Large-scale foreign investments in Australian agriculture are subject to greater scrutiny from regulators than ever before, according to a leading foreign investment advisor.
Lachlan Molesworth, director at consultancy Foreign Investment Advisory Australia, said he had seen “no evidence” of a slowdown in approvals for small-to-medium-sized agriculture deals. However, he added that the situation was different at the “top end” of the market that attracts institutional capital.
“If you’re looking to invest in the major agribusiness and agricultural asset space then there is no doubt that greater expectations are being placed on investors, in order for those investments to be approved,” he told Agri Investor.
Molesworth was a legal advisor to the Australian federal government from 2015 to 2018, when he was responsible for advising on sensitive foreign investments. This was a period in which the then treasurer (chief finance minister) and current prime minister Scott Morrison blocked the Chinese-led takeover of cattle company S Kidman & Co on national interest grounds, following advice from the Foreign Investment Review Board.
“I would say Australia has the most rigorous foreign investment review processes in the world,” Molesworth said, reflecting on a tightening of foreign investment rules that was made permanent this year after being introduced at the outset of the pandemic. “We have a different regime to many others – we are more open than others in that we will consider everything, but we have a very complex framework which has to be navigated if you are to be [approved].
“In terms of the level of scrutiny applied across the gamut of investment asset classes, I think we’re the most thorough and place the greatest onus on inbound investors to satisfy our regulators.”
The FIRB has become a “de facto security regulator”, Molesworth said, with its work increasingly directed towards assessing national security risks. These include perceived risks of espionage and data theft, and the risk of unwanted control over critical assets that affect large numbers of Australians.
“There is no doubt the level of scrutiny that is now being applied to inbound transactions is without precedent historically, and is highly sophisticated scrutiny that takes advantage of the full armoury of our very sophisticated security agencies,” he said. “That evolution is very much a product of the Morrison government and its concerns around foreign influence and undesired foreign investment.”
The rules around agriculture were loosened in January to revert to what they had been pre-covid. However, Molesworth said the general expectation on investors in large-scale assets had increased, even if the letter of the rules had not changed.
“The level of scrutiny has increased and the expectations around what applications will look like has evolved,” he said. “That includes an expectation often that there will be an Australian partner and that any sensitive agricultural assets will be carved out.
“The days of tick-and-flick applications, where you fill out your name, the details of the asset, and pay a $1,000 fee, are long gone. It is now an iterative process with a detailed submission. I can’t think of a [major] transaction in the last six to 12 months where we haven’t gone back and forth with the regulator, maybe as many as 10 times, responding to questions about different types of risks and how they be addressed.”
In agribusiness specifically, this most often applies to assets that touch the supply chain, he said.
“For any sort of downstream processing of soft commodities – like dairies or mills – the hurdles you have to jump through have become a hell of a lot higher. It requires much more sophisticated investors and sophisticated thinking to navigate those [applications] with a degree of confidence.”
Molesworth added that he has not seen many deals rejected if investors and their advisors have “ample time” to consider a transaction before seeking approval from the FIRB. Applications are approved “consistently and with a reasonable degree of certainty” under these circumstances, he said.
A report from Australia’s Productivity Commission last year found that the country’s foreign investment policies were “broadly open” but acknowledged they were more restrictive than many other countries’.