Foreign investment in Aussie farmland on hold

As we look to what's ahead for 2012, Property Observer is republishing some of our most noteworthy stories of 2011.

Foreign investors have spent a record $12 billion buying up Australian farmland and agricultural businesses over the past year, but have put off investing a further $14 billion until the outcome of a Senate inquiry in March 2012, a new report by Ferrier Hodgson says.

The purpose of the Senate inquiry is to determine whether the current foreign investment threshold of $231 million, the benchmark where transactions require the approval of Foreign Investment Review Board, should be adjusted since the vast majority of agribusiness transactions fall below this mark.

The inquiry kicked off in July and will make its findings know in March next year, having pushed back an earlier November 2011 deadline.

According to Ferriers, an argument against foreign investment on the basis of “food security” is hard to support.

“It is hard to imagine a day when Australia’s bountiful produce will be unable to meet domestic demand. Of significant concern to the agribusiness sector are media reports suggesting that as much as $14 billion of potential foreign investment has been put on hold pending the outcome of the enquiry.”

“The delay or denial of that sort of investment would have a damaging impact on any industry. If nothing else, it has injected the sector with uncertainty about the future and clouded the outlook for many Australian agricultural businesses.

“As the emotive rhetoric surrounding the topic continues to ratchet up, we are waiting to see whether the Senate Committee’s report in March 2012 will suggest changes to the current national interest test and/or the current review limits for foreign investment.”

The influx of foreign funds has coincided in a turnaround in the fortunes of the sector over the past 12 months. Some have called for a land registry of foreign investors.

Ferrier Hodgson argues that foreign investment brings with it significant benefits including delivering “capital to a sector that sometimes struggles to find funding from other sources”.

“This flows through the broader rural economy to provide regional spending and employment,” says Ferrier Hodgson.

In addition, foreign money also impacts on rural land values, “with the purchase prices offered by foreign investors providing a valuable exit strategy or succession plan for farmers looking to wind up their involvement in the sector”.

“At the same time, foreign investors can bring to regional communities foreign expertise and access to global markets. This is particularly valuable in the processing sector, where new markets and modern processes can breathe life into stagnant businesses that have failed to maintain pace with innovations in their specific niche.”

Significant foreign buyouts of the past 12 months have included CSR Sugar in NSW sold to Wilmar International of Singapore for $1.75 billion, wheat producer AWB sold to Agrium Inc of Canada for $1.2 billion, with its commodity business subsequently sold to US-based Cargill for $79 million, and 252,000 hectares of farmland in Victoria’s Western District sold to Canada’s Alberta Pension Fund for $415 million.

Thai sugar giant Mitr Pohl is currently seeking shareholder approval to acquire north Queensland-based MSF Sugar, which dates back to 1886, for $313 million. If successful, the Thai company will acquire more than 6,000 hectares of agricultural land, four sugar mills and other infrastructure assets.

Other Australian agribusiness acquired by offshore entities in the last 12 months:

• Tully Sugar in Queensland sold to China Oil and Food for $136 million.
• 8,500 hectares of farm land in Victoria’s Western District sold to Hassad Foods of Qatar for $35 million.
• Larundel Estate in Victoria sold to Chinese interests for $14 million.
• The former Kyabram Dairy Research centre in Victoria sold to Chinese interests for $1.8 million.
• A Chinese government-controlled mining entity purchased 43 farms near Gunnedah, New South  Wales, in relation to potential coal deposits, for an  unknown price.
• Mount Falcon Station in New South Wales sold to Chinese interests for an unknown price .
• Great Southern land group sold four Victorian  properties to Chinese interests for an unknown price.
• AAco, Australia’s oldest continuously operating  company, sold 19.9% to an international conglomerate owned by Middle Eastern and Malaysian interests.

Foreign investment is nothing new to the Australian agribusiness sector as British, American, New Zealand and Japanese companies have held significant investments for decades. It is not surprising that overseas entities recognise Australia as an attractive place to do business because it has:

■ A stable economic and political system

■ A reputation for high quality and safe production

■ High productivity and well-developed managerial skills

■ Close proximity to Asian markets

■ A strong history of animal health (eg: no foot-and mouth disease)

■ Counter-seasonal to the northern hemisphere