Australia has an open door for foreign investment, but voters hold the keys

Mick Keogh and Adam Tomlinson, Australian Farm Institute


Australia is selling off the farm to foreign investors, and won’t be able to feed itself in 20 years.

While anyone with a reasonable knowledge of Australian agriculture would immediately dismiss a statement such as this as pure fantasy, there has been plenty of media stories running these lines over the past 12 months, and it is an issue of increasing concern to voters. In fact a recent Essential Report (2013) survey found that 55% of Australians are opposed to the sale of Australian farm land to foreign investors, and only 22% are in favour, with the rest undecided.
This article examines the role of foreign investment in Australian agriculture and discusses some of the issues that appear to be creating unease amongst voters. It also proposes some measures that could be implemented so that there is a better understanding of this issue by voters, and that decisions about foreign investment are better informed and made in Australia’s national interest.

Why is foreign investment in agriculture in the limelight?

Public criticism of foreign investment in Australian agriculture has become more common over recent years, seemingly due to a number of factors.

Firstly, international intergovernmental agencies such as the Food and Agriculture Organization (FAO) of the United Nations have questioned the future security of global food supplies. Coinciding with that has been the adoption of international agricultural investment policies by governments of nations that do not have high levels of food security, including China and some Middle East nations. Critics of these investments express concerns about their potential to jeopardise the future food security of the nations targeted by these investments; the unequal access to finance of government-backed investors; the risk of creating an international enclave in target countries; and the ability of target countries to adequately monitor production, marketing, labour force and taxation issues once overseas interests control significant agricultural assets.

Secondly, there have been a number of high profile foreign investment developments in Australia that have attracted considerable attention. These have included the sale of Cubbie Station to a Chinese-led investment consortium; the awarding of the tender to lease stage two of the Ord River irrigation system to a Chinese company; foreign takeovers of Australian sugar, wine, dairy and grain companies; and anecdotal reports of large-scale farm land purchases by foreign investors from China, North America, Europe and the Middle-East. In combination, all these factors have triggered considerable debate amongst policy-makers and in the community about the merits of foreign investment in Australian agriculture.

Before examining some of the issues in more detail, it is important to understand some basic background information.

The availability of investment finance in Australia

Irrespective of whether it is an individual, a business or a nation seeking money for investment, the rules are the same. The funding either has to come from money that has been saved, or if sufficient savings are not available, borrowed from someone willing to lend it.

In Australia’s case, the ‘Current Account Balance’ statistics provide a running tally of the amount of savings and borrowing occurring in the economy as a whole. As Figure 1 shows, for most of the past 35 years Australia has recorded a Current Account Deficit, meaning that the sum total of national savings have been less that the amount of investment occurring in the economy, and the balance has been made up by funding sourced from overseas. 

Figure 1:  Composition of Australia’s current account balance.
Sources:      Australian Bureau of Statistics, AFI analysis.

The major component influencing Australia’s current account balance in recent decades has been an inflow of investment finance from overseas sources. This money has been used to fund transport, energy and telecommunications infrastructure, and major developments in most parts of the economy, including the mining sector. In 2013, the Reserve Bank of Australia (RBA) released a report entitled Funding the Australian Resources Investment Boom which highlighted that most of the investment for the mining boom had been made by publicly listed companies, with contributions split evenly between Australian and foreign listed companies (Arsov et al. 2013).

A significant amount of foreign investment funding has also gone into the agriculture sector, including major farm businesses such as Cubbie Station and processors in industries like sugar, wine and cotton.

In the absence of this overseas funding, interest rates would have been much higher, major economic developments (including the current mining boom) would have been severely constrained or delayed, and the nation as a whole would be much worse off.

In many respects, the situation Australia has faced as a nation over this period is very similar to the situation faced by a young farmer who has recently acquired a farm and wants to develop it and make it more productive. If the farmer doesn’t have sufficient savings to pay for the development, then she or he has to find someone willing to lend the required money. If the money can’t be borrowed, then the farm will be less profitable and productive, and the farmer will have to wait a long time to save sufficient money before the farm can be improved.

What these statistics highlight is that foreign investment is absolutely essential if Australians want to continue to have an expanding economy and to develop resources and infrastructure. Any discussion of the merits or disadvantages of foreign investment need to start from this point.

Foreign investment in Australian agriculture

Foreign investment has historically been an important source of funding for the Australian agriculture sector – from developing sheep and cattle stations with British capital in the 1800–1900s and the introduction of cotton farming by Americans in the early 1960s, to ramping-up beef cattle feedlot operations for supplying beef to the Japanese market in the late 1980s and drawing upon Asian money to sustain the sugar industry in the 2000s. Australian agriculture is largely an export-dependent sector, and investment funding is often sourced from overseas participants in the supply chains that service these export markets (see Figure 2). 


