Food glorious food

17 September 2012
By Andrew Lumsden (Partner)

Few issues polarise public debate like Australia’s “food security”. Then into the fray came the announcement on 31 August (Friday afternoon) that Cubbie Station was to be acquired by a consortium led by Chinese textile and clothing firm Shandong RuYi Scientific & Technological Group Co. Ltd.

Predictably there was an outcry against the sale on the basis that farmland is special and sacred, and that Cubbie Station should remain under domestic ownership. This, even though it has been in the hands of receivers for more than five years.

Community concern about foreign ownership of agricultural land is nothing new. Perhaps it is overly influenced by the uninformed view of a small but noisy minority of tabloids and shock jocks, but it has always been there.

Unfortunately the gap between the rhetoric and reality is huge.  The fact is that without foreign investment in Australia’s agriculture sector, our ability to seize the opportunity to feed the world’s growing population, particularly in Asia, is limited.

Far from “selling the family silver” the most recent survey shows that about 1% of Australia’s agricultural businesses and less than 11.3% of Australian agricultural land are foreign owned. While these figures have been criticised as misleading by some, there is no alternative evidence to suggest the acquisition of farmland by Chinese sovereign wealth funds or state owned enterprises is in any way substantial.

Despite this, the Coalition is proposing to increase the number of transactions involving agricultural land and agribusinesses requiring foreign investment approval. These changes are not aimed at state ownership of agricultural assets (who would continue to have to apply for FIRB approval no matter the size of the investment) but rather seem focused on providing the community with a sense that the government is addressing more general public concerns about foreign investment levels. 

Given the potential negative effects of introducing barriers to foreign investment in the agricultural sector (eg reducing home country tariff barriers to imports - potentially the biggest issue for Australian agriculture) perhaps the better policy response is to rely on the register of foreign ownership of agricultural land to address community concerns.

It’s not who owns it but what you do with it

The more complex and difficult policy issue is how we as a nation reconcile the competing aims of urban and mining land use and agriculture.

Our existing scheme of mining regulation in all states provides limited protection for landowners and the need for sustainable development principles to be taken into account.  There is no existing certainty about how to properly balance the social and environmental importance of the land with the need to promote mineral resource development.

In Queensland, the first steps to ensure prime agricultural land is protected, have manifested in a policy and planning framework for how mining and urban development are to be undertaken on 'strategic cropping land'. In NSW, the government has a new ‘gateway process’ for mining and coal seam gas projects in close proximity to strategic agricultural lands. In other parts of the country the debate still has a long way to run.  But it is a debate that we need to have. It transcends the standard xenophobic rhetoric and the agriculture versus mining rhetoric because it’s about land use, and urban sprawl is as big an issue as mining.

Cubbie Station

The Treasurer gave the go-ahead subject to an undertaking by textile maker Shandong Ruyi that it would sell down its proposed 80% stake in Cubbie to no more than 51% within three years.

The property was placed into voluntary administration in 2009 with reported debts of more than $320 million. If successful, the sale process would end this uncertainty, ensuring Cubbie’s ongoing operation, “protecting jobs and supporting economic activity in the Dirranbandi and St George regions.”

While there has been a lot of attention paid to the proposal, what is not made clear is that the farm will remain subject to the same regulation of its water licences as before. Lempriere (an Australian company)  will be responsible for operating Cubbie in conjunction with the existing management team.

All cotton will be sold on arms-length terms. It will not be allowed to import labour or reduce its wages bill with any more freedom than other farms. It will have to pay its Australian taxes.

Driving investment and trade

A growing world population and changing consumption patterns in Asia offers vast new opportunities for Australia’s export food industry.  But foreign investment will continue to be needed if our nation is to develop into anything like an important source of food for Asia.

As the economist Peter Drysdale, one of the authors of the forthcoming Australia in the Asian Century report, has pointed out we must be careful that Australia’s policy is not infected by ''populist politics'' that could inadvertently cause Australia to miss out on vital economic opportunities from an oversimplified stance on foreign and in particular, Chinese, investment.

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The content of this publication is for reference purposes only. It is current at the date of publication. This content does not constitute legal advice and should not be relied upon as such. Legal advice about your specific circumstances should always be obtained before taking any action based on this publication.

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Andrew Lumsden

Partner. Sydney
+61 2 9210 6385