Foreign ownership ban reaches California Governor’s desk

A proposal to eliminate foreign government investment from California agricultural land could have a profound effect on US ag and opportunities available for investors.

A recent proposal to phase out gasoline-powered cars by 2035 is the latest example of California’s leading role in inspiring US policy. On issues ranging from carbon emissions, groundwater use and animal welfare to fuel standards and same-sex marriage, reform ideas originating in California have a history of echoing elsewhere.

Given the state’s singular role in US agriculture, investors would be well-served to monitor a Central Valley state senator’s proposal to prohibit government-linked capital from investing in California agriculture.

In mid-August, State Senator Melissa Hurtado hailed the Assembly Appropriations Committee’s passing of Senate Bill 1084 – The California Food and Farm Security Act – as an important step in managing the “growing global food crisis we are in”. Hurtado introduced the bill in February to prohibit foreign governments from purchasing, acquiring, leasing or holding an interest in agricultural land in California.

The bill is now awaiting the signature of Governor Gavin Newsom. Should it become law, it would also require publication of an annual report detailing the amount of agricultural land under foreign ownership and how it is being managed from March 2023. Hurtado, who declined to comment to Agri Investor, linked the SB 1084 proposal in her statement to others she has introduced on food access and water speculation as parts of an effort to “prevent further devastation to food markets” for her family-farming constituents.

One fund manager active in California told Agri Investor the bill’s language makes it difficult to say what, if any, impact the proposal’s passage into law might have.

“It’s unclear if it only affects direct buying from sovereign wealth funds, state-owned enterprises or other government-owned institutions internationally – or if it affects, on a look-through basis, fund managers,” they said. “If it does, it is effectively going to shut out the entire space from California unless we raise vehicles that don’t have those types of investors. All of us, to a certain extent, have a little bit of non-US investors as part of our capital base, whether it’s Canadian, European or Japanese.”

The source noted how a similar strengthening of oversight on foreign investment in Australia has been largely focused on China, and reports of farmland investments by Chinese buyers have also inspired similar proposals elsewhere in the US. A different source familiar with the deliberations driving last years’ FARM Act proposal to limit non-US investment in ag told Agri Investor at the time that the proposal began with reports of Chinese investors purchasing farmland near military installations, and also included concerns about investments supported by other unidentified states.

Most ag-focused investors have avoided soliciting direct investment from China and Russia specifically, the source added, but vehicles linked to the Canadian government, for example, have been active direct and fund investors in regions represented by Hurtado. The sources’ firm has reached out to industry competitors and contacts and found most have been taken by surprise by developments on SB 1084, they said.

“This is catching everybody as news,” the source added. “I’m not sure if it’s just everybody went to sleep during the summer and it just marched along while people weren’t paying attention. It does feel like for the farmland fund managers, this is coming as a surprise out of left field.”

A complicated swirl of factors clouds judgment about whether California’s ambitious governor will sign SB 1084 into law or veto the measure. Managers returning from summer vacation will surely be watching closely for his decision.