The following is a contribution on the affirmative side of the above debate, hosted by the Royal Agricultural Society at the Sydney Easter Show, on 15th April 2014.
The debate about the merits of foreign ownership of Australian farming assets is a very complex one. It is characterised by a lack of information and poorly informed commentary.
To give you some idea of the complexity of the issue, recall that about five years ago there were two very large overseas owners of Australian farm land; – Clyde Agriculture, and the Twynam group.
Both those companies have since sold the majority of their land holdings. Some of that land was purchased by Paraway pastoral company, owned by Macquarie bank, which now owns some 3.5 million hectares of farm land in Australia.
Those opposed to foreign ownership of agricultural assets might be pleased with this development, given Macquarie is an Australian bank.
However a close look at Paraway identifies that the majority of its funding is sourced from overseas investors.
This highlights the complexity of the debate about foreign ownership in Australian agriculture.
In my view foreign ownership and investment are essential to Australia’s farming future and there are three main reasons for this.
The first is that Australia has persistently had a current account deficit, and foreign capital is needed to fill the gap between savings and investment, especially in agriculture.
The second reason that I believe foreign investment is essential for the future of Australian farming is the fact that Australian agriculture is highly dependent on export markets.
The third reason that foreign investment is important, is that it forces Australian politicians to focus on policy areas that need to be fixed to create a better business environment for farmers and agribusiness.
Let’s start with a discussion about available investment funds in the Australian economy.
As I’ve already noted Australia has had a quite large current account deficits for most of the last 30 to 40 years. What that means is that the amount of savings available in the economy has persistently been less than the amount of investment occurring. The ‘gap’ has been made up by incoming overseas investment.
This gap is made even worse for the agriculture sector because of the approach taken by Australia’s superannuation investment fund managers. They prefer highly liquid investments like listed shares that they can trade in and out of on a daily basis to justify the high fees we all pay them. Agriculture simply doesn’t fit this investment model, and hence is largely ignored by them.
This creates the very real risk the sector will be starved of funds, or forced to pay excessive interest rates, if there is not funding available from overseas, especially for larger agricultural businesses.
The second reason that overseas investment is essential for the future of Australian farming and agribusiness is the dependence of the sector on export markets. It is not surprising that overseas-based organisations involved in supply chains downstream from the farm gate are interested in investing along that supply chain.
The sale in 2013 of the Underwood family’s Northern Territory cattle stations to the Indonesian company Santori was a good example of this. The Underwoods had tried to sell “Riveren” and “Inverway” for some time. Fortunately, Santori, the largest Indonesian importer of Australian live cattle, agreed to buy the properties and to keep the Underwood family on as managers. Santori explained that the purchase of the properties provided them with additional supply security.
The result is secure long-term funding for the cattle business, and also a committed overseas market participant with a long-term interest in importing Australian cattle to Indonesia.
This is just one of numerous cases where foreign investment in Australian farming has brought important mutual-benefits for Australian farmers and the international investors.
The final reason I believe foreign investment in the agriculture sector is important is that it forces policymakers to make sure the policy settings that exist for Australian agriculture are up to scratch. It’s a bit like when a football team gets elevated to first division and has to lift its game.
To explain this a bit more, those opposed to foreign investment in agriculture make claims like;
• foreign investments will place future Australian food security at risk; or
• all foreign investors engage in massive tax avoidance through transfer pricing, or
• foreign investors unfairly use their market power to drive down Australian farm commodity prices.
A closer look at all three of these issues highlights that these are not problems related to foreign investment per se, but to weak Australian laws and policies. Banning or restricting foreign investment in Australian farm land or agricultural assets would not fix any of these problems.
For example, Australia is one of the most food secure nations on earth. Even if foreign investors bought up more than two thirds of all Australian farm businesses and shipped everything they produced overseas, Australia would still have plenty of food. But public concerns about future Australian food security highlight that we have no idea at all how much of Australian farm land is owned by overseas interests.
Despite promises, Australia is just about the only nation on earth that does not have a register of foreign farm land ownership.
On the issue of transfer pricing, this is not an issue that is confined to agriculture. In fact it is a much bigger issue for the mining sector, and also for the IT industry. The Australian government does need to make sure overseas and Australian companies are not shifting their tax liabilities to low tax locations, irrespective of whether those companies are BHP, Google or a company involved in agriculture. Banning overseas investment in farming will not fix this problem.
On the final issue – the concern about overseas investors unfairly using their market power to the disadvantage of farmers – this is an issue that is not confined to overseas-owned agribusiness companies. In fact, Australian farmers have very loudly stated over recent years that the biggest problems they face are what they believe to be the unfair practices employed by Australia’s two major supermarket chains, in campaigns like the $1 per litre milk wars.
Banning foreign ownership of farm land will do nothing to fix this problems, and Australian politicians have promised much but are yet to deliver.
So to sum up, there are three main reasons I think foreign investment is essential to the future of Australian farming.
The first is that the industry would face a much greater risk of a funding drought if overseas investment was stopped.
The second is that overseas investors helps to secure better long-term access to essential international markets.
And the third is that the presence of overseas investors forces Australian politicians to look more closely at some of the policy areas they would otherwise ignore, and which will hopefully result in a better business environment for Australian farmers.
In closing, I want to make a final point.
The Australian farm sector is the least dependent of any farm sector in the world on its taxpayers – even less dependent on a percentage GDP basis than our neighbours across the Tasman.
Governments and the community have repeatedly told farmers they are on their own, and need to be hard-nosed and commercial in their decision-making.
Given this, if a farmer decides it is time to retire and sell the farm, then he or she should be able to sell that farm to the highest bidder. If it just so happens that an overseas investor makes an offer that is 50% above the next highest bidder, then why should the Government or the community try to prevent that sale?
All that would do is prevent that farmer from enjoying a well-earned and comfortable retirement, after all the years of hard work.