I spoke in Parliament earlier this week against the current populist campaign to curtail foreign investment in Australian agriculture.
Foreign Investment in Agriculture
21 February 2011
An iron law of populism is that, while Australian businesspeople investing abroad are portrayed as job-creating entrepreneurs, foreign investors in our country are depicted as rapacious robber barons. And so it is with the latest campaign against foreign investment. As sometimes happens, the campaign started in the tabloids. Under headlines such as ‘Chinese buying up our farms’, ‘It’s time to stop selling off the farm’, and ‘It’s time to save our farms from foreign investors’, News Ltd tabloids have recently embarked upon a fear campaign against foreign investment in Australian agriculture. With anecdotes taking the place of statistics, foreign investment has been described by the tabloids as ‘a dramatic global land grab’, fed by ‘a looming global food shortage’.
Most ironic about the recent tabloid campaign against foreign ownership in agriculture is the fact that the newspapers responsible are themselves owned by US citizen Rupert Murdoch. Indeed, if a campaign were to be waged against foreign ownership in the media industry, you would expect these newspapers to be among the first to describe it as economic populism. It is funny what happens when the pitchfork is in the other hand.
Now, the opposition appears to have decided to jump on the populist bandwagon. After a few months in which members of the frontbench have questioned the need for a floating exchange rate, an independent Reserve Bank and a migration policy that does not discriminate by religion, it is perhaps no surprise that the opposition is tempted to campaign against foreigners buying our farms—not surprising, but odd all the same. After all, Australia’s agricultural sector has benefited substantially from foreign investment. In 1855, British investors helped kick-start our local sugar production industry when they established CSR, originally Colonial Sugar Refinery. In 1877, American firm Schweppes opened its first Australian factory—as did Kraft and Kellogg’s in the 1920s. Japanese investment in Australia’s beef cattle sector has been important since the 1970s. Today, the largest foreign investors in Australia are still Britain and the United States.
As a resource rich nation, Australia has traditionally looked abroad to fill the investment gap. On one estimate, one in eight workers is employed by a foreign owned firm. If we were to ban all foreign investment tomorrow, wages would fall and unemployment would rise. An Australia without foreign investment would also risk missing out on the latest overseas know-how. From technology adoption to business practices, foreign firms can often help spur innovation by changing the way that things are done.
In moving this motion, the member for Calare expresses concern over the risks to Australia of ‘foreign investment’. Yet he has previously spoken in favour of greater investment in Australian agriculture. On the floor of this parliament, he has repeatedly called for more investment in the forestry sector, more investment in farm productivity, more investment in agricultural research, more investment in new plant varieties, more investment in rural telecommunications and more investment in rural infrastructure. What he seems to fail to realise is that investment is not a magic pudding. Restricting foreign investment in agriculture will result in less investment in agriculture, and that is bad news for people who are employed by a foreign owned firm or who might have otherwise been employed by a foreign owned firm that is deterred from coming here.
Of course, while Australian investors are playing a role in our economy, our agribusinesses are creating jobs in other countries too. In countries like New Zealand, Papua New Guinea and Singapore, Australian firms are helping to show local companies a new way of doing business. In the process, Australia’s overseas investors are helping to raise living standards in those countries.
As the mover of the motion presumably knows, Australia has long had restrictions on foreign investment. Formalised by the Whitlam government in 1975, the national interest test applies to a wide range of investment classes across the economy. The Foreign Investment Review Board, or FIRB, must approve foreign investment that exceeds 15 per cent where the firm is worth $231 million or more. In the case of real estate, nonresidents cannot buy existing properties and FIRB must sign off any time a temporary resident wishes to buy property. Importantly, FIRB has had a veto right over any investment by a foreign government, including farms. In addition, banks, media outlets, airports, Qantas and Telstra are subject to special rules. FIRB can reject applications outright or provide an approval subject to particular conditions.
In thinking about how strict our foreign investment review processes should be, it is useful to look at how other developed countries operate. While any such comparison is obviously limited, work by the OECD’s Takeshi Koyama and Stephen Golub suggests that Australia’s foreign investment review regime is at least as stringent as, perhaps more so than, the approach that prevails in the typical developed country. For decades Australia’s economic policymakers have recognised that our nation’s prosperity relies on being enmeshed with the world. Since the time of white settlement, immigration and trade have been a part of Australia’s social fabric. Australia has been engaged with our region and the globe and this engagement has helped to shape our society—a nation in which one-quarter of the population are born overseas and exports make up one-fifth of the economy. Integral to an outward-looking Australia must be an appreciation that well-regulated foreign investment brings significant benefits to Australia.
Lastly, I cannot help mentioning the issue of food security. It is one of those slippery phrases that people seem to invoke when they do not want to say precisely what they mean. Since I have not seen anyone, including the shadow minister for agriculture and food security, being clear about this, let me hazard a guess at two possible explanations. One possibility is that when people say that we need to ensure food security they mean we need to ensure that if Australia were cut off from the rest of the world we would not starve. Given that Australia continued to trade with other countries even during the depths of World War II, this is a bit like worrying about whether Dubbo has a plan to protect against tidal waves. But, in case anyone is wondering, the answer is yes. Australia sells more food to the rest of the world than it buys from the rest of the world. So if we were to be cut off from the rest of the world we would not starve.
The other possibility is that food security means we need to make sure that agricultural prices do not go up and down. It is certainly true that in recent years food prices have been unusually volatile. For example, since 2007 some world food commodity prices have doubled, halved and doubled again. Economists are not sure why, but possible explanations include climate change, increasing meat consumption throughout the world, biofuel subsidies and a reduction in food stockpiles. In some developing countries there is a real concern that changing food prices will push people into starvation. For Australia the effects are more modest, but you can still see them in the data. For example, in 2006 food prices grew about four per cent faster than the prices of other goods. In 2010 the reverse was true: food prices grew about one per cent slower than the prices for other goods.
People sometimes make the mistake of thinking that if we imported no food this volatility in food prices would disappear. That is wrong. Australian food prices also move when world prices change because Australian farmers sell into the world market. So, to insulate ourselves from volatility in world food prices, we not only need to stop importing food; we need to stop exporting food. I do not hear anyone calling for that. My fear is that, for at least some people, food security is merely code for a return to protectionism, which would be a great mistake. By all means, let Australia produce the foodstuffs that suit our land and our skills. But it does entrepreneurs and workers no favours to encourage Australian agriculture to expand into areas that do not suit our geography and our talents.
There are plenty of challenges facing Australian agriculture. But, while Labor are focusing on water reform in the Murray-Darling Basin and addressing climate change, the coalition’s plan is to defer water buybacks and pretend that climate change does not exist. At the same time, the shadow agriculture minister is moving a private member’s motion aimed at reducing investment in Australian agriculture. It might feel good to pander to populism, but let us not pretend that it is helping farmers.