You might be surprised about which foreign entities are buying up Australia’s prime agricultural land and water. What does this mean for future food security?
Canada is the top foreign buyer of prime Australian agricultural land followed by China and the United States. Source: iStock.
THIRD-GENERATION Condobolin farmer Peter Stuckey had just leased land 80km south of his broadacre cropping farm, when the farm next door hit the market. Although he had committed to a five-year lease on 2,400 hectares of dryland cropping country, he bought the neighbouring farm, bringing his owned holdings to 10,000ha.
It’s a familiar scenario across NSW – despite the big dry and with land prices hitting new highs, farming families, driven by record livestock and commodity prices, have been buying up big.
“No-one has any money and it’s tough weatherwise, but we thought we may as well have a go. And the banks were happy to support us,” says Peter.
Families like the Stuckeys are expanding their holdings. But overseas investors, for whom the sliding Australian dollar has offered added incentive, are giving them a run for their money. That rivalry comes from an unexpected quarter – Canadians, not the Chinese according to conventional wisdom, are leading the charge.
Even so, local buyers are holding their own in the market, and everyone from international real estate agents down to small specialists say that families still own and operate most farming operations in NSW.
Peter Stuckey from Condobolin is one of many NSW family farmers buying up land. Source: Newspix.
“Even though we are big in the space with foreign buyers and pension funds, the consolidating family farm is the most active component of the market, in transactions and aggregate value,” says Danny Thomas, regional director, agribusiness transactions, valuation and advisory services at commercial real estate specialist CBRE.
“We’ve been on the back of probably the longest bull run in land prices I’ve experienced in 30 years of kicking around,” says his colleague Col Medway, who heads CBRE’s rural transaction business in NSW and the ACT.
He adds that good seasons had left farm balance sheets in good order. “On top of that, we have livestock commodities trading at new levels and interest in agricultural land from foreign capital.
Agricultural land values forecast to plateau in 2020
That said, the bull run could be slowing. Rabobank agricultural analyst Wes Lefroy reports in the bank’s Australian Agricultural Land Price Outlook that while ag land prices have been “on fire”, he predicts those in NSW, especially in drought-affected areas, will plateau in 2020. “With dry conditions forecast to continue, we expect demand for ag land will decrease and properties on the market to slightly increase.”
Some argue the slowdown is already happening. The Rural Bank’s 2019 Australian Farmland Values report reveals that in 2018 the number of ag land transactions in NSW fell 18% compared to the year before. The area sold – 1.58 million hectares – fell 28.2% and the value also dropped, down 8%.
Jason Haines, of QPL Rural Real Estate in the Riverina, says corporate investors, both local and foreign, generally seek larger land parcels. “Corporates are interested in 10,000-15,000 acres [4,000-6,000ha] when it’s dry and we mostly have areas of 2,000-3,000 acres. Most of the competition for that is coming from strong farming families.” But all investors are waiting to see what happens with the season, he says.
“There has been no market correction yet,” says Danny Thomas of CBRE. “But whereas we might have had five or six parties trying to deploy money into the market up around Moree, Goondiwindi and Narrabri two years ago, we might only have one or two. The prices aren’t going down. It’s just that the field is thinning out.”
Who is buying Australian agriculture land?
Sources: Register of Foreign Ownership of Agricultural Land 2018 and Register of Foreign Ownership of Water Entitlements 2018, Australian Taxation Office, Foreign Investment Review Board Annual Report 2017–18
Foreign interests own around 4.6% or 2.5 million hectares of agricultural land in NSW and the ACT, according to the 2017-2018 Register of Foreign Ownership of Agricultural Land. This compares to 13.4% nationally – where the United Kingdom tops the foreign ownership charts, followed by China and then the US.
- 85% of foreign-owned land is held for livestock purposes.
- 9.4% of the Murray Darling Basin’s water entitlements have a level of foreign interest ownership.
Surprisingly perhaps, in terms of value, Canada took the lead nationally as the largest foreign investor in Australian agriculture last year, displacing China. Canadian investment was largely driven by pension funds. Canada was followed in 2017-18 by China and the United States, and then by Dutch and UK investors.
Sources: Register of Foreign Ownership of Agricultural Land 2018, Australian Taxation Office, Foreign Investment Review Board Annual Report 2017–18.
