

Two lawyers look in more detail at the Australian foreign investment rules brought in earlier this year, and assess the likelihood of deals being rejected.
Newly-introduced regulations for acquisitions in the Australian agriculture sector are causing concern that they will discourage new foreign investment and capital inflow at a time when such investment and capital are needed to increase competiveness and productivity of the Australian agriculture industry in the next 10 to 20 years.
This concern follows the Australian government’s new policy earlier this year to reduce the screening threshold for acquisitions of Australian agricultural land and businesses by foreign investors.


The policy requires most non-government foreign investors to seek prior approval for a proposed acquisition of an interest in rural land where the cumulative value of rural land that the person holds exceeds $15 million, or for business acquisitions, where the value of the proposed agriculture business exceeds $55 million. Prior to the new regulations, the $252 million general business threshold for Foreign Investment Review Board (FIRB) assessment was applied to purchases of agricultural land or businesses. Investments by foreign government investors (other than passive investments of 10 percent or less) will continue to require prior approval from the Australian government irrespective of the investment or deal value.
The increased scrutiny for foreign investment in Australia agriculture has been a sensitive topic for the Australian government since it rejected the proposed takeover of GrainCorp by a US entity in 2013 – the first and only rejection of a material business acquisition under the foreign investment regulations in the past four years. Part of this arises from the general public concern around food security, self-sustainability, competition, security for Australian workers and protecting the primary producers, some of whom are in a vulnerable position following the recent series of natural floods and droughts. In announcing the new regulation for agriculture, Mr Tony Abbott, the Prime Minister for Australia, stated “it has got to be investment that serves our national interest. It can’t just serve the investors’ interest”.
The new regulations
On 1 March 2015, the Australian Government reduced the screening threshold for acquisitions of Australian rural land to $15 million (cumulative) for most non-government foreign investors. The new threshold on foreign investment in rural land would be cumulative, so someone with a $10 million investment would have to seek approval before trying to purchase an additional $5 million property. Non-government investments from US, New Zealand and Chile will continue to enjoy a higher threshold of $1,094 million consistent with the free trade agreement entered into with those countries. The reduced threshold for acquisition of rural land in Australia also does not apply to investors from Singapore and Thailand.


Rural land is defined as land used wholly and exclusively for the carrying on of a primary production business. However, this does not preclude rural land or its components having incidental other uses, such as the existence of a residential dwelling on a farm. An “interest in rural land” includes interests acquired directly (such, acquisition of land), or indirectly if the foreign investor acquires a substantial interest in an entity where more than 50 percent of its assets by value comprise rural land.
In addition to the cumulative $15 million threshold for acquisition of Australian rural land, the Australian government has also confirmed that it will introduce a new $55 million threshold (indexed annually) for investments in agribusinesses for most non-government foreign investors other than those from US, New Zealand and Chile. More importantly, the scope of the “agribusiness” will be expanded to include certain first-stage downstream manufacturing businesses such as meat, poultry, seafood, dairy, fruit and vegetable processing, and sugar, grain and oil and fat manufacturing. Given the broader definition, care will need to be taken in applying the new rules to acquisitions of vertically integrated businesses. The reduced threshold for investments in agribusiness already applies to investors from Singapore and Thailand, and it is envisaged that it will be introduced broadly for all other foreign investors (other than those from US, New Zealand and Chile) on 1 December 2015.
Impact on investments in Australia
This issue should be put into the context of Australia’s broader foreign investment framework. In truth, Australia’s record in approving foreign investments remains one of the best in developed nations. There has only been three significant business acquisition applications rejected by the Australian government since 2001 – the 2001 Shell takeover of Woodside Petroleum, the Singapore Stock Exchange’s 2011 bid for the ASX, and the proposed takeover of GrainCorp by a US entity in 2013. The number of foreign investment applications rejected under Australian foreign investment rules remains very small, well below 0.1 percent per annum on average (and most of them relates to relatively small real-estate applications). The overwhelming majority of applications are uncontentious and approved. For these reasons, most foreign investors see the foreign investment application as a process and, despite the new regulations, the risk of the Australian government rejecting any proposed foreign investment or provision of capital in the agricultural sector remains very low.
For investments that are more complex or sensitive (including acquisitions by foreign government entities), there is a higher risk that the Australian Government may impose certain conditions in approving the investment proposal. The conditions may relate to one or more of the following:
- requirement that the management team is based in Australia;
- market competition and pricing of goods and services (eg, that all offtake arrangements must be on arm’s length terms);
- retention of the existing Australian workforce;
- restriction on percentage ownership, especially where foreign government interest is involved in a major acquisition; and
- other industry-specific conditions.
Anthony Latimer, Partner, and Raymond Lou, Special Counsel, Norton Rose Fulbright