Post written by Karen Caston, General Manager, and Charlie Blomfield, Managing Director & CEO, AMC.
Recently Australian Prime Minister Gillard announced the Federal Government’s plan to develop a foreign ownership register for agricultural land. PM Gillard stated that “The register will provide the community with a more comprehensive picture of the specific size and locations of foreign agricultural holdings over and above what is currently available”. But what information should be included in this register? Who should administer it? And how should Australia’s agricultural leaders manage the messages sent to potential investors?
It is vitally important that if such a register is implemented on a national scale, that existing and future Free Trade Agreements and Bilateral Investment Agreements are maintained to promote trade and investment. Australia must maintain its position as a safe and attractive investment destination without imposing further compliance burdens.
In light of developing a register that is both relevant and useful, AMC has considered the factors that may contribute to the design and maintenance of such a register:
- Scope. The scope of the register, definitions, inclusions and exclusions are critical in creating a register that is not cumbersome and is relevant.
- Size of investment. Recording all rural land transactions would be an onerous task and would possibly cloud over the objective of providing meaningful data. A minimum investment size should be set based on a combination of transaction value and volume. This ensures that investments with an agricultural production capacity of significance are included in the register and not just expensive lifestyle properties with limited agricultural production capacity. This floor should be applied to the value of aggregated investments, as well as individual holdings.
- Location. It is also important to consider the regional impact of aggregated foreign investment. Consideration should be given to monitoring the proportion of foreign holdings by region, in order to assess the potential impact of significant investment in key production locations.
- Ownership structure. Many other similar registers require any foreign persons or foreign legal entities to report their acquisition or divestments of agricultural land within a defined timeframe. Should a foreign investor that holds a significant stake in Australian enterprise also have that interest recorded? Detailed examination of existing legislation (e.g. Corporations Act 2001) in relation to interested and related parties for guidelines to identify whether a foreign investor has a qualifying level of ownership in a particular property or aggregation. Consideration should also be given to substantial or controlling shares of a corporation or its subsidiaries IE. 15%+ to >50%.
- Supply chain investments. The main concerns giving rise to this debate centre on foreign ownership of the land producing asset. What about other levels of the food supply chain? Foreign investment at the processing, wholesale and retail level could also be shown to have an impact on Australia’s future position as an agricultural producer, particularly as a major exporter. The register could be expanded to include this information, or a separate database developed to gather information on the increasing levels of foreign investment in the whole food supply chain.
- Inclusions. Just as important as land ownership is the registration of ownership of water entitlements and forestry titles associated with that land.
- Food security and transfer pricing. If foreign entities invest for food security purposes with the intention of repatriating commodities, there is a requirement to ensure regulation of transfer pricing, so as not to distort the market for other agricultural producers operating in the open market.
- Administration. Detailed consideration needs to be given regarding the collection, compilation, dissemination and maintenance of the register, and the funding of this task.
- Freedom of Information. The data, once collected, would not only provide substance to the foreign investment debate, but may also provide strategic and market data for the benefit of the Australian agricultural industry. Maintenance of privacy provisions and confidentiality will need to be managed carefully, so as not to disturb our free market conditions or to provide any particular investor with market-sensitive information about its competitors.
A final yet important point to consider in the establishment of this register is the management of messages that may discourage potential foreign investors to Australia. Australia is considered a highly attractive economy in which to invest for many reasons, including the openness and transparency of Australia’s political and financial systems. It is important that any bureaucratic process or requirement does not diminish this perception amongst key investor groups, thereby leading to the limitation of future investment and highly needed recapitalisation of the Australian agricultural industry.
The Treasury has issued a Consultation Paper seeking feedback on the issues associated with establishing the National Foreign Ownership Register.