In total, 201 foreign interests received approval from the Foreign Investment Review Board to spend $7.9 billion on agriculture, fisheries and forestry assets in Australia – up from $7 billion in 2015/16. Approval is only required if purchases exceed $15 million.
Philip Jarvis, managing director of agricultural investment adviser Direct Agriculture, says that Canadians and Americans are by far our largest foreign investors, and that Chinese interest is waning.
This year Rifa Salutary, the Australian arm of China’s Zhejiang Rifa Holding Group, began offloading its entire portfolio of 14 rural properties, totalling 44,000ha, which it had amassed since 2014. This includes three large properties in NSW: Cooplacurripa Station near Gloucester, Ashleigh Station near Moree, and Middlebrook Station near Tamworth.
“Over the past four years we have seen probably the greatest influx of Chinese capital into Australian agriculture we have ever seen and it’s retreating,” says Philip. “If there is a washout of Chinese capital, you are going to see the Saudis and Emiratis come into Australia. It’s just the ebb and flow of capital.”
Who is buying Australia’s water?
While foreign ownership of agricultural land can be a contentious subject, it is the overseas investment in water that has recently become the more controversial. As water hits record prices, its ownership and use are coming under increasing scrutiny.
Sources: Register of Foreign Ownership of Water Entitlements 2018, Australian Taxation Office, Foreign Investment Review Board Annual Report 2017–18.
While about 18% of water entitlements in NSW are held for the environment, the rest, about 12,000 gigalitres (GL), goes to agriculture, mining and tourism. Of this and the ACT’s entitlements, foreign interests own 8.7%, with most of that used for agriculture.
The Register of Foreign Ownership of Water Entitlements does not analyse which foreign entities have bought the water by state or territory. Across the nation, however, interests registered in China hold the most, closely followed by the US, and then the UK and Canada. All up, the proportion of total water entitlement on issue in the Murray-Darling Basin with a level of foreign ownership is 9.4%.
The total number of foreign usage of water. Sources: Register of Foreign Ownership of Water Entitlements 2018, Australian Taxation Office, Foreign Investment Review Board Annual Report 2017–18.
Privacy rules mean it’s hard to get a picture of who owns water and tracking what they do with it is even trickier. But its owners, especially those with licences for high-security permanent water, are enjoying a boom, as low dams and depleted supplies send prices soaring.
Across the state, water trade is most dynamic in the Murrumbidgee and Murray valleys as well as the Lachlan River catchment. In mid-September, high-security permanent water in the Murrumbidgee Irrigation Area was selling for up to $7,500/megalitre (ML), while permanent groundwater sales in the Lower Murrumbidgee reached $4,350/ML.
Rod Carr of economics consultancy Marsden Jacob Associates says water prices have more than doubled in two years. “If you were trying to buy high-security permanent water in the Murrumbidgee Valley now it would cost $7,700-$8,000/ML. A few years ago, it would have been $2,500-$3,000/ML.”
Almond trees in bloom. Source: iStock.
Those paying the high prices are buying precious water for permanent plantings such as almonds, citrus, table and wine grapes, says Ruralco Water general manager Phil Grahame. And as with land purchases, family farmers are holding their own against the big overseas investors.
“It’s a mixture of family operators and corporates among the permanent plantings – family operators are quite significant,” he says. “The price at the moment is too high and there’s a fear that, if it doesn’t rain, it will go up further.”
Cotton farmers are paying high prices to buy water for their crops. Source: iStock.
Such sky-high prices are prohibitive for annual croppers, he adds. “The gross margins for cotton could support a price of about $300/ML. Last year cotton growers paid $400/ML and, in some cases, more.”
Water investments prioritised over agricultural land
Little wonder there is a trend is for retiring farmers to sell their land and keep their water as an investment, with up to 5% of licences owned by retired farmers, according to Phil. “They sell their allocation each year to get an income and the capital growth has been strong.”
Some landowners are selling water to fund expansions. And others are even selling water instead of planting crops. Central West NSW cropper Fred Vella who owns Mulgutherie Station near Condobolin with his son, Ryan, sold 1,100ML of temporary water recently for $552,000 to an almond grower further down the Lachlan Valley.
