The US FARM Act and its place in global ag markets

Agriculture occupies a bizarre place at the center of an active debate about economic decoupling between China and the US.

As US trade and commercial groups push for removal of tariffs they say are constraining growth in ag commodity trade, lawmakers’ attention has recently been drawn to potential threats to US food supply from Chinese direct investment.

Earlier this month, a bipartisan group of Texas congressmen introduced legislation what would require publication of a report on foreign investment into US agriculture to mitigate risks posed by foreign “adversaries.”

The proposed legislation does not name China specifically and instead refers to “increasing influence foreign countries have on the United States agriculture industry and agriculture supply chain.” It calls for the secretary of agriculture and US comptroller to conduct an analysis of foreign influence in US agriculture and its potential to undermine supply chains, among other changes.

Regardless of whether the bill tangibly impacts managers’ LPs directly, the Foreign Adversary Risk Management Act highlights how anxiety around global trade and absence of trust between China and the US can influence the investment environment around ag.

“Foreign interference in America’s supply chain poses a serious national security threat, especially given that the worst proponent is the Chinese Communist Party,” congressman Ronny Jackson said in a statement announcing sponsorship of the bill alongside Democratic counterpart and Arkansas senator Tommy Tuberville.

A source familiar with the deliberations that led to the proposal told Agri Investor it was inspired, in part, by reports from Jackson’s landowner constituents of outreach from Chinese entities interested in purchasing properties near military facilities in his district.  The bill also reflects, the source added, broader fears currently prevalent across Capitol Hill and heightened by covid-19 about Chinese efforts to weaken the US economy and control strategic sectors.

“The last thing we would ever want is an adversary – whichever one it may be – getting too much control of any of our supply chains, especially agriculture, and them being able to, almost at the snap of their fingers, shut things down or create price gouging in America just through their ability to turn things on and off,” they said.

The FARM Act was written with potential adversaries other than China in mind, according to the source, who declined to identify any. They added that Jackson was sensitive to the potential for the FARM Act to be resisted as federal infringement on state-level property markets and stressed that the bill did not go as far as to call for an outright ban on foreign investments.

“A lot of the supply chains involve China and other countries where there could be a potential adversarial relationship at some point,” they said. “We don’t want that to happen, but we are just a little bit worried and want to do this as a heat check to gauge where we are at.”

Given the broader context and theoretical potential for significant harm, it’s no surprise that long-standing concerns about national security implications of Chinese investment have resurfaced following covid-19. As highlighted by the US Farm Report and others, accusations that the FARM Act and other proposals like it reflect xenophobic overreactions to relatively small land holdings will require engaging thorny questions, chief among which is whether any Chinese investor can be seen as separate from the Chinese Communist Party.

Nonetheless, US agriculture depends on international markets, and institutional investors supporting the sector have an interest in promoting a relatively liberal view of global capital. To the extent US managers benefit from realistic assessments of risks and benefits associated with institutional ownership of farmland in developed and developing markets worldwide, they would be well-served to help ensure such a realistic view prevails within the US.