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Foreign Acquisitions Amendment (Agricultural Land) Bill 2010

CHAIR —Welcome. I presume we can still call you ABARES. Would you like to make an opening statement.

—The Australian Bureau of Agriculture and Resource Economics and Sciences welcomes the opportunity to appear before the committee on its inquiry into the Foreign Acquisitions Amendment (Agricultural Land) Bill 2010. ABARES is a research arm of the Department of Agriculture, Fisheries and Forestry and is responsible for providing research analysis and advice for government and private sector decision makers on significant issues affecting Australia’s primary industries.

ABARES’ formal role in matters of relevance to this inquiry originated from a joint media release of 23 November 2010 by the Assistant Treasurer and Minister for Financial Services and Superannuation, the Hon. Bill Shorten, and Minister for Agriculture, Fisheries and Forestry Joe Ludwig which announced a decision to collect further information and analysis around foreign ownership of rural land and agricultural food production. It included a request that the Rural Industries Research and Development Corporation, RIRDC, works with ABARES to undertake a study as part of the project. This joint media release was attached to RIRDC’s submission to the inquiry.

The ABARES study will evaluate the economic impact of foreign investment on Australian agricultural industries and agribusiness and review the extent to which some other countries monitor and regulate foreign investment in agricultural land. The terms of reference for the study has four major components: firstly, the role and history of foreign investment in the development of agriculture in Australia, including assessing the impact which foreign investment has had; secondly, the domestic and international factors driving foreign investment in Australian agriculture; thirdly, the various ownership structures of agribusiness for subsets of Australian agricultural industry and changes in those structures over time; fourthly, measures used in other countries for monitoring and regulating foreign investment in agricultural land.

Work on the project is currently underway and is expected to be completed in October 2011. It is intended that this work will complement data collection by the Australian Bureau of Statistics on foreign ownership of rural land and water. With that, we would like to conclude our statement and are happy to respond to any questions the committee may have.

CHAIR —It seems that the study you propose to undertake will be a very valuable reference on a number of counts. This committee has had a look several times at foreign investment, particularly in agriculture, and it is clear that there is a lack of information about trends and data in the area. It will be very useful. Are you aware of anything like this that has been done previously that might provide some history apart from the current survey that you are proposing?

Mr Morris —As part of our study we will certainly be doing a literature review of any past studies that have been undertaken. We are aware of a couple. One was done in 1991—quite a long time ago—by the former Australian Bureau of Agriculture and Resource Economics on foreign investment in the Australian beef industry. There is also another study that we are aware of, undertaken by the Rural Industries Research and Development Corporation in, I think, the late 1990s. I think it was around 1998. That was also one on foreign investment and the Australian rural economy. A couple of pieces of work have been done in the past. I guess they are discussion pieces more than pieces that have collected a whole lot of new data and done a lot of analysis. This time round, while we are not collecting a lot of data, certainly ABS will be collecting some more data which could be quite useful to the process.

CHAIR —There is clearly some political concern around the issue of foreign ownership of agricultural land; hence the reason for this bill and other inquiries. Is it seen in the agricultural sector as a rising trend and as a matter of great concern? Perhaps I will clarify that: is the current nature and level of foreign investment any different from previous waves of foreign investment in agriculture in Australia? Is that the perception?

Mr Morris —In fact, the first term of reference of our study is to look at the role and history of foreign investment and the development of agriculture in Australia. The study will go to at least some aspects of the question that you are asking. Anecdotally, from what we know to date, I think it has been a role that has fluctuated over time. We have seen at particular points in time increased investment by buyers from particular countries—in the early days, we saw strong investment by the UK, for example. Then we saw strong investment by the US. Japan has been a strong investor over time and now Brazil, for example, in the meat industry is a strong investor. Also, New Zealand in some industries has been quite a strong investor in Australia. There has been quite a bit of waxing and waning, but that will be an issue that we will look at under the first term of reference of the study.

CHAIR —Are you aware of Australian businesses, individuals or companies, who invest overseas out of Australia in other countries in agricultural land and businesses? Is there that history or is that unusual?

Mr Morris —I think the history has been more of investment in rather than out, but I do not have much information on Australian agricultural businesses investing overseas. I do not know whether my colleague can assist.

