A crackdown on foreign investors hasn’t translated to a slowdown in transactions in the agribusiness sector, lawyers say.
“Despite the tightening of Foreign Investment Review Board (FIRB) requirements ,we have seen a continued flow of inbound investment from Asia - in particular China and Malaysia - for broad acre farming properties and agribusiness operations over multiple areas,”
Allion Legal principal Michael Swift.
“The low Australian dollar and Australia’s high quality of product on offer has continued to attract foreign investors.”
Recent reforms to Australia’s foreign investment regime, including the Foreign Acquisitions and Takeovers Act 1975, came into effect late last year.
And, according to Norton Rose Fullbright’s global head of energy, Simon Currie, they were generally welcomed - on the basis they simplify the application process and clarify some of the ambiguities previously set out in the FIRB’s policies.
“However, the reforms also provide for some increased scrutiny with respect to acquisitions of land and in the agricultural sector, including agricultural land and agribusinesses.
“Additionally, the reforms formalise FIRB’s ability to review acquisitions and investments by foreign government investors.”
So what do the changes mean for the sector?
As of February, all foreign owners of Australian agricultural land had to have registered their holdings with the Australian Taxation Office’s (ATO) Agricultural Land Register.
“The Coalition Government welcomes foreign investment, which plays an important role in the growth and productivity of our agriculture sector,” Deputy Prime Minister and Minister for Agriculture and Water Resources, Barnaby Joyce, said at the time.
“However, we have clearly heard and understood the concerns of the Australian community that the Government should have more thorough oversight and more accurate data in relation to foreign investment in agriculture, to properly ensure that such investments are in our long-term national interest.
“Our agricultural land is one of our nation’s most valuable assets—so it is important that we have a clear and accurate picture of foreign investment levels in our agriculture sector, and that those investments are subject to appropriate consideration and scrutiny,” Joyce said.
Treasurer Scott Morrison added that through the Agricultural Land Register, the ATO would be collecting comprehensive information on foreign ownership of agricultural land, as part of the Government’s commitment to increasing scrutiny and transparency around foreign investment in Australian agriculture.
“This is why we have introduced the foreign land ownership register, along with reducing the threshold for Foreign Investment Review Board (FIRB) scrutiny of private sector foreign purchases of agricultural land from $252 million to a cumulative total of $15 million.”
The tightening of FIRB requirements has had an impact on sentiment, and it remains an issue that foreign investors (particularly Chinese) ask about up front, Allion Legal principal Jon Cane says.
“Although in practice there has been minimal impact on the sector with almost all - with a couple of high profile exceptions - FIRB applications being approved.”
One of those was an application by Chinese investor Moon Lake Investments to buy Tasmanian dairy giant Van Diemen’s Land Company from the New Plymouth District Council (NPDC) - subject to tax conditions - in February.
It was the first application to the first to be subject to new conditions requiring it to comply with Australian taxation law, Australian Taxation Office (ATO) directions to provide information in relation to the investment and to advise the ATO if it enters into any transactions with non-residents to which the transfer pricing or anti-avoidance measures of the tax law may potentially apply, Morrison said in a release.
In forming his view, he said, he had carefully considered “the national interest test and how it applies to this case, including the likely impact on local jobs and increased investment to support economic growth”.
“The national interest test also considers a range of factors, including national security, the impact on competition, the character of the investor, and the impact on the economy and the community."
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Moon Lake Investments have given guarantees that all current VDL employees will be offered ongoing employment with Moon Lake on terms no less favourable than their current employment arrangements, Morrison said.
“Moon Lake has also committed to undertake a number of investment projects in the VDL farms, which will provide additional economic activity to the Tasmanian economy, and based upon Moon Lake’s estimates will result in a near doubling of employment at VDL.
“This will guarantee more than 140 local jobs, generate an intended additional investment of over $100 million and an expected additional 95 jobs.”
Moon Lake advised that it intends to continue to supply the milk produced at VDL under the same contractual terms are currently in place, Morrison said.
“This provides assurance that there will not be an impact on the supply of milk and milk products in Australia. Indeed, the investment that Moon Lake proposes to undertake may result in an increased supply.”
The land on which VDL operates has important cultural and natural heritage considerations and Moon Lake committed to honour the terms of all environmental and cultural agreements entered into by VDL, including with the local Aboriginal community, Morrison added.
Given these considerations, Morrison was satisfied that the Moon Lake proposal to purchase TLC is not contrary to the national interest.
“It will ensure increased employment and investment in an important industry sector in Tasmania, while the safeguards we have put in place will ensure they pay their tax.
“Australia continues to welcome and support foreign investment that is not contrary to our national interests. Ongoing foreign investment remains a key part of growing Australia’s output and employment and, through this, our standard of living.”
Looking ahead: the agribusiness sector
“We still see a buoyant sector with significant activity for the year ahead, with Australian assets still seen as world class and much sought after,” Cane says.
“One challenge in the sector for large investors is finding enough agribusiness operations of a significant size to match the demand for large scale operations from local institutional investors and foreign investors,” Swift adds.
“Local sellers may need to think how they market their operations for sale and whether packaging their business with other sellers to achieve sufficient scale may have a mutually beneficial result for all parties.”
Swift and Cane’s positive outlook for the sector was reiterated in research released by both Colliers International and Rabobank, which showed brighter predictions for agriculture sector generally in 2016.
Commercial real estate firm Colliers International says Australia’s rural and agribusiness sector is undergoing a revolution as investors begin to recognise the industry’s long-term potential.
The rural and agribusiness sector is now included in investors’ long term strategies as the sector develops higher grade assets, Colliers’ latest Rural and Agribusiness Research and Forecast Report says.
Colliers’ national director of transaction services Shane McIntyre says the falling Australian dollar, free trade agreements with major Asian partners and good food security had a discernible impact on the Australian market, with a number of rural regions and sectors beginning to experience growth in land values.
“Investors are drawn to rural and agribusiness assets in pursuit of stronger yields, as the market becomes short of opportunities in traditional asset classes,” Mr McIntyre says.
“The spotlight this year is on beef, cotton and water sectors.”
In its Agribusiness Outlook 2016 research report, Rabobank predicted further depreciation of the Australian dollar will act as a “tail wind” for Australian agriculture, while low oil prices will help ease input cost pressures but are also likely to weigh on agricultural commodity prices.
“Further depreciation of the Australian dollar, which is expected to drop to 64US cents by the end of the year, will be a boon for producers – particularly for those commodities at historically low levels in US dollar terms - such as grains and oilseeds,” Rabobank Australia national manager country banking Todd Charteris says.
Rabobank general manager Food & Agribusiness Research Tim Hunt adds there had been significant devaluation in the currencies of Australia’s key global competitors, which had muted market signals by encouraging production of agricultural commodities in some regions despite high global stocks and falling USD prices.
“For example, the Russian ruble has depreciated by around 50 per cent against the US dollar since the beginning of 2014, compared to a 20 per cent depreciation in the Australian dollar over the same period,” he said.
“This has helped to underpin returns for Russian wheat producers despite US prices remaining under pressure. And we’ve seen a similar dynamic in the Brazilian sugar sector.”
