The message so far on the resilience of agriculture to the coronavirus crisis has been largely a positive one. Barring some concerns over supply chain disruptions and restrictions on labor movement, producing food is an essential service and most believe investment returns will continue to reflect that.
In Australia, though, there is a wrinkle that has emerged from the federal government’s response to covid-19 that could have unfortunate consequences for investors in agriculture: increased restrictions on foreign investment.
Treasurer Josh Frydenberg announced at the end of March that the Foreign Investment Review Board would begin immediately reviewing all foreign investments regardless of size or investor profile.
For many agricultural transactions involving institutional investors, this didn’t change which deals would come under review. The threshold for deals involving government investors (which includes US public pension funds, for example) was already A$0, covering most transactions involving North American funds or even pooled funds with those institutions’ involvement.
The bigger potential problem, though, is the extension of the review timeline from the usual 30 days to as much as six months.
In a webinar last week, Colliers International head of agribusiness transactions Rawdon Briggs said: “I implore the federal government not to reduce our sector’s capital investment while we navigate the covid-19 macroeconomic reality. I totally agree with the FIRB process – I just don’t agree with the timeline.”
The new six-month review period puts Australia at risk of following the system that New Zealand is “burdened” with, Briggs said. Since a 2017 directive, overseas investments into New Zealand’s non-urban land of more than five hectares in area have received additional scrutiny to ensure they create fresh value to the economy, which has increased processing times.
Agri Investor has heard from sources that suggest dialogue has begun between ag industry figures and representatives from the office of Australia’s trade minister, with a focus on trying to ensure the federal government provides adequate resources to FIRB in order to ensure the six-month timeline is just a maximum possible outcome, not the norm.
But falling into line with New Zealand’s system is a risk and is the last thing the capital-hungry ag sector in Australia needs, especially after changes to tax regimes in recent years.
One source told Agri Investor that they had seen a few deals affected by the FIRB changes already, in the form of extra time and cost, and that the situation increases the risk that some will view this as unwarranted central government intervention in the market.
Colliers did offer one silver lining to the FIRB changes in its Agribusiness Research & Forecast Report 2020, though. While the effect of the changes was ultimately still uncertain, the firm said: “We envisage the opportunity for domestic institutions like superannuation funds to extend their investment activity in the Australian agribusiness sector.”
But the squeeze many superfunds are feeling from the early superannuation withdrawal scheme makes it unlikely we will see any major deployments of capital beyond what funds already had planned, and certainly not many (if any) significant new entrants.
Agri Investor has also been following for some time the creation of a potential collective investment vehicle for Australia’s industry superfunds to invest in agriculture, in a similar way that IFM Investors does in infrastructure and Industry Super Property Trust does in commercial property.
Having checked with sources on this again immediately before the coronavirus crisis hit, it was clear that nothing tangible has been done to get the vehicle off the ground, despite much fanfare when it was last debated in a big way in early 2018.
Consolidation in the sector could be a bright spot as Australian funds grow larger and look for more places to deploy capital, but that will take some time to come to fruition – if it ever does.
For now, the sector will hope that FIRB changes do not unduly deter investors at a time when the investment thesis for agriculture looks as strong as ever.
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