Mr Bowen —Offhand, I do not have anything at the moment. Australian companies invest overseas in other sectors. So, in principle, there is no real difference I do not think with agriculture, but I do not have a feel at the moment of the extent of it. We could look into that aspect, because I think you are right: we need to look at both sides of the equation to determine whether we are investing overseas and, if so, is there any difference between foreigners investing here?

Senator XENOPHON —You are going to rely very heavily in terms of the scope of your study on the quality of the information you receive from the ABS. Is that correct?

Mr Morris —No. They are complementary studies rather than one relying on the other. Our study stands alone. If we get the ABS data before October, which is when our study is due to be completed, then we will feed in some of the results of that. But our study will stand alone whether or not we get the data.

Senator XENOPHON —But for your study to stand alone do you not need access to data to establish the extent of foreign investment in agricultural land? Or are you saying that the scope of your study is more confined; it is to see what the international benchmarks are or what other countries are doing in relation to this?

Mr Morris —There are four elements to our study. Effectively, there is a review of existing information and information that we can gather on the role and history of foreign investment in Australia. So it is looking at how foreign investment has travelled over at least the last several decades, if not longer. Secondly, we are looking at the factors that drive that, so we will be doing a bit of an analysis on what sorts of factors have been driving that foreign investment. We have been undertaking a review of stated information from those people who have invested in Australia as to the reasons why they have invested. That will help inform that analysis. We are going to do a review of particular areas of agribusiness so, while the ABS is focusing on rural land and water, our focus is up the chain a little bit to the agribusiness side. We will be looking at some case studies of particular areas of agribusiness in Australia. The meat, dairy and sugar industries are perhaps examples of ones that we will focus on, but we are still selecting those case studies at the moment. Then, from an international aspect, we will be looking at what other countries do with respect to foreign ownership of land in their countries. So, as you can see, there are aspects which are complementary to the ABS rather than necessarily relying—

Senator XENOPHON —Is the scope of your study reduced to written form anywhere? Did it come via instructions from the minister?

Mr Morris —In the statement I provided this morning, which was given to the secretariat, it actually states the four terms of reference for the study. Those are our terms of reference and are what we will be delivering on.

Senator XENOPHON —Are there any other guidelines in terms of how the study will be carried out, the methodology and any related matters?

Mr Morris —We are also looking at the announcement that was made by the minister at the time the study was set up. It provides a broad guidance as to what the expectations are.

Senator XENOPHON —Sure. Could you provide any documents that you are relying on in terms of the nature of your study.

Mr Morris —There are two documents we are relying on for our terms of reference—the media release that was put out, which is part of the RIRDC submission to this committee, so you have a copy of that already, and the terms of reference which have been provided by RIRDC to us for this inquiry, which comprises principally those four terms of reference.

Senator XENOPHON —I am sure Senator Heffernan will ask you these questions but, in the context of the study, do you look at long-term food task issues?

Mr Morris —Food tasks—as in?

Senator XENOPHON —As in issues of food scarcity. We know, for instance, that China have strategically been investing in food production in Africa. I think they have taken a long-term view on that. In the context of such study, would the sorts of things you would be looking at include the big picture, the longer term view of food production and who controls our food production?

Mr Morris —To a certain degree we are. The issue of ownership, to some degree, can be separated from the issue of production. Effectively, even though there has been a long history of foreign ownership of agribusiness in Australia and, to a lesser extent, of land in Australia there has never been a question about Australia’s food security over that time. In fact, we have been a very significant net exporter over that time and remain so today.

Senator XENOPHON —There has been a trend, though, hasn’t there? Is there a distinction between net food imports and exports?

Mr Morris —There has been a trend in that, particularly over the last 10 years, we have seen the growth in agricultural exports stabilise. There has been strong growth in imports of food over that period. That is partly related to the drought of course. In fact, when you look at the figures that we are forecasting for this year you will see quite a spike in exports. Once we get to more normal seasonal conditions—hopefully, that will happen over the next few years—we may see a resumption of growth in our exports again. So you are right in saying that there has been a trend in net imports—or net exports, depending on how you want to look at it—certainly a rise in imports over the last 10 years. In Australia, that is partly drought related.

Senator XENOPHON —Will your study be looking at the potential benefits and detriments to direct foreign investment in our agricultural sector? Is that within the scope of your study?