Figure 2:   Australia’s total value of farm exports and imports relative to gross value of farm production.
Sources:       Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES), AFI analysis.

Investments by overseas interests in Australian production and processing capacity help those investors better manage supply chain risks, but also bring benefits to Australia, in the form of enhanced access to specific markets. Foreign companies involved in agricultural supply chains in Australia can readily form direct links between farmers, processors and marketers to coordinate the supply of specific products and better satisfy overseas customers.

For this reason it should be no surprise that over time, the sources of foreign investment in the Australian agriculture sector have often been the major overseas markets that the sector serves. From the 1850s up until World War II, Britain was both a major market for Australian agricultural exports, and a major source of investment in the sector. Between World War II and the 1970s, the United States (US) was both a major export market and a big investor, especially in sectors like the beef industry. From the 1970s to the mid-1990s, Japan and Korea were increasingly important export markets, and also significant investors, particularly in Australian meat and wool processing. For most of the past two decades, Asia (particularly China) and the Middle East have been growing in importance as major export markets for Australian agriculture, and have also been the sources of significant investment in agricultural land and processing capacity.

The extent of foreign investment in particular commodity sectors of Australian agriculture often seems to reflect the importance of export markets for that commodity sector (see Figure 3). For example, the fibre, sugar, meat, dairy, wine and grain industries are commodity sectors that heavily depend on export markets, and all have a relatively high level of foreign investment. It is estimated that the beef industry processing capacity is 50% owned by companies from countries such as Brazil, US, Japan and Singapore. Similarly, around 40% of investment in grain handling and trading operations involves US, Swiss, Japanese and German based multinational corporations.


Figure 3:   Market distribution of select agricultural commodities produced in Australia..
Sources:       ABARES, AFI analysis *excludes live exports **value based ***retail and wholesale market sales.

While some of the foreign investment in Australian agriculture is very obvious (for example the Brazilian company JBS in the beef industry), it is important to remember that the extent of overseas investment extends well beyond that. For example, Australian-based agricultural companies that are publicly listed on the stock exchange also have a significant proportion of their shares owned by overseas investors.

A limited analysis was carried out of the share registers of a small number of Australian agricultural companies listed on the Australian Stock Exchange (ASX). Analysis of the top 20 shareholders of these companies shows that the proportion of shares held by institutions with overseas headquarters ranges from 30% to 60% of total shares. A summary of the results of this analysis is shown in Figure 4.

Figure 4:   Shareholdings of Australian-based agricultural companies listed on the ASX.
Sources:       Source:    Company reports, AFI analysis.
*Value of shares owned by institutions or individuals that rank in the top 20 shareholder list of the companies analysed.

There is also a significant amount of overseas investment being managed by Australian companies in agricultural investment funds, although detailed data on the extent of overseas investment held in these funds is not publicly available.

This highlights the fact that one of the major limitations of the debate about the merits and disadvantages of foreign investment in Australian agriculture is that there are no reliable data sources detailing either the current value or the historical trends in foreign investments in the sector.

It is somewhat ironic that, for all the public debate about foreign investment in agriculture, no-one is able to say how much of Australian agriculture is owned by overseas interests, or whether in fact the current level of foreign investment is greater or less than it has been in the past. Often overlooked in recent discussion has been the fact that a number of major foreign investors with a long history of involvement in Australian agriculture have sold out in the past few years.

Approval processes for foreign investments in agriculture

The Foreign Acquisitions and Takeovers Act 1975 provides the legislative framework for screening Australian foreign investment proposals (Treasury 2013). The responsibility for making decisions on foreign investment proposals rests with the Treasurer who relies on advice from the Foreign Investment Review Board (FIRB). The FIRB is a non-statutory body established for advisory purposes only. As such, the FIRB relies on available information when making decisions on foreign investment proposals.

Under the legislation, any proposed investment by an overseas government must first gain approval from the Australian Government. Private sector overseas investors only need to seek approval in the event their investment exceeds $248 million, although in the case of New Zealand and US investors (both of which have free trade agreements with Australia) the threshold is $1,078 million. Exceptions include foreign investments in the banking sector, airlines, airports, shipping and Telstra, all of which require prior Australian Government approval. In addition, any proposed foreign investment in residential (and most commercial) real estate must first obtain Australian Government approval. Curiously, this means that an overseas investor purchasing a $200,000 holiday apartment in a coastal town must first obtain Australian Government approval, but an overseas investor acquiring a $200 million parcel of farm land does not.

Decisions to approve foreign investment proposals are made on the basis of what is called the national interest test. That is, the Australian Government must first determine that the proposed foreign investment is not contrary to the national interest, before it is approved. The national interest test is somewhat ill-defined, but includes consideration of the impact of the proposed foreign investment on national security, competition, government tax revenues, the national economy and the community, and the ‘character’ of the investor.

