AS well as forming an important part of our social and community fabric, agriculture has been one of Australia’s traditional economic strongholds.
However, with the lucrative profits available during the mining boom in the previous two decades, innovation in some sections of the agriculture sector plateaued. Now, with the end of the mining boom, the Australian economy is at a critical juncture and new investment opportunities must be pursued to maintain positive growth.
In light of its historical social and economic importance, it comes as little surprise that many are looking to agriculture to once again drive Australia’s future prosperity and reinvigorate struggling rural communities.
In Queensland, where the State Government this month launched the ‘Go Qld’ campaign designed to investigate strategies for regenerating Queensland’s economy (which grew by only 0.5 per cent in the last financial year compared to the national average of 2.5pc), investment in agriculture is seen as a particularly viable option for achieving sustainable future economic growth.
Indeed, National Farmers’ Federation (NFF) president Brent Finlay has recently noted the potential for the Queensland agriculture sector to double in size to $30 billion per year over the next decade.
The ability for agriculture to serve as a platform for future economic growth in Australia is grounded in a number of key global trends and developments, including:
The expected growth in the world’s population from 7 billion to 9 billion people over the next 35 years, with the greatest growth occurring in Asia, particularly China.
The increased demand for protein-based quality foods as global consumers, including more recently Asian consumers, become increasingly affluent and discerning (with data indicating that beef consumption has tended to increase with rising GDP per capita).
The market access advantage that Australia has through its geographic proximity to Asia.
Australia’s strong reputation for safe, high-quality agricultural produce, which offers the potential to achieve a significant price premium.
Australia’s negotiation of free trade agreements with Japan, South Korea and China in 2014-15, as well as the signature of the Trans-Pacific Partnership Agreement on February 4, 2016 by the 12 partner countries (including Australia, Canada, Japan, Malaysia, the US and Vietnam), with each agreement expected to significantly reduce tariffs and enhance competitiveness for Australian farmers.
On July 4, 2015, the Australian Government released its Agricultural Competitiveness: Stronger Farmers, Stronger Economy White Paper (Agricultural White Paper). The Agricultural White Paper is designed to improve the growth and competitiveness of the Australian agriculture sector, with a particular focus on greater infrastructure investment.
In the Agricultural White Paper, the Government commits to:
Establish a $500 million National Water Infrastructure Development Fund, with $450m available for construction and $50m available for scoping studies which investigate opportunities for new dams and water infrastructure nationally (in the latter regard, key opportunities already investigated include Pilbara groundwater projects in Western Australia, the Rookwood and Eden Bann weir projects in Queensland and the development of the Nathan Dam and Emu Swamp Dam in Queensland).
Invest a further $100m over six years in the Government’s existing Rural R&D for Profit Program.
Establish a new concessional loans scheme for drought-affected farmers, with up to $250m to be made available each year over the next 11 years.
Allow farmers to double their Farm Managements Deposits (voluntary contributions which help farmers to manage the risk of seasonally-fluctuating income) to $800,000 from July 1, 2016 and to offer those deposits against business loans, thereby reducing interest costs.
The Government sees northern Australia in particular as an area of tremendous economic potential in the agriculture space (as well as in other areas including research in tropical medicine, life sciences, tourism and international education). On June 18, 2015, the Government released its White Paper, Our North, Our Future: Developing Northern Australia (Northern Australia White Paper), outlining the Government’s commitment to, among other things:
Reduce the regulatory complexity of existing pastoral leasehold arrangements in northern Australia, freeing up land for further long-term agricultural investment.
Allocate $600m for new road projects and $100m for improvements in cattle supply chains.
Partner with the private sector to provide up to $5 billion in concessional loans for significant infrastructure projects.
Each of those areas is vital to encourage growth in the agriculture sector. The Government’s infrastructure investment in particular will help to build strong foundational capability in the sector which can be leveraged to drive greater efficiency and production output as private investors, motivated by the growth and profit potential, fund new and expanded farming operations.
However, despite the potential for growth in Australia’s agriculture sector, a number of challenges remain.