Mr Morris —Yes. The first term of reference is on the role and history of foreign investment, including assessing the impact which foreign investment has had. The impact implies both positive and negative.

Senator XENOPHON —Sure. Treasury in their submission says that if we go down the New Zealand path of the five hectares or $231 million—or over a billion dollars if it is US—that would create a real risk of discouraging foreign investment. Will you be looking at the impact of the New Zealand legislation on New Zealand foreign investment in the agricultural sector? Is that something that you will be looking at? I think that is Treasury’s view, but they have not based their view on the actual New Zealand experience. Is that something that you will be looking at in the context of this survey?

Mr Morris —The terms of reference talks about us identifying measures used in other countries for monitoring and regulation of foreign investment in agricultural land, and we were definitely choosing New Zealand as one of the case study countries we would look at, along with several others. While the terms of reference refers to effectively just identifying the measures used, I think as part of the study we would be looking at what the impact of those measures had been as well, where we can identify them, so that would be picked up under the fourth term of reference.

Senator XENOPHON —Finally on this, you are saying that whatever the ABS provides you in terms of information, where that information is of a high quality—and I hope it is—if it has gaps in it, that will not impact on the quality of the work that you are doing.

Mr Morris —I think it would be useful additional information for us, but what I was saying was—

Senator XENOPHON —So it would impact on the quality of work that you are doing?

Mr Morris —It would certainly be useful additional information for us, but it would not prevent us from publishing our work if that were not available.

Senator XENOPHON —That is not my question though.

Mr Morris —Of course. If more information were available it would improve the quality of our work. Clearly that is fact. If there is more data available it has to be helpful.

Senator XENOPHON —Thank you.

Senator WILLIAMS —Looking at your terms of reference, you have not included looking at the actual processing side of foreign investment. You refer to Brazil and their abattoir investment et cetera. Under the terms of reference you cannot look at those processing and distribution areas of the food chain?

Mr Morris —That is specifically what we are picking up under terms of reference 3. We are talking there about the various ownership structures of agribusiness firms for subsets of Australian agricultural industry, and by that we mean looking at, for example, meat processing, dairy, sugar and so forth. So that will be specifically done as a series of case studies on particular industries under that terms of reference.

Senator WILLIAMS —Do you distinguish between foreign investment and foreign ownership? Perhaps I can give you an example. With respect to foreign investment, maybe the company comes to Australia and helps in a joint venture to build a railway line and invest in productivity or improved infrastructure in Australia. Wouldn’t that be different to coming here and buying up our land, for example—buying an asset?

Mr Morris —I think that is a fair point. Certainly there could be investment without ownership, so that would be a differentiation that could be made. Whether that has a differential impact in terms of its effect is another matter and something perhaps we could have a look at. I take your point. Yes, there could be a differential between somebody investing in something without necessarily taking an ownership position in that company.

Senator WILLIAMS —We may have an established farm in Australia and some company in America or Thailand or somewhere might buy that land. To me, that would be foreign ownership, not foreign investment. As time goes on, they may well invest in improving the productivity or the nature of the land or whatever. That is why I raise those issues, because I think foreign investment and foreign ownership may be a bit confusing to the general public at times.

Mr Morris —I think you are right. There could be a differential between them. A lot of the foreign investment though does come with an expectation of some sort of ownership position being taken in the company, but there would be others where perhaps there would not be that ownership position.

Senator COLBECK —I just want to follow on from a couple of questions that Senator Xenophon asked. You talked about Australia being a net exporter and the trends in import-export over the last 10 years. It is true, isn’t it, that the majority of our export comes from beef and grains? They are the two big ones as far as exports are concerned. There is a reasonably significant horticulture and vegetable export process. The big movement has been in imports and changes in the balance of horticulture, essentially in vegetables that have been coming in and going out of the country. That is where the big change has been. The beef and grains, although impacted by the drought as you quite rightly said, are the ones that make up the large proportion in value terms of our overall food export surplus.

Mr Morris —That is broadly correct. In our regular publication, Australian commodities, there is a table in the back that has a break-up of exports. I think that will confirm what you have said in terms of beef and cereals being the main ones. Of course, this year we are going to have pretty big cotton exports as well. We have got a record crop coming on stream.