There are mixed views in Australia about the adequacy or otherwise of these arrangements. Many have expressed the opinion that these rules amount to open slather for overseas investors in agriculture, although many in the business community consider these arrangements too opaque and restrictive.

According to the Organisation for Economic Co-operation and Development (OECD), Australia is mid-range in terms of openness to foreign direct investment (FDI), more restrictive than the US, Canada and the UK, but less restrictive than New Zealand, France and Japan (OECD 2013). Although Australia is generally seen as a good place to invest because it has stable governments, sound legal processes and relatively open markets that are almost completely free from government interference, the latest data from the OECD ranks Australia 24th overall out of the 57 countries evaluated for FDI openness. For the agriculture sector however, Australia ranks 17th most open to foreign investment (see Figure 5).

Figure 5:    OECD FDI Regulatory Restrictiveness Index for selected countries.
Sources:         OECD, AFI analysis.

The FDI Index assesses countries at the federal government level, which is sometimes misleading for agriculture comparisons due to foreign investment in some countries being restricted at the state government level. For example, many of the states in the US do not allow non-residents to own farm land.

Concerns about foreign investment in Australian agriculture

As noted earlier, concerns expressed about foreign investment in Australian agriculture include the risks that it may pose to future national food security, the potential for foreign investors to gain near-monopoly control over a particular agricultural commodity sector, the potential for foreign investors to avoid paying tax through transfer pricing, the unfair advantage that sovereign funds have in obtaining cheap finance, the risk that overseas investors will break Australian environmental and other laws and avoid prosecution, and the potential for foreign investors to set up an overseas-owned enclave in Australia and staff it with low-paid overseas workers.

Some of these issues are not necessarily risks associated solely with foreign investment. For example, the risk of a company gaining near-monopoly control over a specific agricultural commodity or supply chain and engaging in unfair market behaviour is not confined to overseas investors, but equally applies in the situation where an Australian-owned company has a dominant market position.

Similarly, the risk of major companies breaking environmental laws and avoiding prosecution also arises in the case of large or small Australian companies, if laws are inadequate or poorly enforced. This is also not a problem that is unique to the agricultural sector, as recent incidents in the mining industry have highlighted. It is also worth noting, however, that often overseas investors appear to be very careful to ensure they comply with and exceed the requirements of Australian laws, because of the scrutiny they are under and reputational risks they potentially face in the event they don’t meet their legal obligations.

The concern about Australia’s future food security also seems to be largely unfounded. As noted earlier, Australian agriculture is heavily dependent on export markets, because current gross production is approximately three times the level of domestic consumption. This means that in most cases, it would also take a very large amount of money to gain control over even some of the smallest agricultural commodity supply chains. Even in the unlikely event that an overseas investor was able to gain sufficient control over a particular agricultural commodity supply chain, the Australian Government has trade powers that could be used to prevent that commodity being exported, and a range of other powers that could severely restrict the activities of that investor. Ultimately, even if such government measures failed, it is hard to imagine a situation whereby Australia would not be able to import food from overseas locations, or produce a substitute product.

Overseas investors using transfer pricing in order to avoid paying tax in Australia is a very real risk, although again this is an issue that is not unique to agriculture. Transfer pricing refers to the practice of ‘selling’ products to an overseas-based subsidiary at an artificially low price in order to avoid paying tax in Australia, and effectively transferring profits to low-tax overseas locations. This is a risk in the case of overseas ownership of businesses in the mining, manufacturing and service sectors, as well as agriculture. Australian and international governments have implemented a range of different measures to try and prevent such practices. A recent example was the requirement placed on the purchasers of Cubbie Station in relation to marketing their cotton. Whether or not such measures are successful is difficult to judge, but the problem is not unique to the agriculture sector.

Improving Australian regulations on foreign investment

Foreign investment is obviously critically important for the future growth of the national economy and for the agriculture sector, therefore considerable care is needed in proposing any changes to current approval processes and regulations. Scaring off overseas investors with cumbersome regulations would do more harm to the sector than any harm ever caused by a poorly managed overseas investment. That said, there are two important issues that could be addressed to help reassure Australian voters and participants in the agriculture sector about the benefits associated with overseas investment.

The first is measures to address the lack of available transparent information about the extent of foreign investment in Australian agriculture. Australia has no reliable data available about the extent of overseas ownership of farm land or irrigation water, and the information available about the extent of overseas ownership in the post-farm sectors of the agricultural supply chain is largely anecdotal.

This is in stark contrast to almost all other developed nations. For example, both New Zealand and the US require foreign owners of more than five acres of land to notify the government of the purchase or sale of that land within a few months. This enables both these nations to publish transparent and reliable information about the extent of overseas ownership of farm land, in particular. It is notable that opposition to this type of foreign investment in agriculture in both those nations appears to be much more muted than is the case in Australia.