First, on November 24, 2015, the Government introduced legislation which significantly reduced the monetary thresholds at which foreign investors are required to notify the Foreign Investment Review Board (FIRB) of a proposed investment in agriculture or agribusiness.
Under the legislation, a foreign investor is now required to notify FIRB when:
The acquisition of a proposed new interest in agricultural land would give the investor a total combined interest in all agricultural land (including interests acquired in previous transactions) in excess of $15m (other than private investors from the US, New Zealand or Chile, where the notification threshold is $1.094m per investment, irrespective of agricultural land previously acquired, and private investors from Singapore or Thailand, where the notification threshold is $50m per investment).
The proposed transaction would give the investor a total direct interest (generally 10pc but potentially an interest of any percentage if the purchaser is in a position to influence management and control) in an Australian entity or an Australian agribusiness and the value of the transaction exceeds $55m (except private investors from the US, New Zealand or Chile, where a $1.094m threshold applies for investments in non-sensitive businesses and a $252m threshold applies for investments in sensitive businesses).
Concerns have been expressed by a number of stakeholders in the agriculture sector, including the NFF and its state-based affiliates, that the new FIRB notification thresholds may provide a disincentive to foreign investment in agriculture and agribusiness in Australia at a time when such investment is crucial to maximise agricultural growth and efficiency by leveraging off the Government’s planned infrastructure expenditure.
Nevertheless, the impact of the new FIRB notification thresholds remains to be seen. It is important to note that, while the new thresholds will increase the number of investments that require notification to FIRB by investors from Asian countries that are expected to provide the greatest demand for Australian agricultural products over the next decade and beyond, FIRB will only prohibit a proposed investment if it is deemed to be contrary to the national interest.
In light of their contribution to Australia’s prosperity in a period of considerable economic uncertainty, it is hoped that the vast majority of proposed agriculture and agribusiness investments will be seen to be in Australia’s national interest and that this approach, if in fact adopted by FIRB, will facilitate continued growth in foreign investment in the Australian agriculture sector.
Visa restrictions have also been an area of strong concern for Australian farmers, with many in favour of the introduction of a special agricultural visa to attract foreign workers to address chronic labour shortages. In some cases, the shortages have caused significant crop losses and/or led to farmers scaling back their production in the absence of workers available to pick produce.
Peak industry groups, including the NFF and Cotton Australia, remain hopeful that the Government will abandon its plan to introduce a 32.5pc tax rate with effect from July 1, 2016 for persons coming to Australia on a ‘417’ working holiday visa (replacing the existing tax-free threshold), given the strong reliance that Australian farmers place on holiday workers to pick produce and the competitive tax incentives offered to holiday workers in rival destinations such as Canada and New Zealand. Changes to allow greater sponsorship of foreign agricultural workers under Australia’s ‘457’ visa have also been proposed by leading advocates in the agriculture sector.
Nevertheless, even if the new tax rate comes into effect, the Government also plans to allow holiday workers in Australia to extend their stay by up to 12 months if they work for at least three months in agriculture or tourism in northern Australia. That may provide at least some offsetting incentives for foreign persons to work in the agriculture sector while in Australia.
More broadly, while the Government’s increased investment in Australian agriculture may improve production capability for primary producers, it is hoped that the Government will also explore opportunities for greater investment ‘beyond the farm gate’ by creating incentives, such as tax concessions and funding opportunities, for innovative value-adding agribusiness projects that improve processing, manufacturing, packaging and distribution efficiencies and practices.
As noted in the Agricultural White Paper, Australia’s history and economy ‘was built on the sheep’s back’. If combined with other possible reforms to tax and immigration, as well as further research and development funding and the ongoing monitoring and review of foreign investment laws, the implementation of the Government’s Agricultural White Paper and Northern Australia White Paper reforms has the potential to realise the Government’s vision for the agriculture sector to play a key role in securing Australia’s continued economic growth and prosperity and building strong, self-sustaining rural communities in Australia.
- Brett Heading and Dr Kai Luck are from the Brisbane based legal firm Jones Day. Disclaimer: The views and opinions set forth herein are the personal views or opinions of the authors. They do not necessarily reflect views or opinions of Jones Day.