THERE seems to be a bit of a problem with farm values. By all accounts they are falling, at least in some areas, and quite a few farms are not worth as much as their owners need to support debt.
In Western Australia there is a heap of properties on the market that can’t find buyers. Nationally, at least 80 very large farming operations are in receivership or facing forced sale, and there have been large discounts on those that have gone through. PrimeAg is selling its properties for less than book value.
Like any market, rural property prices are governed by supply and demand. When demand is less than supply, prices fall. The solution, fairly obviously, is more buyers.
That makes it especially difficult to follow the logic of the Senate Rural and Regional Affairs and Transport Reference Committee, which has recommended foreign investors in farm land should face additional scrutiny and, by implication, more restrictions.
With support from both sides of politics, the Committee has called for the government to “strengthen” foreign investment rules for agriculture, lowering the threshold for Foreign Investment Review Board examination to $15 million and retaining the existing zero threshold when the buyer is a state owned enterprise.
In an apparent acknowledgment that this might not actually encourage investment, it then recommends the government commission a review into incentives and barriers to Australian investment in agriculture, particularly superannuation funds. You can almost hear the panting to make it compulsory.
Indeed, a fondness for big government can be found elsewhere its recommendations. The report pays quite a lot of attention to preventing taxation “leakage”, for example, by which it means businesses taking advantage of lower taxes in other countries. The thought that Australia could offer a lower tax rate itself to attract business clearly never occurred to anyone.
And yet, the committee made all the right noises about the importance of foreign investment, including the fact that foreign investors were more likely to be long term, or “patient capital”, in comparison to those recalcitrant local superannuation funds.
What apparently bothered it is the idea that some foreign investors might not be buying properties to make money, but to increase the food security of their home countries. In addition to assuming they will seek to minimise Australian tax, it says such investors have “great potential to distort the capital market and the trade in agricultural products to the detriment of Australian farmers and Australia's economy.”
Really? What is the evidence for this “great potential”? Or, for that matter, a lack of “commercial motives”? The committee doesn’t have any.
The example given was Hassad Food, a company owned by the government of Qatar, which conceded that its first priority was to ensure its own people had enough to eat rather than making a profit. That, it seems, proved the point, although the company later clarified that it was not feasible to operate on non-commercial terms.
Imagine if the situation was reversed and it was Australia that was not self-sufficient in food while Qatar had plenty. Suppose also that our government decided to invest some of our minerals tax revenue into farm land in Qatar in the belief this might ensure Australian children didn’t go hungry.
Would we consider it more important to have enough to eat, or to make a profit on any food produced? What if Qatar thought this was liable to distort its capital market and agricultural trade?
As is obvious, this is ridiculous reasoning. Nobody prefers profits to hunger. Moreover, there are already tens of thousands of Australian investors who own farm land for non-commercial reasons. Individually their investments might be small, but collectively they are many times bigger than either the current or proposed FIRB threshold.
Our capital markets and trade are quite unconcerned by them, yet logically the committee should be demanding a national interest test for them too.
Perhaps more to the point, the price of farm land would be substantially lower but for these investors. Demand for non-commercial hobby farms and lifestyle investments has been propping up farm prices for years.
In any case, the thought that wheat, beef, lamb, potatoes or onions grown on a farm owned by Hassad might be exported at less than market prices is hardly something to get bothered about.
Australia’s biggest grain grower, Ron Greentree, can sell all his wheat to Egypt at a 90 per cent discount any time he likes. That would annoy Egypt’s usual suppliers, slash his tax bill and might cause a blip in prices, but it’s hardly the end of the world. And he would still have paid market prices to grow and ship the wheat.
The fact is, the Senate committee was jumping at shadows. That a few other countries have tightened restrictions on foreign investment in agriculture, which the committee seemed to think was relevant, is no reason for Australia to do it. Indeed, it probably gives us more reason not to.
Foreign investment does not disrupt either markets or trade. For those who would like to sell their properties and have some money left over after paying off the banks, or who want to borrow against their property, it is to be especially welcomed. More buyers mean higher prices.
David Leyonhjelm has been an agribusiness consultant for 25 years. He may be contacted at email@example.com