The divide over foreign investment in agriculture

One issue about which there seems to be a considerable divide between urban and rural Australia is foreign ownership of farmland. The ongoing saga of the proposed sale of the Kidman farming business seems to have reignited this debate, but has certainly not brought any more logic to the discussion.

Commentators such as Alan Jones of Sydney radio station 2GB have waged an unrelenting campaign of opposition to the sale of the Kidman business, and indeed any Australian farming business, to overseas purchasers. This has even reached the ridiculous situation of opposing the sale of the Van Diemen’s Land Company to overseas investors, despite the fact that this farming operation has been continually owned by overseas investors since its establishment in 1825!

Among the stated reasons for this opposition include that foreign owners will ship the produce from the farms to overseas locations and this will imperil Australia’s future food security, or that the they will operate the farms in a way that avoids tax, or that they will no longer employ Australian workers.

In relation to the food security issue, according to statistics compiled by the Food and Agriculture Organization of the United Nations, Australia is one of the most food-secure nations on earth, with a very large annual food production surplus and a relatively wealthy population that can purchase all the food it needs. More than two-thirds of the food produced on Australian farms is exported each year, and it is almost impossible to conceive a scenario under which, even if all the food produced on overseas-owned farms was exported, there would be any possible risk to Australia’s future food supply.

The concern that overseas investors in Australian agriculture might be avoiding tax through transfer pricing (‘selling’ product to a related overseas entity at a price well below cost and realising the profits overseas in a low-tax jurisdiction) or thin capitalisation (operating the Australian business with very high levels of debt to an overseas parent company, and using the interest costs to ensure that no book profit is made by the Australian business and hence no tax paid in Australia) has some validity, but is a much bigger problem in the mining and services sector than in agriculture. Major Australian mining companies have set up marketing offices in locations such as Singapore and effectively realise most of the profit on their mineral sales in that location, which has a corporate tax rate of 17% compared to the Australian company tax rate of 30%. Similarly, major multinational IT and software companies recognise all their Australian sales in overseas locations, hence avoiding paying tax in Australia. In comparison, this issue is of much less concern in agriculture, as it is much easier to audit prices received for agricultural products exported from Australia via reference to market prices than is the case in most other sectors.

The concern that overseas investors will not employ Australian workers on their farms is also unwarranted, given history and current experience. In fact, overseas owners of Australian farming businesses have a very strong history of employing Australian managers and workers, and typically increasing employment levels on the farm they own as a consequence of the additional capital they invest. The citizens of Dirranbandi in southern Queensland have been extremely welcoming of the new owners of Cubby Station for that reason, and the history of long-term overseas investors in Australian agriculture such as Clyde Agriculture and Twynam Agriculture reinforce this point.

The mention of these two companies also highlights one of the other major misconceptions about overseas investment in Australian agriculture. Both the above organisations were owned by overseas interests (The Swire Group and the Kahlbetzer family) and both accumulated very substantial farmland holdings in Australia over the 1980s and 1990s. Both these have substantially sold down their Australian farmland holdings over the past decade, leaving a legacy of well-developed and maintained farms to subsequent purchasers (some of whom were overseas investors and some of whom were Australians). Far from depriving Australia of its farmland, these foreign investors substantially added to Australian agriculture’s productive capacity, and generated widely-acknowledged benefits for the communities they were involved with.

These are both case studies of the substantial benefits foreign investors with patient capital can bring to Australian agriculture, and perhaps this helps to explain why Australian farmers are generally much more supportive of foreign investment in agriculture than the rest of the population is.

Image:  Richard Heath