Foreign investment should be used to stoke agriculture fire

By Tony Mahar
National Farmers’ Federation Chief Executive Officer
Rarely, if ever before, has the national debate surrounding foreign investment in Australian agriculture been so public, so relevant or so important.
The sale of Van Diemen’s Land Company, an imminent decision on the sale of S. Kidman & Co, most likely to predominantly Chinese interests, and the recent revelation the Foreign Land Ownership Register will not be made public have brought to the forefront the need for a balanced, mature and future-focused policy discussion on the role overseas capital plays in the growth of the domestic agricultural supply chain.
This discussion has now been further fuelled by the Foreign Investment Review Board (FIRB) announcement, in its Annual Report, Chinese interests have been approved to invest $2.5 billion in agriculture in 2014-15. This is a record amount, no doubt skewed by the fact the threshold for FIRB approval was lowered from $250 million to $15 million, but is still reflective of a significant increase in activity from China.
However, this must be contextualised against the backdrop of a $9 billion annual capital gap in Australian agriculture and an insatiable appetite for our world-leading food and fibre products.
Already the sector is forecast to generate $1.2 trillion between now and 2040, while, this year alone, agriculture is predicted to reap a record farm-gate return of $57.6 billion. Each dollar of this further cements the industry’s place as a leading driver of the domestic economy and demonstrates its capacity to vastly increase this contribution, should it have the capital and infrastructure it needs, for the benefit of all Australians.
Simple economics shows agriculture requires foreign investment to perform to its potential, but there is no misconception this is not the most palatable means of capital raising for some stakeholders across industry and politics.
Superannuation has long-been heralded the miracle potion to stymie the need for foreign dollars coming into Australia to fill the capital shortfall. The simple premise has been super funds have the cash resources necessary to purchase large agricultural property assets and, with the forecast for the sector so bright, why would they not? But they don’t. And there are a number of very logical reasons why.
Whilst there are exceptions, the direct investment of a superfund, Australian or otherwise, in agriculture through the acquisition of land or business assets would be entirely at odds with their existing investment models. Super funds do not usually directly invest in mining, retail or many other industries but prefer investment in the sector through the stock market. In simple terms, they don’t buy the mine, they by shares in the company which owns the mine that is listed on the Australian Stock Exchange (ASX) – why then is there an expectation the model should be different for agriculture?
The more likely channel for superannuation funds to enter agriculture is through investment in infrastructure to support rural and regional communities and to equip the industry with roads, rail lines and other physical assets to support export growth. Public Private Partnerships can provide a strong model for infrastructure development whereby a cogent plan backed by Government, local communities and business can deliver value to users and a return to investors.
Overseas capital, on the other hand, provides an immediate and direct investment in the sector that supports a vibrant supply chain and improves production efficiencies to keep Australia competitive in a highly distorted global marketplace for agricultural commodities.
The substantial increase in interest from China, as evidenced by the rise in forecast spending for the coming financial year reported by FIRB, is reflective of a heightened interest in Australian agriculture and recognition of its many global competitive advantages. Our agriculture industry also has greatly enhanced relevance to China following the finalisation of the China-Australia Free Trade Agreement (ChAFTA) which came into force in December 2015.
Already, Australian exports to China account for nearly six per cent of our Gross Domestic Product (GDP) and is worth $100 billion annually. Of this, farm exports were $9 billion in 2014-15 and have doubled in five years.
ChAFTA has, and will continue to, deepen and broaden the Australia-China relationship and it should be no surprise there has been ensuing broader interest in our agricultural assets given the Chinese now, more than ever before, understand our capability to produce the best food and fibre in the world. As further FTAs are secured, you would expect new interest from other nations will follow.
However, what the NFF most certainly does not advocate is the unbridled and wholesale sell off of our farmland.
Revelations last week the Agricultural Land Register will not be made fully public, but aggregated data would be made intermittently available, came as a major disappointment to industry. Whilst we understand there are commercial sensitivities that need to be respected, it is also important as much information as possible is available to provide baseline data for debate and well-informed decision making.
Furthermore, Government must uncompromisingly ensure foreign investors adhere to Australian law, especially tax and competition law, and comply with existing and new production and/or transaction levies.
Would it be nice to think all Australian farmland could be retained domestically and that Australia, independent of overseas investment, could capture the burgeoning opportunities for growth and prosperity to build a robust agriculture sector? Of course it would. Is this realistic? Absolutely not.
Australian agriculture should not be afraid to use foreign capital to build capacity, to innovate and to help rural communities flourish. Increased funds equate to increased industry resilience and the opportunity to best position the sector ahead of its global competitors in the long term.
Provided there is vigorous legislation in place to ensure foreign companies are responsible corporate citizens who bring value to the national economy, foreign investment should be seized as fuel to further stoke the Australian agriculture fire.