Senator COLBECK —That is not food though; it is agricultural. It is good to see some of those sectors starting to have decent seasons. Hopefully the conditions will be good for the next four or five as people are predicting.

Mr Morris —On the import side, while there has been some increase in horticultural imports, a lot of our imports are actually processed products. So there is quite a differential between what we are exporting, which tends to be largely unprocessed or moderately processed such as meat and dairy products, and the relatively highly processed products that we tend to be importing over time. A lot of that growth is more in processed products.

Senator COLBECK —That is probably an important point. In the joint media release of 23 November, which I think you have referred to, it says:

Existing ABARE-BRS data shows that around 99 percent of broad acre and dairy farms in Australia are family operated. Of the 1 percent of non-family farms, it found around 0.1 percent are foreign owned.

How is that measured? Is that in pure numbers terms? You could measure this three ways. You can do it in numbers of farms, which would give you one number. If I look at dairy farms in Tasmania and there are 500 or 600 of them and 30 of them are owned by foreign entities, that will give me about half a per cent. But if you look at it in terms of area, where most of the Circular Head region is owned by a New Zealand entity, that will give you a very different number. If you look at it in value, which is probably more difficult because that will move and fluctuate over time, you get a very different set of numbers again. If you look at that existing data and it is on the basis of numbers of farms, it would give you the impression that it is not a problem. But if you look at it in terms of hectares or dollars, the answer would be very different. Do we have a sense of what that data might be?

Mr Morris —That is hopefully what the ABS will be able to provide us with. In terms of the data that has been provided to date—we accept that it is not the best data you could possibly have, which is why the ABS needs to do their additional survey—it is based on the farm survey information that we collect on broadacre and dairy farms. We used the year when we had the largest sample size, so we looked at 2007-08. In that year we had 2,700 farms in the survey. Of that sample, we found only about 0.1 per cent in terms of numbers—

Senator COLBECK —So it is numbers of farms?

Mr Morris —yes—were identified as possibly foreign owned. The difficulty for us is that we do not actually ask in the survey, ‘Are you foreign owned or not?’ What we had to do was effectively analyse the information that we had to determine whether we could tell whether they might be foreign owned. We did that in several ways. We looked at whether they were family owned or not, with the assumption that most family farms in Australia are in fact Australian owned. That may or may not be true but it probably is largely true.

Then we looked at the remaining farms, which were only about one per cent of the survey, and looked at company listings and things like that to determine whether they were likely to be foreign owned or not and came up with a number that way. We accept that that number is a bit rough because the survey was not asking specifically what the foreign ownership would be. We will be very interested to see what the ABS comes up with in their survey, which might give us a bit more of accurate handle on that number.

In terms of your other comment on size of farms, yes, that is based on numbers not on size. If you bought one average sized property in the pastoral zone, you would be buying 50,000 hectares. If you bought one average sized property in the high rainfall zone in Australia, you would be buying an average farm of about 400 hectares. Depending on where you buy it, you could actually be buying quite a large area of land. That does not say anything about the productiveness of that land. A 400-hectare farm in a high rainfall zone might be far more productive than a 50,000 hectare farm in the pastoral zone, for example.

Senator COLBECK —I was just trying to get a sense of what those numbers actually meant. I had a suspicion and you have confirmed that, that is fine. What is your sense of the actual farm numbers? This survey is going to 171,000 agricultural businesses. What is your guess on the actual numbers of farms? Two thousand seven hundred is a small sample size in the overall context of that so that sort of makes the figures in there a bit fuzzier still as you have acknowledged.

Mr Morris —Whatever number I say now we will know for sure!

Senator COLBECK —I am seriously not trying to trap you. I had a different number in my mind. I was thinking 120,000 or 130,000 farms which is a figure I have used for a while. I acknowledge that we are talking about farming business versus farms. It might be ag related businesses that are not necessarily farming businesses and this stuff will get cleared up during that process.

Mr Morris —You could apply 0.1 to the number of farms if you chose and come up with a number like 1,000. One thousand would be possibly in the ballpark, but I think our preference would be to wait and see.

