Foreign investment in Australian agriculture
Foreign investment in Australian agriculture
Foreign ownership of rural property is effectively unrestricted for all but the very largest investors. For non-government investors, any investment below a threshold of AU$248 million doesn’t require the approval of the Australian authorities. Furthermore, foreign landowners can own land freehold with exactly the same ownership rights as a local Australian landowner. For investments above the AU$248 million threshold or for investments of any size by a government / sovereign controlled investment entity, the approval of the Australian Foreign Investment Review Board (FIRB) is required.
Despite the lack of investment barriers and the recent surge of interest in Australian agricultural assets, the actual proportion of transactions involving foreign or investment buyers still remains at very low levels. Although there is no official data on transactions, based on Consortium Land’s own records of major farmland transaction (any sale above AU$2 million) that have taken place in Australia since late 2010, we estimate the proportion of transactions involving non-local farming buyers to be comfortably below 5%.
What this shows is that farm prices in Australia are still being set by real commercial farming buyers and any meaningful upward price pressure on valuations from speculators and investment buyers is yet to materialise. Unlike some other more mature farmland markets, this is good news for investors who are still relatively early to the Australian market.
In 2011 the Australian Bureau of Statistics published the results of the Agricultural Land and Water Ownership Survey, the most comprehensive survey of foreign ownership to date. According to the survey 98.5% of all agricultural businesses are 100% Australian owned, with only 1.0% of agricultural businesses being 100% foreign owned.
Percentage of agricultural businesses with more than 50% foreign ownership, 2010
When measured on the basis of land area the foreign ownership figure is higher, with 11.3% of Australian agricultural land being 100% foreign owned, indicating that foreign ownership has almost doubled since 1984 (the last time a similar survey was conducted) when foreign land ownership stood at 5.9%.
Percentage of agricultural land under foreign ownership, 2010
The fact that foreigners own only 1% of businesses but 11.3% of land area is an indication that there is a strong focus on large scale farms amongst investors. This is consistent with the fact that the most popular enterprise type amongst foreign investors are mixed livestock-arable farms, the sector in which farm sizes are the largest. Foreign ownership currently stands at 11.7% of the mixed arable-livestock agricultural land area in Australia.
Percentage of agricultural land under foreign ownership for different enterprise types, 2010
To find out more about variations in the investment fundamentals driving foreign investment in different Australian states, download our free report, Comparative Analysis of the Australian Wheatbelt. The document addresses the key question: which region of Australia has delivered superior returns to agricultural investors in the past and is most likely to offer superior risk adjusted returns in the future?
References and data sources:
- Australian Bureau of Statistics, Agricultural Land and Water Ownership Survey, December 2010
- Australian Foreign Investment Review Board, 2012
Farming is like any other business: all other things being equal, income is dictated by the quality of the management team. Even enterprises with similar soil, climate and business model can show a high degree of variance. This means tenant / manager selection is a critical component of the agricultural investment process.
Inefficiencies in the farmland pricing mechanism are one of least exploited opportunities to increase returns as a farmland investor. When it comes to buying agricultural assets, we are able to help our clients beat the market because of our unconventional approach to acquiring farms and the information advantage we have in the markets in which we specialise.
Investing in Australian agriculture
Australia’s robust economy, strategic location and investment friendly business environment have made the country one of the world’s top destinations for foreign investment, with FDI inflows of over twice the OECD average (% of GDP basis, 2011).
Geographic and sector focus
For investors, the choice of agricultural sector will be driven by your risk tolerance and overall investment objectives. As a general rule, arable agriculture (i.e. the cultivation of annual crops, in particular grain) is the least volatile farming sector.