by the FIRB under the test and all other rules which govern its operation.

The report is due next month and will be keenly watched, as it may give another indication of where the policy in this area may head.

The hearings of the Committee have generated some interesting material as well. In an exchange on 16 August 2012 regarding the difference between investments by commercial and government owned enterprises, the Chairman of FIRB, Mr Brian Wilson, stated to the Committee:

‘A government, because it may have many other assets or purchases in the same sector, may, if I can use the colloquial expression, take a dollar out of the left pocket in order to put five dollars back in the right pocket, effectively by changing market dynamics – changing market pricing, changing demand–supply in one area to pick up a greater benefit in another area.

Individual corporations do not do that. They cannot do that, because you would probably lose a dollar out of your left pocket to make only 20c in the right pocket. Governments, given their breadth of exposures, can obviously potentially benefit in a gross sense from manipulating a market price or a supply–demand position in the market.’

(As an aside, that argument broadly resembles the reasoning surrounding the 2001 rejection by the then Treasurer, the Hon Peter Costello, of Shell’s proposal to acquire Woodside.)

The remarks of Mr Wilson before the Senate Committee follow on from the reported comment of Mr Wilson earlier this month that:

‘Investment decisions should be made by investors on a purely stand alone commercial basis and that Australian businesses, however they are owned, should be run on a purely commercial basis and not as an extension of the policy, political or economic agenda of a foreign government’.

Reported remarks by the Opposition Leader, Mr Tony Abbott, that it would ‘rarely be in Australia’s interest’ to allow a foreign government to control an Australian business, also suggest that there may be a mood to tighten investment by SOEs. This mood makes careful consultation and planning of acquisitions all the more important.

Conclusion

Investments into the agricultural sector are receiving greater scrutiny. There will be some points out of the Coalition’s review that will be relatively uncontroversial to all sides of politics, such as the establishment of a national register of foreign interests in agriculture and agribusiness.

In our view, it is also quite possible that in the fullness of time there will be some change to the thresholds required for the approval of investments in those sectors. Whether there is a vast change in the approach beyond this remains to be seen. While time alone will tell, irrespective of political outcomes over the next 12 months, we suspect that the eventual reality of any changes will fall short of some of the recent public commentary.