20 Jun 2011

Foreign acquisitions of Australian farms: new controls rejected

A key Senate Committee has rejected a proposal to impose strict new controls on foreign investment in agricultural land.

The Economics Legislation Committee recommended that Parliament not pass the Foreign Acquisitions Amendment (Agricultural Land) Bill 2010. The Bill was introduced late last year by Senators Xenophon and Milne.

If passed, this Bill would:

  • require Federal Treasurer approval for the acquisition of an interest in farms of more than 5 hectares;
  • require the Treasurer to consult a statutory checklist of "national interest" issues before approving such an acquisition;
  • require the Treasurer to publish details of all agricultural land applications.

(For more details, see our client Alert on the Bill.)

The Committee was made up of members of the ALP and the Liberal Party, and Senator Xenophon. Senator Xenophon was the only member of the Committee to dissent from its conclusions.

Although the current political balance in both houses of Parliament is unsettled, the fact that the two major parties' representatives recommended rejection of the Bill is an indication that it will not become law.

The national interest test

The Bill proposes a detailed national interest test for foreign acquisitions of farms. This would not apply to other foreign acquisitions, thus creating an anomalous situation in which the Foreign Acquisitions and Takeovers Act contained two quite different national interest tests.

The Senate Committee cited this anomaly as a reason for rejecting the Bill. It also made a comment that is relevant to the wider issue of whether FATA should have a detailed national interest test in place of the current test (which basically says that determining the national interest is entirely a matter for the Treasurer).

The Committee thought that the current test is working fine, and there is no need for a detailed statutory test:

"the deliberate intention of the drafters of the FATA... was to allow a flexible interpretation and application of the Act, which accommodates for changing circumstances. The committee is concerned that the bill's proposed legislated national interest test will be inflexible and overly prescriptive.

3.34 The committee recommends that the current mechanism, whereby the national interest test is determined on a case-by-case basis at the discretion of the Treasurer, is sufficient and should remain unaltered."

Monetary threshold

In general terms, FATA's monetary threshold for notification of private acquisitions of Australian businesses is a minimum of $231 million.

Since most farm acquisitions are worth a lot less than that, the drafters of the Bill proposed that the threshold for such acquisitions should be based on the area of the farm.

The Committee rejected the concept of a spatial threshold. However, it acknowledged that the current monetary threshold does not capture many agricultural purchases. To that end, it appeared to suggest that the monetary threshold might be revisited down the track:

"The committee acknowledges the evidence which suggests that the $231 million threshold for foreign investment in the agricultural sector would rarely trigger a FIRB review. However, the committee asserts that the current data gathering and research project should be completed before any adjustment to the threshold is made. Following the reporting of better data, the FIRB figure should then be reviewed to allow for an appropriate threshold." [1]

Other problems with the Bill

As well as the detailed national interest test and the spatial threshold, the Committee identified two other significant problems with the Bill:

  • its requirement to publish details of relevant applications under FATA could, by compromising their privacy, undermine foreign investor confidence in the agricultural sector;
  • the imposition of stricter controls on agricultural acquisitions might be inconsistent with Australia's obligations under various free trade agreements and might breach article 1 of the OECD Code.

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[1] This is a reference to a number of current governmental research projects into the extent of foreign investment in Australian agricultural assets.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.