AIH399 MAKING HISTORY
by Anita Carracher
- This article argues that it is in Australia’s national interests to significantly lower the Foreign Investment Review Board’s current threshold of $244 million for private foreign ownership purchases.
- It is also in Australia’s interests to have a national register for foreign ownership purchases, thus allowing for proper regulation and monitoring.
- More transparency in the area of foreign ownership will have the added benefit of assisting in reducing misplaced xenophobic emotions created by an expected increase in Asian and Middle Eastern investment.
- History tells us that, as a small nation, we need foreign ownership for economic growth and prosperity. It is also important, however, to focus on not only short-term gains but also to consider the long-term implications of foreign ownership.
A recent study of the Australian Bureau of Statistics commissioned by the Australian Government revealed that approximately 89 percent of agricultural land in our country is Australian owned. Yet, this statistic cannot be taken as an accurate account because, with only limited information available, the results are inevitably unreliable. Moreover, it appears likely that the government has released this report to downplay the heightened issue of foreign ownership in this country.
White Australia has a comparatively strong history of foreign ownership: prior to the First World War, it was most popular among the British; considerable American investment followed the Second World War; then, in more recent times, it has been the Japanese. Currently, foreign ownership in Australia is becoming increasingly popular with Middle Eastern and South East Asian countries, who, in anticipation of long-term food security concerns, are looking towards ownership of Australia’s prime agricultural land as an important investment in their future.
Australia’s national interest test
The national interest test is a case-by-case analysis implemented by the Foreign Investment Review Board. To determine the likely benefits of proposed foreign ownership, it scrutinises, for instance, a case’s potential to help strengthen our economy as well as taking into account any possibility of it having a negative effect on our long-term food security and sustainability. Foreign ownership is encouraged by Australia, as it brings in capital, stimulates employment, and gives us access to global markets along with innovative technology and marketing. Indeed, enhancing Australia’s role as a leading exporter in agricultural commodities, foreign ownership in Australia is pivotal to the economic development and expansion of our nation. We depend on foreign ownership to meet any economic deficits we encounter. Even so, does this justify Australia having one of the softest foreign ownership policies in the world? Surely not! We are among only a few nations that allow non-resident ownership of agricultural land; we also have one of the highest investment thresholds of $244 million for a private foreign investor and $1,000 million for US investors. Therefore, any sale to foreign investors that falls under $244 million is not subject to Australia’s national interest test, resulting in the Foreign Investment Review Board being unable to verify whether the foreign ownership of this land is in Australia’s national interest. On the other hand, it is a condition of foreign governments and their entities that proposals for investment be subject to a national interest test regardless of the asking price for the agricultural land. The issue here is that there is no national register in place to keep an actual record of any transactions taking place.
Absence of a foreign ownership national register
In contrast to most nations, Australia has neither devised nor implemented any kind of national foreign ownership register to monitor and control how much agricultural land is being sold to foreign investors. Moreover, holding information on land titles is a task for the state governments and, to date, with the exception of Queensland who implemented The foreign ownership of Land register Act in 1998, there currently is no accurate information available from any of the other Australian states or territories.
Furthermore, major exporting nations such as China, the United States, Brazil, and New Zealand all have systems in place that allow more regulatory oversight and greater transparency than we do.
Case study 1: Brazil
In Brazil, initial restrictions assigned to foreign investments were neither monitored nor controlled. This in turn led to an influx of foreign ownership during the years 2002 to 2008. According to a spokesmen for the Brazilian Agrarians Development Industry, foreign owners paid $2.43 billion for agricultural land during this period. This equates to somewhere in the vicinity of 10 million acres of agricultural land having been registered as foreign-owned: the actual amount, it has been suggested, could be three times higher. Consequently, much stricter laws have been implemented to monitor and control the situation. The Brazilian government has endorsed legislation regulating foreign ownership of agricultural land, due mainly to the rumours of China using sovereign wealth funds to buy large amounts of land in other regions of the globe. Unlike in Australia, increased demand for agricultural land in Brazil has resulted in sovereign wealth funds not being permitted. Foreign ownership still is encouraged in Brazil, because it enhances overall economic prosperity. Prices of agricultural land, however, have increased so much over the past few years that farmers — particularly from the United States — are banding together to become share farmers in order to meet asking prices. Acquisition of land is now restricted to 250-5,000 acres and with conditions. Moreover, the issue of food security also has impacted on this decision; the Brazilian government is protecting its national sovereignty by doing its upmost to keep Brazilian land out of the hands of foreign investors.
Case study II: New Zealand
The Overseas Investment Commission was established in 1973 under the Overseas Investment Act 1973 (repealed), operating out of the Reserve Bank. A review of the 1973 Act (in 2005) looked at ways of better providing protection to places of historic, cultural, or environmental interest, while also encouraging overseas investment where it makes a positive contribution to the New Zealand economy.
The review considered many specific issues, including: what assets are of critical interest and what assets are being unnecessarily scrutinised, while taking into consideration New Zealand’s international treaty obligations; and the necessary criteria to ensure protection for specific asset types such as sensitive land, the appropriate level of monitoring, and follow up on approved investments.
Several issues with the 1973 Act where highlighted, such as: important aspects of assets, such as heritage value and public access, were not considered, with the legislation having primarily focused on economic development stemming from land purchases; the monitoring and enforcement provisions did not require the proposed land management plans of the applicant to be undertaken and completed to a reasonable standard; and the courts lacked the ability to impose penalties on any breaches by the applicant.
