Foreign investors could be deterred by extra scrutiny of farm and agribusiness sales

Medium_sugar-australia
Australia's sugar industry has embraced foreign investment in recent years (Photo: CHARLIE MCKILLOP)
ABC | 25 November 2015

Foreign investors could be deterred by extra scrutiny of farm and agribusiness sales

by MARTY MCCARTHY
 
 
The Foreign Investment Review Board (FIRB) will soon have the power to review the sale of farmland over $15 million to foreign buyers, and scrutinise all agribusiness sales above $53 million.
 
Charlie Blomfield, who advises overseas buyers on how to invest in Australia agriculture, said the changes could create uncertainty among investors, restrict competition, and potentially delay sales.
 
"It all comes down to perception, at the end of the day they can still invest here, it's just a process," Mr Blomfield, of Agricultural Management Company, said.
 
"However there will no doubt be some that choose to invest elsewhere in the world.
 
"There are other options, Australia is not the only place that can service growing middle class populations."
 
Mr Blomfield said increasing the amount of projects that require FIRB scrutiny could result in delays which frustrate foreign investors.
 
"There is a 30 day turnaround in FIRB applications at the current levels, so if application levels are drastically increased and FIRB is not resourced to process in time that could push things out," he said.
 
"So that makes it a little bit uncompetitive for international competitors who have to compete in a bid process."
 
Mr Blomfield said a further deterrent factor could be monetary, as investors will have added application costs and could face higher legal and consultancy bills.
 
However, he also said companies could walk away simply because they do not want to subject themselves to scrutiny.
 
"It's not just international companies, but also domestic, and a lot of companies don't want to appear on the front page of a newspaper and be scrutinised in this manner," Mr Blomfield said.
 
"We probably need to take a more diplomatic approach to how these decisions are made."
 
PPB Advisory is a lead advisor to companies wanting to invest in Australian agriculture assets.
 
Director Tim Lee said it's possible international companies could interpret the lowering of the FIRB threshold as a way to limit foreign investment.
 
However, he does not think it will have a major impact on foreign entities that want to do business in Australia.
 
"Once people understand this is just a small fee increase I do not think it will be a significant deterrent to foreign investment in Australia," he said.
 
"You may find some countries or investors from some countries looking elsewhere.
 
"Australia has to compete for foreign capital, and it is not going to come here just because we are Australia, so we do have to compete on a global stage.
 
"So some of them may get deterred, but for a short term."
 
Mr Lee said Australia needs to make it clear that foreign investment is needed to help expand existing agricultural industries.
 
"The Australian agriculture sector is short of capital, we are overleveraged across the agribusiness sector in general," he said.
 
"We need foreign capital for our growth, and if we are smart we will accept that we need new sources of capital from overseas to sustain the long term growth of the sector.
 
"In general the agriculture sector is in need of de-leveraging, as it has been traditionally funded on debt, and in dairy and beef there has been an over run up in the leverage levels.
 
"So foreign sources of capital, new equity capital, I think is what is needed, whether it is foreign or domestic, whether that's behind the farm gate or beyond."
 
Mr Lee said the main challenge for Australian agribusinesses is that many farms are not yet "investor-ready".
 
"They don't have the structures, or the governance structures, or the ownership structures, to allow foreign capital in," he said.
 
"Buying into family partnerships is not something any investors at an institution level understand or prefer, they like a plain vanilla structure."
 
Mixed messages to foreign companies
 
Mr Blomfield said there was a contradiction in the fact that Australia is signing free trade agreements, yet on some occasions moving to protect Australian farmland from overseas investors.
 
"There are mixed signals, we are definitely doing a great job with free trade agreements and opening trade to Asian markets," he said.
 
"But we are sending bad signals to investor communities about what will and won't be approved in terms of FIRB agribusiness investments or farmland investments."
 
Mr Blomfield also said the recent blocking of S. Kidman and Co to foreign buyers by the Federal Government created confusion in the market.
 
"Agriculture in Australia is an emotive industry for everyone, whether they are involved in the industry or not," he said.
 
The family-owned S. Kidman & Co is Australia's largest private landholder with properties covering 101,000 square kilometres in Western Australia, South Australia, the Northern Territory and Queensland.
 
The ABC understands eight bidders were shortlisted for the iconic cattle empire, with the two main players thought to be China's Genius Link Group and fellow Chinese company Shanghai Pengxin.
 
The Government rejected a foreign takeover of the company on the grounds it was not in the national interest, and could pose a security risk given one of the properties, Anna Creek Station, is next to the Woomera Protected Area.
 
"The original release about the Kidman and Co sale block was not adequately supported with information about the Woomera Protection Area," Mr Blomfield said.
 
"It probably could have been avoided completely if the deal had of been structured correctly to begin with.
 
"This recent deal block has some pretty poor messaging around it."
 
Although the Government is not prepared to accept a full takeover by a foreign company, there is the potential for a joint Australian-international bid.
 
Mr Lee expects previous bidders for the Kidman properties could be prepared to restructure their bid and reapply.
 
"There are some specifics in the [Kidman] example that the Government has put forward as to why they have blocked that, so potentially a restructure on that transaction might see it go through," Mr Lee said.
 
Most buyers "not from China"
Chinese acquisitions may dominate the headlines, but investors from western countries are leading the charge for Australian farm land.
 
Mr Blomfield said most of his clients are from North America.
 
"I have never actually worked with a Chinese company.... there are a lot of other places that the capital is coming from and China is not the largest investor in Australian agriculture," he said.
 
"Of all direct investment from China the money going towards agriculture is less than one percent of the total direct investment from China into Australia."
 
Mr Lee said at his company, PPB Advisory, domestic sales still outnumber foreign ones.
 
"Last year we did something in the order of $400m to $500m worth of transactions on the buy and sell side, and 90 percent of those buyers were domestic," he said.
 
"So certainly they are not all coming from China, I think that is a hysteria that people talk about."
 
Mr Lee said most of the foreign investors his company deal with come from western Europe, Canada and America.
 
"The Chinese seem to grab the headlines or the hysteria from behind our farm gate," he said.
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