Agriculture and agribusiness are a USD250 billion plus sector in the Australian market. Investment opportunities exist in the value-add sector of the food chain, particularly amongst dairy, seafood and wine and these are being pursued by investors from around the globe.
We are seeing investors ranging from large scale foreign pension funds to family offices and high net worth families looking at investment in Australian agriculture and agribusiness as an alternative investment class. The sector is starved of capital and the opportunity to invest in the sector is significant, however, investors should be wary of the mistakes made by other foreign investors in the last 30 years. Australia is littered with failure by foreigners because they did not understand the diversity of the sector, the geographical locations or the partners they were working with.
As a result, we have been advising family offices and UHNW families through our CE Capital business, emphasizing the need for necessary due diligence on opportunities and appropriate structuring and financing arrangements.
Foreign Investment Review Board
Australian law provides thresholds for foreigners where approval must be sought for acquisitions of agricultural land and/or businesses. These thresholds are as follows:
| Country | Agricultural Land $AUD (m) | Agricultural Business $AUD (m) |
| New Zealand, USA & Chile | 1,134 | 1,134 |
| Thailand | 50 | 57 |
| All Others | 15 | 57 |
These thresholds are based on the cumulative value of acquisitions for private investors. Therefore, if you are from an unnamed country and you already own AUD 10 million worth of agricultural land in Australia and are seeking to acquire another AUD 10 million parcels of land, approval must be sought first. Approval is required before purchasing and has only really been denied in certain politically sensitive acquisitions.
Structuring
Due to Australia’s tax regime, the return on investment can be severely impacted. Australian tax can vary by up to 37 per cent if the business is incorrectly owned and financed. Further consideration needs to be given to the mix of debt and equity funding, since, under the thin capitalisation rules, foreign persons or corporations are entitled to debt deductions of up to AUD 2 million without the need to conform with debt-to-equity ratios. This is a significant planning opportunity for foreign investors.
If a debt is being provided from a country where Australia has a Double Tax Agreement (DTA), then the tax withheld on the interest deduction is limited to 10 per cent versus tax on profits of up to 30 per cent for corporations and up to 47 per cent for individuals and trust structures.
For persons investing from low to no tax jurisdictions where there is no DTA with Australia, it may be necessary to structure an acquisition by establishing an offshore entity in a jurisdiction like Singapore. This will allow for more favourable tax outcomes, as there is a DTA between Australia and Singapore as opposed to the adverse outcomes that result from investing from a non-DTA country.
The opportunity
Australia has expanded the countries it has free trade agreements with or trading pacts. For those with offshore distribution looking to leverage the strong ‘Australia and New Zealand’ brand recognition, the opportunity to partner with Australian businesses has never been better.
Approximately 70 per cent of Australian agricultural enterprises are owned by families, and there is an enormous need for capital to help fund both expansion and family succession. Strong operators in Australia are looking to expand their business, and in doing so are now partnering with other family offices and high net wealth families to joint venture the next growth phase of these operations. We have seen this in our practice of foreign investor and family operators working together to build and grow long-term businesses.
Both parties are benefiting from the arrangement; the investor by partnering with a multi-generational operator that knows the production and operational side, therefore, de-risking the investment for them; and the operator by benefitting from the provision of long-term patient capital that allows them to work through the cycles in a cyclical industry.
The opportunity for foreign investors to partner in Australia with local producers and agribusinesses by providing capital gives a significant platform for the industry to grow vertically and beyond simple commodity production. By doing so, the value-added offers a significant financial reward to both producer and investor. Like all investment opportunities, careful due diligence and structuring are essential.