Senator COLBECK —That is not what I was trying to do either. You are very clearly working in estimates mode trying to work out whether I am having a crack at you and I am seriously not! I acknowledge, like you do, that this is an estimate based on a small sample so it is not really a matter of trying to extrapolate. The point more was that there are different ways to measure it and that would give you different answers to this whole thing as well. The question on how many farming entities there were was more of an interest. To get a sense of farm businesses versus farms is a different question.

Mr Bowen —Just to clarify that point, this was broadacre and dairy. The sample we chose is a weighted sample based on the ABS frame and the sample looks at commercial farms. They have to have a turnover of at least $40,000 before they are counted in our survey and the population we estimate—this 2700 we drew from—was a population of about 61,000 farms in broadacre and dairy, so the 0.1 per cent in a sense is the sort of ballpark you are looking at of that population. Obviously, the ABS survey goes to more than broadacre and dairy. Our survey is designed only for that purpose.

Senator COLBECK —How do you classify broadacre? What is the other classification in that context?

Mr Morris —Broadacre is essentially cereals and major livestock industries, beef and sheep. That is what is covered in broadacre. In dairy of course it is the dairy industry and that is the other industry that we cover. The things that are excluded would be of course pigs and poultry, horticulture, sugar, cotton unless the cotton happens to be grown amongst other things on the specific farms that we survey. So we are excluding those. I think all up it is about 60 per cent—

Mr Bowen —Sixty-eight per cent.

Mr Morris —of Australian agricultural value-add production is picked up by broadacre and dairy, so there is about 32 per cent of the gross value of production which would be covered by those other industries.

Senator EGGLESTON —Many of the issues I was interested in have been covered. I wondered about information about other countries like the United States and Canada, for example, in relation to foreign ownership of agricultural land. Does ABARE know anything about their situation?

Mr Morris —The study is going to be looking at several countries and how they monitor or manage or regulate foreign investment in agricultural land. We were, as I said, going to look at New Zealand. You mentioned the US. That was another country we were going to look at. We understand there are some regulations there about reporting of foreign purchasing of land, but we still need to do further digging into that to see exactly what the rules and regulations are. But the US will be one of those markets that we intend to look at.

Senator EGGLESTON —I would have thought Canada and the US were more comparable to Australia rather than New Zealand, which tends to have smaller properties and different agriculture. I suppose the European Union might be considered, although it is not really as comparable to Australia as the United States and Canada are. South American countries like Argentina are agricultural countries. They would also be countries worth making comparisons with. Would you agree with that?

Mr Morris —You must have read our project plan, Senator, because the countries we are currently thinking of as part of our plan are New Zealand, Canada, United States, Brazil, Argentina. Very much the sorts of countries you were mentioning there are the ones that we are, at this stage, intending to see what information we can get on. It would probably be easier for us to get information on Canada, New Zealand and the United States; we are a bit uncertain how much information we will be able to get on Brazil and Argentina at this stage, but we are certainly going to try.

Senator EGGLESTON —Thank you. I assure you, I have not read your project plan, but I did see those as comparable countries and I will look forward to your findings.

Senator HEFFERNAN —Firstly, would it be fair to say for your organisation that we really do not know who owns the agricultural land in Australia?

Mr Morris —Yes.

Senator HEFFERNAN —And so if we went to the land titles office, we probably would not be any further ahead in lots of instances.

Mr Morris —It depends. Bruce, you have had a look at this, so maybe you can answer that question.

Mr Bowen —We have had a brief look at this and we will look at it in a bit more detail. My understanding is that there is a bit more information in Queensland, they do have some registers about foreign ownership, but in other states there is not much information collected at the land offices to determine whether it is foreign owned or not. They often do not differentiate between urban land and rural land as well, which makes it quite complicated to try to use that method to find out information.

Senator HEFFERNAN —So to discover who owns the agricultural resources in Australia, we would have to build a new model?

Mr Morris —Other than for the various categories that FIRB—the Foreign Investment Review Board—looks at, and Queensland seems to have a bit more information than other states, if you really wanted to get detailed information on the ownership arrangements, the current collections do not seem to cover that.

Senator HEFFERNAN —Obviously, without naming companies, there is a reasonably high profile company which is based in the Cayman Islands which is sovereign funded which is acquiring or attempting to acquire land in Australia, and it is quite disguised and there is nothing—if you went to the land titles office, you would just see XYZ Pty Ltd and a postal address and that would be it.

