18 July 2017, Sydney
David Irvine AO
Chairman
Foreign Investment Review Board
Check against delivery
My task is to provide a general overview of foreign investment in Australia, with a particular focus on foreign investment in the agriculture sector. I will also clarify the role of the Foreign Investment Review Board in facilitating foreign investment in Australia’s national interest. I will do this by focusing on the following four key points.
- Agriculture has always played an important role in the Australian economy. In the 21st century its importance will only grow as world demand for agricultural products increases—particularly in the Asian region.
- To meet this growing demand, and benefit all Australians, our agricultural sector needs constant productivity growth through innovation, diversification and expansion—for example in the north of Australia.
- Investment—including foreign investment—will be a key driver of this productivity growth.
- I see the FIRB's role as facilitating that foreign investment while seeking to ensure that the national interest is appropriately protected.
FIRB and the national interest
I have been a Foreign Investment Review Board member since December 2015 and I was honoured to be asked to assume the role of Chairman of the Board earlier this year.
The Board is an independent advisory body established to advise the Treasurer on the application of Australia’s foreign investment policy to foreign investment proposals. Foreign investment applications are rigorously reviewed by the Board, but decisions on foreign investment cases ultimately rest with the Treasurer. The Board’s role is to advise on aspects of national interest.
The national interest is deliberately not defined in the Act, allowing flexibility to consider the range of factors, including: impact on the community and economy, the impact on tax and other policies, character of investor, and national security.
For agricultural, additional factors are also considered: quality and availability of water; land access and use; agricultural production and productivity; and Australia’s capacity to remain a reliable supplier of agricultural production; biodiversity; regional employment and prosperity.
There is a perception my appointment as Chair of the Board indicated a change to the way FIRB looks at national security issues, given my experience in Australia’s national security agencies. While proper consideration of these issues is critical, the reality is that they impinge on only a very small proportion of FIRB advice. I am ably supported by colleagues on the Board with experience in taxation, banking, mining, agriculture and senior corporate management roles.
Importance of foreign direct investment
Foreign investment is especially important to Australia’s economic prosperity. It drives economic growth, creates skilled jobs, improves access to overseas markets and enhances productivity. Without foreign investment, production, employment and income would all be lower.
Trends in foreign investment
Australia is an attractive destination for foreign investment (the value of investment approvals has risen by over 80 per cent in 3 years to 2015/16). The US is still the largest investor, but Japan and now China are increasing their share of the stock of FDI.
The volume of applications to FIRB has increased significantly in the last two years, from around 25,000 in 2013-14 to over 40,000 in 2015-16, an increase of over 70 per cent. The bulk of these applications were for residential and commercial real estate.
The weight of investment has shifted from the resource sector to the real estate and critical infrastructure sectors. The finance and insurance sectors are also rising.
While foreign investment in agriculture has attracted some public attention; the actual proportion of agriculture in the investment mix has remained pretty steady since 2011-12.
Despite some publicity attracted by one or two investment decisions made by the Treasurer over the past year or so, the fact remains that 41,455 applications for foreign investment were approved in 2016 and only a handful rejected.
A combination of the impact of the cyber revolution and the recent series of privatisations of the nation’s critical infrastructure assets has led to a greater focus on national security (including data security) when considering the national interest in the investment approval process. While these issues have always been considered in FIRB assessments, their increased weight in recent cases has related to particular security issues specific to the transacted assets.
The Critical Infrastructure Centre was established this year to provide a greater, more holistic and more proactive monitoring of national security issues relevant to critical infrastructure in Australia—whether or not foreign investment is involved. Where foreign investment is involved, the CIC assists the FIRB with advice on national security considerations related to relevant acquisitions.
Agricultural sector overview
The topic of the day though, is foreign investment in agriculture. Although the agricultural sector accounts for a relatively small share of GDP and employment, agricultural products currently make up just over 10 per cent of Australia’s exports. The economic contribution of agriculture is especially important to regional Australia.
Even as a layman, it is easy to see that the agriculture sector is currently in a good position—you only need to look at our export potential, our natural resources and our geographic location on the doorstep of a growing middle class in Asia to see the opportunities. Investment of all types is central to capitalising on our already significant strengths in agriculture, enabling our agriculture sector to enmesh itself further in the fastest growing economic region of the world – Asia, where food consumption will increase due to population growth, income growth, a growing middle-class and increasing urbanisation.
China will lead the way, accounting for approximately half of the increase in global food consumption. Demand for food consumption from South East Asia is also expected to grow significantly. This provides an opportunity for Australia to provide agricultural exports to meet this growing demand.
Level of foreign investment in agriculture
Despite increased community attention, the level of foreign ownership of Australian farmland has not increased significantly in recent years. Farms continued to be largely Australian owned.
The Government, through work done by the Treasury and the ATO, has established the Agricultural Land Register—the first report showed that, as at 30 June 2016, 13.6 per cent of agricultural land had some level of foreign ownership.
The UK accounted for around half of these foreign holdings, with the United States also an important foreign landowner. A range of other countries was also found to have quite modest levels of agricultural land ownership, such as the Netherlands, Singapore and China.
The 13.6 per cent ratio is based on the area of foreign owned land, but I expect the share of foreign ownership in terms of the value of Australian agricultural land would be even lower. While consistent data on land values is not available, more than 80 per cent of foreign owned land is held in large leasehold interests where the productivity of land is typically lower than smaller freehold aggregations.
FIRB approvals
In 2015-16, FIRB approved investment applications for agriculture, forestry and fishing investment applications valued at $4.6 billion, an increase of over 80 per cent on 2014-15 ($2.5 billion).
In the last few years there have been hundreds of agricultural land approvals. In 2015-16 there were 227 approvals for agricultural land. Of course there was one high profile case that raised particular concerns (Kidman), but overwhelmingly these cases are being approved.
The USA, China, and the UK were the leading sources of proposed investment.
The Board is cognisant of the community debate around foreign investment in agricultural land which has intensified in recent years, on the back of increasing community sensitivity. And these matters are of course an important consideration for the Treasurer in looking at the national interest.
Role of foreign investment in agriculture
As a large, resource rich country with relatively high demand for capital, Australia has relied on foreign investment to meet the shortfall of domestic savings against domestic investment needs for over two centuries. In 2012, ANZ’s Greener Pastures Report estimated that Australia may need in the order of $1 trillion in investment up to 2050 to develop the export potential of the sector.
While Australia’s financial institutions will play an important role in providing that capital, foreign capital will also need to play a vital role.
Foreign investment has always played a key role in the agriculture sector, particularly given the significance nowadays of technological advances to enhance productivity. The sector is a part of the broader boom in innovation across the Australian economy. New technologies will support farm businesses to tackle heightened regional competition, growing international resource scarcity, and other challenges.
There are significant opportunities in northern Australia in particular. Northern Australian agriculture and food and fibre processing has significant potential for expansion. Research and development will lead to greater yields and profitability, and will explore new products, production methods, technologies and broad innovation.
Conclusion
We acknowledge that foreign investment has always had some element of community sensitivity. At the same time, Australians increasingly need to see the benefits of foreign investors looking after agricultural properties, contributing to the community, growing farm output and paying tax.
The FIRB takes seriously its role in facilitating this investment and providing assurance that it meets community standards. We encourage early engagement from investors and sellers to ensure all potential issues are understood and there is a productive two-way exchange about transactions.
With growing world demand for agricultural product the prospects for the Australian agricultural sector are bright. Foreign capital is crucial to growth, and we will need investment—including foreign investment—to realise the full potential of Australian agriculture.