The review of the 1973 Act led to the enforcement of the Overseas Investment Act 2005 on 21 June 2005. This new legislation governing the Overseas Investment Office: encouraged overseas investment in New Zealand, recognising the growth benefits this can bring; and ensured that the value of sensitive New Zealand property is recognised and enhanced by overseas investors and ensured appropriate governance arrangements.
Foreign ownership of what New Zealand terms ‘sensitive land’ needs consent from the New Zealand Overseas Investment office for potential purchases of agricultural land exceeding 5 acres of land, or 4 hectares with adjoining certain types of reserves, and 2 acres if adjoining a foreshore.
Here lies the political discourse on foreign ownership in the absence of a foreign ownership national register; no one knows how much of Australia is actually foreign-owned. We know that foreign ownership has been instrumental in the growth and expansion of agriculture in Australia, but there are serious issues with lack of transparency and the inability to accurately measure the trends in foreign ownership. Is foreign ownership increasing, or is it decreasing? There is just no accurate information available. A national foreign ownership register can certainly assist in easing the Australian community’s sense of unease about foreign ownership, and the lack of transparency is only fuelling the issue. With the implementation of a national register, the Australian community would be given a better understanding of the level of capital coming into Australia through the purchase of agricultural land and whether it suits our short-, mid-, and longer-term national interests. Furthermore, the Australian community then would be better informed about whether our government is allowing our major assets to become foreign-owned. Moreover, a national foreign ownership register will better inform us as to whether we should consider the long-term option of leasing our land instead of selling. Given the global concerns of food security and climate change, leasing may become a smarter and more viable option in the future.
It can be argued that, unlike Australia, foreign buyers are looking after their long-term interests, anticipating the long-term issues with food security, and are increasingly looking for agricultural land in which to invest. Of course, the stringent regulations in most other countries towards foreign ownership can only result in more demand for foreign ownership of agricultural land here in Australia.
Australia has such highly productive fertile land; this enables foreigners to cultivate our land and send back the produce to their own country to feed their increasing population. Apart from 10 percent withholding tax, the produce along with the majority of profits are taken abroad. Is this good for Australia in the long-term?
Lack of transparency also has caused many Australians to be genuinely concerned about foreign ownership of our agricultural land, seeing it as potentially causing a decline in Australian sovereignty over the longer term. Many see foreign ownership, moreover, as robbing our future generations of a life on the land for what appears to be short-term political and economic gain.
Naturally, many Australians are wary of foreign ownership for reasons of nostalgia; they want to preserve the quintessential Australian farming communities, generation-to-generation of family-owned farms, the independent grocers and butchers.
In this increasingly globalised world, it is in Australia’s national interest to look after our own food security, both in the present and future. Australian food produce is of high-grade quality and, whereas food being imported from overseas may cost less, the quality is not nearly as high. It is imperative, therefore, that we continue to grow quality produce for generations to come.
On the other hand, however, evidence suggests foreign investors are wanting to own land in excess of 20 million hectares and so there is no evidence of so-called land grabbing from Australian farmers. Some of these farmers may not have an issue with selling to overseas buyers, especially if they appear to be acting in the best interests of the nation. History shows that foreign owners not only have the wherewithal to maintain the quality of the land, it’s also in their best interest to do so. Furthermore, they are known to employ locals to help manage the farms supporting our interests in the process. The lack of transparency in foreign ownership has the potential to exacerbate this concern, further contributing to the escalation of this debate.
Case study III: Australia
Foreign ownership of prime agricultural land in Australia
The recent purchase of a number of prime production Western Australian dairy farms by a major Chinese beverage company, at the price of $220 million, falls under the FIRB threshold of $244 million. Subsequently, this transaction will not be subjected to the national interest test and nor will it be recorded on a national foreign ownership register. The concerning thing here is that this is a prime example of foreign ownership of a sovereign wealth-creating asset for Australia. In the Western District of Victoria, a Middle Eastern agricultural company now owns 8500 hectares of prime agricultural land. Not a great deal is known about the transaction because the previous owners were required to sign confidentiality agreements. It is understood, however, that the company Qatar Hassard Foods paid 20 percent above the market price.
The historical case studies in this article stress the importance of proper governance of foreign ownership. Canberra owes it to the people of Australia to introduce a national foreign ownership register as it will aid in the transparency of transactions and assist in reducing misplaced xenophobia. Such a development also would make the federal government more accountable for the protection of our prime agricultural land and commodities, further regulating the level of foreign investment coming into Australia. An investigative study also needs to be undertaken into the lowering of the current $244 million threshold, resulting in the ability to identify and record more foreign ownership dealings.
Selected further reading:
Business Spectator, Putting Australian farms on the table http://www.businessspectator.com.au/bs.nsf/Article/Australian-farms-foreign-investment
ABARES –Foreign Investment and Australian Agriculture – November 2011 http://www.dfaa.gov.au/abares
Foreign Ownership Review Board http://www.firb.gov.au/foreign-investment
Expanding Horizons, Agribusiness in Australia 2011/12 Key highlights http://www.kpmg.com/au/en/issuesandinsights/articlespublications/expanding-horizons/pages/default.aspx
Foreign ownership of primary production land in NSW PRD Nationwide, 2012 http://fightbackaustralia.com.au/pdfs/foreign_ownership_nsw.pdf
© APH Network and contributors 2012. All rights reserved.
Citation: Anita Carracher, Investing in Australia’s Future: Making a Historical Case for why Our Foreign Ownership Policy needs Reforming. Australian Policy and History. October 2012.