The NFF submission, and I congratulate Charlie McElhone on this, goes to what the problem is in looking at where we are going to be. This is not necessarily your task, but it is the task of this government and the people in this building to figure out where Australia is going to be in 50 years time—I think you should include trying to acquire freehold title in China, because you will get a very quick, short answer: you can’t—in terms of population and agriculture resources. Thirty per cent of the productive land of Asia has gone out of production et cetera. We really need to understand that some countries are looking ahead strategically as to how they are going to meet their food task, and there was mention here this morning about China and other countries buying into some of the better lands in the poorer countries in Africa, which are seriously corrupted and you can do all sorts of things if you have the right amount of money. The NFF says:

In this light, a new wave of foreign investment in Australian agriculture is starting to emerge.

This is where we should have the amber light.

Rather than being underpinned by genuine commercial forces where profits are the driver—

which is the traditional foreign investment, going back to the Vesteys in the Northern Territory—

food security has emerged as a new factor for investment. With state owned enterprises entering the market, it is becoming blurred as to whether all of this investment is still interested in the profitability of the venture, or rather in ensuring—

which of course it is—

that a consistent stream of food can be delivered to its people.

In other words: this is the phenomena of foreign investment sovereign funds acquiring our sovereign assets and our capacity to produce and then excluding us from access to that productivity. Do you people think that in building a new model to understand where Australia is going to be in 50 years time that that would be one of the key pieces of information that we need to get ownership of?

Mr Morris —There is already a review process for any sovereign investment in Australia, so that is already covered under the Foreign Investment Review Board procedures. To the extent that if a government in another country wished to purchase agricultural assets in Australia, then that would have to be reviewed from a national interest perspective to make sure that some of the concerns you are raising, which could well be legitimate, are addressed.

Senator HEFFERNAN —But how do you find out the great mystery of what is in the national interest? You have the AHA spending $20 million in the ‘national interest’ as it were—their national interest—to provide gambling for their income. That is a blurred concept. But to enable what is in the national interest, don’t we have to understand what we are facing in 50 years time, in 80 years time? We do not seem to have that strategy in place.

Mr Morris —Certainly in our organisation work is going on at the moment looking at the longer term. We are looking at the food security issue from both a national and a global sense, so there is some work going on in that regard. It is looking at things like the impact of climate change and other things that might influence the ability to maintain productivity growth rates in the future. We have done a lot of work on productivity, as you are aware, and how that might have changed in response to changing government investment in R&D and things like that. So there is a lot of work going on in that area that will inform this debate and I am sure many other debates.

Senator HEFFERNAN —I am again quoting from the NFF submission:

The NFF has confidence in the Foreign Investment Review Board … in examining proposals by foreign interests for investment in Australia against the background of the Government’s foreign investment policy.

But that policy does not take account of where we are going to be in 50 years time, does it? I mean Treasury gave us advice this morning that they are looking at what is happening today, not what is happening in the future, and that is the advice they provide to government.

Mr Morris —I do not think that is a question for us, that is really a question for Treasury and FIRB to answer. We do not get involved in the specific ins and outs of how they do their assessments.

Senator HEFFERNAN —But the caveat the NFF put on it:

However, even the FIRB acknowledges that many land and water asset purchases may fly below the disclosure thresholds, therefore avoiding scrutiny.

Isn’t that a fundamental flaw in what we are attempting to do today? We have had this survey go out from the—

CHAIR —I do not think that is a question for ABARE.

Senator HEFFERNAN —Yes, but to get the concept of the people—this is a wonderful organisation that provides wonderful advice, but you have to build it on the right foundation. In my view the Bureau of Statistics, their proposition to their survey is fundamentally flawed.

CHAIR —I am just asking whether you can rephrase the question in terms of ABARE’s responsibilities.

Senator HEFFERNAN —In terms of future planning—you say there is some planning going on—surely that is a threshold question.

Mr Morris —As a research organisation we are looking at a range of issues that will inform this issue as well as a number of others. In terms of the specifics of the policy and how they implement it, that is really a Treasury or FIRB question.

CHAIR —We will have to end it there. Thank you.

Senator HEFFERNAN —We will continue at estimates.

[12.14 pm]