Foreign investment in US ag looks set for increased scrutiny

The heightened rhetoric of the 2022 US midterm elections will likely have played some role in driving growing attention to reporting requirements imposed by the 1978 Agricultural Foreign Investment Disclosure Act.

The deadlock produced by the election cycle may have reduced the immediate risk of new federal restrictions on foreign investment into US farmland, but pressure on the issue will not dissipate completely.

GPs and LPs alike should continue to monitor dialogue around AFIDA to help gauge risks related to China’s key position in the fortunes of US producers, farmland’s unique place in the domestic political economy and the functionality of a government agency – the USDA – on which the entire US agricultural economy relies.

The focus on AFIDA compliance and data quality has centered around China and was inspired in part by farmland purchases near US military installations. It also occurs amid a growing recognition of rivalry with China that one US manager told Agri Investor has reached broad enough acceptance to be addressed directly.

“If it is truly designated towards a handful of countries, I will say as someone who has some minority position of capital from non-US entities, I would rather that we put aside decorum to get at the heart and not beat around the bush,” they said.

As the need to compete with China continues to shape policymakers’ approach to the role of agriculture in US trade and industrial policy, investors should work to help ensure that protectionist impulses do not take hold. A source familiar with the process that produced a 2021 proposal by Texas congressmen to examine risks related to foreign investment in US ag, for example, told Agri Investor at the time that while the effort was inspired by concerns around China, the bill was also written with an eye towards other countries they declined to identify.

The work of tailoring regulation to investors from specific countries is indeed messy and against the impulses of many modern decisionmakers, but if geopolitical events force lawmakers’ hands, investors have a role to play.

While the sense of risks related to foreign investment have also been heighted by a sense of threat made more tangible by the supply chain disturbances of covid-19, recent attention on farmland investment also reflects broader tensions in American life.

Ahead of the midterms in October, Narya Capital co-founder and recently-elected senator JD Vance bundled together farmland investments from China, billionaires such as Bill Gates and real estate strategies from PE firms such as BlackRock as threats to middle-class Americans. In addition to supporting existing efforts to limit ag investments by China-linked firms, he suggested legislation could be expanded to include limits on farmland acquisitions by individuals, corporations and investment firms.

“The founding fathers recognized that to have a constitutional republic, we need a nation of owners, not a nation of renters, and there is this large-scale effort to turn the American people into a permanent renter class,” he said.

The USDA probably understands that most non-filing has been unintentional and it is at some point likely to undergo an effort to increase AFIDA compliance while trying not to scare off investors from friendly countries (the government body did not respond to multiple requests for comment from Agri Investor).

In the meantime, managers would be well-served to probe within the USDA to see if negotiated settlements for firms inadvertently outside the letter of the law are necessary or appropriate.

Although it is not clear that AFIDA will be the exact vehicle for it, increased scrutiny of foreign capital entering US ag supply chains can be assumed.

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