Fred Vella, his son Ryan and daughter-in-law Clara with their wheat crop. Source: Fairfax.
He still holds 9,000ML of permanent water. At about $500/ML it’s the highest price he’s known temporary water to sell for in the Lachlan River catchment.
“We took the money now and then, if it rains and we get another water allocation, we’ve got the ground ready to put the cotton in.”
Tracking foreign investments and interests in Australian agriculture land
Overseas investors face scrutiny by the Foreign Investment Review Board when buying or selling agricultural land in Australia. Approval is required if the total value of their holdings exceeds $15 million. Exceptions apply to investors from Australia’s trade agreement partners and foreign government investors.
Regardless of value or whether approval is required, all foreign investment in agricultural land must be notified to the Australian Taxation Office Register of Foreign Ownership, within 30 days of buying or selling.
Peter Wilson, chair of NSW Farmers’ Business, Economics & Trade (BEAT) Committee, says: “NSW Farmers has lobbied long and hard for the land Register of Foreign Ownership, which has been part of government policy for several years now.”
NSW Farmers wants to see the threshold for Foreign Investment Review Board approval of agricultural land purchases brought down to $5 million – and this should be cumulative. “If that same entity wants to buy more they still have to get approval,” Peter explains. “They can’t just keep buying in lots of $5 million and not get the approval.”
Fundamentally, he adds, NSW Farmers is not opposed to foreign investment. “There are concerns that foreign owners put up the price for those wanting to get into the market – but the flip side is it provides a market for those wanting to retire and also helps bring in money for innovation.”
Peter says there are positive stories for communities from foreign investment. “If you look at cotton gins, like in our town at Trangie, it was originally established by foreign interests from America, which was a big lift for our district, back in the early 1970s.”
On the other hand, he hears complaints from members that they’ll go along to a sale where they’re competing against foreign bidders, “and they’re bid out of the market”.
Water security and cattle prices a top priority for Holbrook farmer
Third-generation farmer Andy Watson recently sold 1,153ha of bore-watered cattle country at Holbrook, for “north of $4,000 an acre”, buying 812ha with 12km of Murray River frontage west of Albury for “not quite double” the price.
His new property includes 1,000ML of high-security bore water and 300ML of general security water from the river, currently on zero allocation.
Andy will graze cattle there, selling into the grass-fed market. Driven by the land price boom and the chance to secure water, he’s done what his family has done for generations – he’s realised an asset in boom times.
The family that bought his farm are from further north near Dubbo. They, too, came south for rain, says Andy. “They’re all chasing rainfall. In the past five years there’s probably been 12,000-16,000ha around Holbrook change hands.”
Some vendors were farmers without successors, selling at a high. “It’s their superannuation. They can go buy a house on the Gold Coast, downsize or buy another farm.”
Foreign buyers chase higher rainfall areas and irrigation
By area, most foreign-owned land in Australia is devoted to livestock production, but in value terms its biggest share lies in horticulture, according to Rabobank’s Wes Lefroy. “Foreign investment is heavily weighted towards livestock production, but pastoral grazing land is of less value compared with other production types such as cropping and horticulture.”
Foreign interests in the horticulture sector account for 36% by area and 23% by value, he says. “Foreign and corporate investment, rather than family farms, have tended to be more focused on horticultural production, underpinned by the positive outlook in permanent crops and the scale and high capital costs involved in some of the new developments.”
To make such horticultural activity possible in the middle of the big dry, buyers are chasing properties with higher rainfall or irrigation infrastructure while also rethinking what they are growing. For local landholders, meanwhile, water has become a seriously saleable commodity.
Citrus orchards are highly prevalent in the Griffith region, NSW. Source: iStockphoto.
“The big shift is from rice and cotton into permanent plantings,” says Philip Jarvis of Direct Agriculture, adding that irrigated farming country is the most sought-after asset. But, he cautions, these plantings might be thirstier than expected and, thanks to high water prices, don’t always generate the return hoped for.
“There’s a love affair with almonds and citrus in the Murrumbidgee and Murray valleys, but a lot of people did their sums on using 12ML/ha. As the trees come into production and get older, they are pumping up to 20ML/ha,” Philip says.