The current Australian Government has promised to rectify this issue, with the establishment of a register of foreign ownership of agricultural land, but little progress has been made. The commitment to set up the register was made in October 2012 but details of the design of the register are yet to be made publically available, let alone a register compiled and published.

Another public policy weakness in Australia is competition policy. This is not necessarily a policy area that is directly associated with foreign investment decisions. However, as is apparent from recent issues in both the dairy and grains sectors, often the concerns about a particular investment proposal relate to competition issues, irrespective of whether the funding originates from Australian or overseas sources.

Current Australian competition policy relies on the Australian Competition and Consumer Commission (ACCC) proving that the Australian Consumer and Competition Act has been breached in order to prosecute illegal competitive behaviour. While this is understandable, it invariably means the ACCC has to engage in an extended information collection process, before a prosecution can be launched.

The current ACCC investigation into the behaviour of major Australian supermarkets towards their suppliers is a case in point. The ACCC investigation has been underway since early in 2012, and is not expected to be at a point where further developments can be announced until well into 2014. This leaves supermarkets under a cloud of suspicion for an extended period of time, and also means that any supplier harmed by unfair practices would have gone bankrupt long before any potential remedial action even commences.

These arrangements result in a lack of confidence in the effectiveness of Australian competition policy, especially from the perspective of farmers and small businesses dealing with major corporations. This lack of confidence in the effectiveness of competition policy is important in relation to the foreign ownership debate, because many of the industry and public concerns about foreign ownership are not strictly about foreign ownership, but are often about maintaining fair competition in agricultural markets, irrespective of the nationality of ownership.

The recent Archer Daniels Midland (ADM) proposed takeover of GrainCorp is a very public example of this point. While the metropolitan media saw this issue primarily in terms of whether or not Australia is open to foreign investment, commentary in rural media focused on concerns about future fair access to the rail and port assets owned by GrainCorp. Unfortunately, this issue was not addressed in any meaningful way as part of the proposed takeover, resulting in the proposal being resisted by many grain growers.

Surprisingly, in announcing the decision to reject the proposed takeover for the time being, the Australian Treasurer stated:

The Act provides scope for me to impose conditions when making foreign investment decisions. I carefully examined this option, but consider that there are no appropriate conditions that would mitigate the national interest concerns associated with the proposed acquisition.

This is a particularly worrying admission for the Australian Government, suggesting it feels unable to develop an appropriate regulatory framework to ensure competition remains fair in concentrated markets.

This is in contrast to the response of governments overseas, including in Europe and North America. Governments in those jurisdictions impose transparency requirements on market participants in concentrated markets, which act both as a deterrent to unfair market behaviour, and also ensure that all industry participants have access to critically important market information.

For example, ADM and other grain traders in the US regularly report to the US Government on the stocks of grain they hold in storage. This information is compiled and published by the US Department of Agriculture on a regular basis, so US grain growers have a clear picture of the state of US grain markets, and can make informed marketing decisions.

Current Australian competition legislation contains provisions that would enable the Australian Government to impose transparency requirements on participants in concentrated agricultural markets, irrespective of whether the participants in those markets were Australian or overseas owned. Such measures would, over time, go a long way to reassuring farmers about the market behaviour of both Australian and overseas-owned companies, while at the same time acting as a preventative measure in concentrated markets and enabling the ACCC to act much more rapidly in the event unfair market practices were occurring.


Foreign investment has had a very important role in funding the development of many industries in Australia, including in the agriculture sector. Australian governments need to be extremely careful not to take actions that discourage foreign investment.

However, foreign ownership of Australian agricultural assets will continue to be a contentious issue until Australian governments implement measures such as a register of foreign farm land ownership, and better competition law including market transparency requirements. In the absence of better and more transparent information, it is hardly surprising that Australians respond to foreign investment proposals by expressing concern about things like industry monopolies, lack of market transparency, the potential for tax avoidance, and the potential for foreign government investors to flaunt Australian laws.

Until such measures are in place, the Australian Government may well proclaim that Australia is ‘open for business’, but the voters who hold the keys will continue to be cautious about opening the door too wide.


Essential Media Communications (2013), Essential Report, 23 September, accessed on 18 December 2013, available at:

Arsov, I, Shanahan, B, Williams, T (2013), Funding the Australian Resources Investment Boom, Reserve Bank Bulletin, March Quarter, accessed on 18 December 2013, available at:

The Organisation for Economic Co-operation and Development (OECD) (2013), FDI Regulatory Restrictiveness Index, accessed on 18 December 2013, available at:

Treasury (2013), Australia’s Foreign Investment Policy, accessed on 18 December 2013, available at:

Images:  Martin Howard, Michael Lloyd, The Land, Murrumbidgee Irrigation

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