The Federal Government has announced a range of measures regarding foreign investment in Australian farm land, on the line is Allens Partner and the Head of the firm’s agri business sector, Marcus Clark, Marcus thanks for joining us.

Good morning Kate, thanks for having me.

Firstly Marcus can you summarise the major aspects of the announcement?

Sure there are three aspects to it; they’ve been a long time coming, the Government first proposed them back in August 2012 when it was in Opposition. The first is the current threshold that applies to investments in agricultural land will reduce to $15 million; it’s currently $252 million for most investors. Secondly that will now be tested on a cumulative basis against all land holdings and finally there’s a proposal to establish a foreign ownership register of agricultural land.

And Marcus what is the impetus for these new rules?

They really try and correct two interlinked issues. Firstly because of the high threshold that applied, $252 million, there was a perception that there hasn’t been proper oversight of foreign activity in the agricultural sector. Secondly the true extent of foreign ownership in the sector is largely unknown and that was perhaps leading the community to assume that it is greater than it is in fact is. It’s a feature of our foreign investment laws that they allow the government to be seen to be exercising proper oversight of the sector, so these proposals are very much a measure to restore confidence in our processes of foreign investment oversight rather than an attempt to cut back on or limit foreign investment in the sector.

Okay. How important I guess then is foreign investment into Australian farm land?

In my view it’s fundamental, it is evident that the traditional funding models in this sector aren’t working and those traditional models have been family wealth and bank debt and in fact the inadequacy of those funding models is actually holding back our productivity. How? Well it’s firstly limiting entry to the industry and that is one of the manifestations of that is the rapidly aging workforce of farmers. Secondly debt has been a core funding model in the industry because of the income volatility that occurs as a result of fluctuations in commodity prices and climate variability. It’s also those funding models are causing farmers to be quite conservative in their investments and that’s holding a lot of good farmers back from fully capitalising on their abilities. Now there’s a vast pool of alternative capital available for investment, much of it from overseas and Australia is very highly regarded among overseas investors in the sector because of its proximity to markets, its good infrastructure, generation of commodity surpluses, growing network of free trade agreements that this current government has been expanding on and also a genuinely stable government.

Okay so Marcus what do you see as the implications of these new measures for foreign investors?

There’s a great danger here that foreign investors will look at these new rules and make the assumption that they are part of a process that is occurring elsewhere in the world of shutting down foreign investment so Brazil, Argentina, some of the Canadian provinces have all recently implemented or announced proposals to cut back on foreign investment to try and block foreign investment. So I think it’s very important for the Australian government and investment community to send a message that this is about renewing the confidence of the Australian community in foreign investment rather than a proposal to block it. And so we need to explain that context carefully. The implications for foreign investment I think people will largely be able to accept the new processes, there are going to be some teething problems, the government is legislating by press release not for the first time in this area and so we are going to have an initial period of confusion as we wait for more details to emerge. There’s also a real question I think as to whether the Foreign Investment Review Board is adequately resourced to cope with the additional applications that will emerge as a result of the tightening of these rules. And finally I think there’s a real question around the Foreign Ownership Register and whether this Register will be established in a manner that protects information and so that it is a non-intrusive process and one that does not see foreign investors individually targeted.

Yeah absolutely. Well just as a wrap up question MThe Federal Government has announced a range of measures regarding foreign investment in Australian farm land, on the line is Allens Partner and the Head of the firm’s agri business sector, Marcus Clark, Marcus thanks for joining us.

Good morning Kate, thanks for having me.

Firstly Marcus can you summarise the major aspects of the announcement?

Sure there are three aspects to it; they’ve been a long time coming, the Government first proposed them back in August 2012 when it was in Opposition. The first is the current threshold that applies to investments in agricultural land will reduce to $15 million; it’s currently $252 million for most investors. Secondly that will now be tested on a cumulative basis against all land holdings and finally there’s a proposal to establish a foreign ownership register of agricultural land.

And Marcus what is the impetus for these new rules?

They really try and correct two interlinked issues. Firstly because of the high threshold that applied, $252 million, there was a perception that there hasn’t been proper oversight of foreign activity in the agricultural sector. Secondly the true extent of foreign ownership in the sector is largely unknown and that was perhaps leading the community to assume that it is greater than it is in fact is. It’s a feature of our foreign investment laws that they allow the government to be seen to be exercising proper oversight of the sector, so these proposals are very much a measure to restore confidence in our processes of foreign investment oversight rather than an attempt to cut back on or limit foreign investment in the sector.

Okay. How important I guess then is foreign investment into Australian farm land?

In my view it’s fundamental, it is evident that the traditional funding models in this sector aren’t working and those traditional models have been family wealth and bank debt and in fact the inadequacy of those funding models is actually holding back our productivity. How? Well it’s firstly limiting entry to the industry and that is one of the manifestations of that is the rapidly aging workforce of farmers. Secondly debt has been a core funding model in the industry because of the income volatility that occurs as a result of fluctuations in commodity prices and climate variability. It’s also those funding models are causing farmers to be quite conservative in their investments and that’s holding a lot of good farmers back from fully capitalising on their abilities. Now there’s a vast pool of alternative capital available for investment, much of it from overseas and Australia is very highly regarded among overseas investors in the sector because of its proximity to markets, its good infrastructure, generation of commodity surpluses, growing network of free trade agreements that this current government has been expanding on and also a genuinely stable government.

Okay so Marcus what do you see as the implications of these new measures for foreign investors?

There’s a great danger here that foreign investors will look at these new rules and make the assumption that they are part of a process that is occurring elsewhere in the world of shutting down foreign investment so Brazil, Argentina, some of the Canadian provinces have all recently implemented or announced proposals to cut back on foreign investment to try and block foreign investment. So I think it’s very important for the Australian government and investment community to send a message that this is about renewing the confidence of the Australian community in foreign investment rather than a proposal to block it. And so we need to explain that context carefully. The implications for foreign investment I think people will largely be able to accept the new processes, there are going to be some teething problems, the government is legislating by press release not for the first time in this area and so we are going to have an initial period of confusion as we wait for more details to emerge. There’s also a real question I think as to whether the Foreign Investment Review Board is adequately resourced to cope with the additional applications that will emerge as a result of the tightening of these rules. And finally I think there’s a real question around the Foreign Ownership Register and whether this Register will be established in a manner that protects information and so that it is a non-intrusive process and one that does not see foreign investors individually targeted.

Yeah absolutely. Well just as a wrap up question Marcus, what are the next steps?

Look the next steps are that the government has been working on a policy announcement which will flesh out the details and so that will appear on the Foreign Investment Review Board website shortly.

All right well thanks for the update Marcus.

Thank you.

That was Marcus Clark who is the Head of Allens Agri Business Sector. And listeners if you have any questions you can of course send them through either using the panel on your screen or via email to law@brrmedia.com.

arcus, what are the next steps?

Look the next steps are that the government has been working on a policy announcement which will flesh out the details and so that will appear on the Foreign Investment Review Board website shortly.

All right well thanks for the update Marcus.

Thank you.

That was Marcus Clark who is the Head of Allens Agri Business Sector. And listeners if you have any questions you can of course send them through either using the panel on your screen or via email to law@brrmedia.com.

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