Foreign investment in the rural sector:
With the change of Australian government it is important for foreign investors to consider the impact of the new Coalition Government’s Foreign Investment Policy on their business.
The Coalition’s proposals to increase scrutiny of foreign investment in the rural sector will now come into play. These measures, outlined in the Coalition’s Policy Discussion Paper on Foreign Investment include:
- a reduction of the monetary threshold for foreign investment in agricultural land to $15 million from $248 million (indexed annually);
- a $0 threshold for foreign investment in agricultural land once cumulative purchases of agricultural land amounting to $15 million have been reached by a particular foreign person (alone or together with associated entities).
a new threshold for foreign investment in agribusinesses where the:
- investment exceeds 15% or more in an agribusiness valued at $248 million (indexed annually); or
- investment in an agribusiness exceeds $54 million, and
- the establishment of a register of foreign ownership of rural land. Reporting the value and level of interest in Australian rural land will be a legal requirement for foreign investors. It has been recommended to the Government that there be no minimum threshold for reporting to ensure that all foreign investment is captured in the register.
A change to the rural land thresholds has been coming for some time. The very high thresholds the previous government allowed to operate effectively removed all farms (with the exception of Cubbie Station) from FIRB scrutiny. Once this was realised by politicians, media and the public, significant pressure was brought to bear, making it appear difficult for foreign persons to invest in the sector.
The new thresholds for rural land do not yet address what is meant by an “agribusiness” and what proportion of a business is required to be rural land, or primary production connected. No doubt we will see further refinement and additional thresholds evolve as the new rural land aspect of the Policy is developed.
There does not appear to be any proposal by the new Government to interfere with the current exemptions that apply under the Foreign Acquisitions and Takeovers Act1975
Continued scrutiny of foreign government investors under Policy
It is worth noting that no change to the requirement for foreign government investors to notify will occur. The Policy has long required foreign government investors to notify of all acquisitions of all types of land regardless of value or proportion acquired. This Policy position will not change under the new Government.
The new Prime Minister, Mr Abbott, (when he was Opposition leader) said in 2012, at the time of the Shanghai Zhongfu investment in the Ord II Project with the WA Government: "We support foreign investment provided it's clearly in Australia's national interest, and, one of the points that's been in made in favour of this particular foreign investment, is that it's not actually selling the farm, it's building the farm."
Other possible changes
Whilst the thresholds are clear, we expect that there will also be development of new approaches to conditions attaching to FIRB approvals. The current approach that allows rural land to be acquired with no conditions attached will change, with possible results as follows:
- rural land acquired as rural land for mining use, in particular coal seam gas extraction, may be subject to standard conditions such as environmental compliance; and
- rural land acquired as rural land for residential/commercial subdivision, may also be subject to standard conditions such as development time frames similar to the urban land development time frames.
Register of foreign ownership of rural land
In addition, both the Coalition and the previous government indicated support for a register of foreign ownership of rural land. This is now likely to become a requirement and all foreign persons acquiring any interest in rural land or water entitlements will have to register their interest.
At this stage it is unclear whether there will be public access to the register or indeed which department will run the register. It is also unclear whether there will be thresholds for registration, despite the recommendation that there be no minimum threshold.
The objectives of the register, and how it will be used, should in our view, be transparent, including an explanation of what is meant by “foreign”. The agencies which may use this database, including FIRB and State and Territory land titles offices, must make their intentions clear. If the information in the database will be used by FIRB in determining whether to approve foreign investment proposals, this must be disclosed. If the database allows for agencies to scrutinise proposals which are not currently reviewed under the foreign investment regime, this must be made clear to foreign investors.
Ultimately, if the register imposes burdensome restraints or obligations on potential foreign investors for minimal community gain, the associated risk of damage to the investment flow may be too great. The introduction of the register could also further perpetuate the perceived difficulty of investing in Australia and damage Australia’s ability to capitalise on the rising demand for food and agricultural products from Asia.
Expect press releases to issue shortly announcing these measures. Foreign investors should note that it is generally FIRB’s practice to apply the thresholds from the date of the press release with the later legislation implementing the changes expressed to operate from the date of the earlier press release.
National Interest test
Importantly, the new Government does not appear likely to make significant changes to the national interest test. Currently, this is undefined allowing for proposals to be assessed on a case by case basis. There has been some suggestion that the new Government will prescribe certain factors that must be considered when assessing whether an application is contrary to the national interest.
It is important to remember that the Foreign Investment Policy has stated, through successive governments, that foreign investment is welcome in Australia. The Government recognises and considers community concerns in the consideration of investment proposals. The Coalition’s Policy Discussion Paper on Foreign Investment reflects this, suggesting that this approach will continue under the new Government.
Whilst the thresholds will reduce in the agricultural sector, this does not mean that there will be an increase in proposals prohibited. What it does mean is that the Government, through the FIRB, will be able to bring greater scrutiny to proposals and work with applicants where necessary to ensure the national interest is protected and in so doing will ensure that community concerns are addressed.
The main community concern is the simple fact that with the high thresholds under the previous government, the FIRB, as the review body for foreign investment, was not seeing non-government investment in the sector. That will now change, although a $15 million threshold will still put a lot of farms out of FIRB’s reach (unless caught by the new aggregate approach).
Whilst not publicly stated in the Coalition’s Policy Discussion Paper on Foreign Investment, there has been suggestion in some quarters about moving FIRB from Treasury to a new Trade and Foreign Investment portfolio within the Department of Foreign Affairs and Trade. If so, this could have a negative outcome on routine processing of applications as much of the current expertise and corporate memory will be lost as current FIRB personnel at Treasury will be unlikely to leave Treasury. It is possible that a move away from an economic outcomes focused Department could see a new and probably more negative approach to the review of applications.
The influence on rural land and agribusiness proposals of the National Party as well as the conservative Senators on the earlier Senate Committee will need to be watched to see if any further narrowing of Policy is likely.