Tuesday, 12 February 2019
Standing Committee on Agriculture and Water Resources; Report
On behalf of the Standing Committee on Agriculture and Water Resources, I present the committee's report on its inquiry into superannuation fund investments in agriculture, entitled Super-charging Australian Agriculture, together with the minutes of proceedings.
Report made a parliamentary paper in accordance with standing order 39(e).
by leave—On behalf of the Standing Committee on Agriculture and Water Resources, I rise to make a statement regarding the committee's report Super-charging Australian Agriculture: Inquiry into superannuation fund investment in agriculture. The report was presented to the Speaker out of session on 11 December 2018.
The agricultural sector is an important part of the Australian economy, providing approximately $60 billion annually, and that's up from $47 billion five years ago. It also provides the livelihoods that sustain a majority of rural and regional Australia's population as well as food and products for all Australia. It's particularly important for those people who are on the agriculture committee whose communities, as we have said, very heavily rely on this industry.
The investment attraction of Australian agriculture should be high. As a consistently performing and reliable investment option, it would seem sensible that the $2.6 trillion of funds held in trust by domestic superannuation funds would be wise to target a small percentage of that to agriculture. However, the proportion of farm and agribusiness assets held by superannuation funds is minuscule in comparison to the potential investment base.
This inquiry investigated why this investment profile was so low. It examined the factors contributing to the reluctance of domestic superannuation funds to invest in the agricultural future of the country, especially as the peak body, Industry Super Australia, have commented extensively on the positive potential of such investments.
The committee consulted with superannuation funds, agricultural peak bodies, individual business owners and investment managers. It became clear that a mix of data availability, tax, overseas regulation, perception of agriculture sector as an investment risk along with climate and environmental factors all contribute to low domestic superannuation investment.
The simple nature of superannuation in Australia is that liquidity requirements and investment knowledge in agriculture contribute to a reluctance to invest in agriculture. Paired with the traditional structure of Australian agribusiness, where a majority of small owner-operators dominate, there is limited scope for reliable, long-term investment by superannuation, where assets must be disposed of quickly, with an acceptable rate of return.
Overseas pension funds and other venture capital investors are increasing investment rates in Australian agriculture. But an uncertain policy environment, foreign investment rules, and land tax and stamp duty hamper this investment, even when conducted in tandem with domestic investors.
Combined, all of these factors explain the low superannuation investment rate in agriculture rather than regulatory barriers, as was envisaged in the inquiry's terms of reference. In response to these identified factors, the committee has made four recommendations to government.
The first recommendation relates to improving the data captured by the Australian government. This will be achieved by prioritising the work being done by the Australian Bureau of Statistics and ABARES through their Roadmap to improve the agricultural statistics system.
The second recommendation involves revisiting foreign investment advertising requirements, managed trust tax rates and engaging with state and territory governments. This recommendation is intended to ameliorate any unintended consequences of stamp duty and land tax on investments from either overseas or domestic investors.
The third recommendation is designed to counter the lack of understanding in investment circles regarding agriculture and its investment attraction. Through COAG cooperation, an information and promotional platform could aid domestic and overseas investors in identifying and understanding appropriate agricultural investments.
Finally, recommendation 4 outlines a superannuation and agricultural industry investment working group where mutual benefits and improvements to best practice business can be identified to the benefit of all parties.
The committee believes that these recommendations will help to commence an increased understanding of the investment appeal and benefits of agriculture, and lead to better outcomes for this crucial part of the Australian economy and supply chain.
On behalf of the committee, I'd like to thank all of those who contributed to this inquiry by providing submissions and attending in person to give evidence at hearings.
I'd particularly like to recognise the committee secretariat for the tremendous work they have done to produce this report.
My thanks on behalf of all the committee go to Joel Bateman, who acted as committee secretary for most of the report; the current committee secretary, Jeff Norris; Louise Milligan, senior researcher; Benjamin Vea Vea, researcher; and Danny Miletic, our office manager. Thank you to all of those people.
I thank the deputy chair of the committee and all the committee members. They were very engaged in the report. We had almost full attendance at every hearing. I thank them very much. I commend this report to the House.
by leave—As the Deputy Chair of the Standing Committee on Agriculture and Water Resources, I welcome this report into superannuation fund investment in agriculture in Australia. Firstly, I'd like to thank the chair, the member for O'Connor, Rick Wilson, and the rest of the committee, who, as the chair said, did work incredibly hard on this inquiry. Also, to Joel, Jeff and the secretariat: thank you for your attention to detail and persistence with what, when we first set out on this journey, we thought might be a difficult, dry and hard-to-get-to-the-bottom-of inquiry, and in some ways it was, but it also turned up some very interesting findings. I'd also thank all of those who made a submission to the inquiry and attended the public hearings.
As the opening statement of this report says:
Agricultural commodities provide approximately $60 billion annually to the Australian economy, making the sector a major economic contributor.
Yet it does have the potential to be so much bigger. Australian agriculture is uniquely appealing due to the size of our nation; our proximity to the Asian economies, allowing exportation opportunities; and the variety of climatic zones that enable producers to offer a diverse range of commodities. The group chairman of Duxton Asset Management, Mr Ed Peter, explained to the committee during one of the hearings that the benefit of investing in agriculture over some other assets, like energy, metals and mining, is that agriculture is 'a gift that keeps on giving'. He stated:
With both energy and metals and mining, once I dig it out, it's gone. Ag is a gift that keeps on giving. As long as I husband my land, I will get a return every year.
Interestingly, both ASIC and APRA indicate that no specific regulatory or legislative barriers to agricultural investment exist within their remits. Yet, despite this, industry analysis suggests that Australian superannuation funds hold only a very small portion of farm assets in Australia. It was the duty of the committee to understand why.
This inquiry analysed a number of perceived barriers preventing the potential of superannuation fund investment in agriculture in Australia. This analysis came to a few important conclusions. Firstly, the risk-return profile of agricultural investment, in any suitably large scale, is unacceptable to superannuation funds in Australia, especially as data and market understandings contribute to investment scepticism. Secondly, the impact on the agricultural sector from environmental influences poses too great a risk. While other sectors can alter the impact of a changing environment by perhaps changing practices or sources of materials, agriculture is generally bound to the land, water and climate of the region in which it's located. Thirdly, investors are concerned about the ethical factors that are tied to the agriculture industry, such as greenhouse gas emissions; deforestation and biodiversity loss; waste and water pollution; and animal welfare. Finally, the insufficient amount of reliable data about the Australian agricultural sector is problematic to the industry.
As identified throughout this report, the cause of low superannuation investment in Australian agriculture is complex, and it's actually contested. No one single barrier, regulatory or otherwise, really is to blame. It seems to be a confluence of many different things. The recommendations put forward by the committee will be a first step towards addressing some of these important points.
I'd like to finish by citing the conclusion from the report as it, effectively, represents the findings from the inquiry:
The Committee does not believe that the issues identified and the recommendations outlined in this report will solve this issue overnight.
It is a big issue. We do want to see more superannuation put into our agricultural sector. It's a big and complex question. However, there is room for incremental improvement in the data capture and the analysis. Unintended taxation impacts and sector understanding are two other really important components of it.
The recommendations outlined in this report will, hopefully, lead to a change in both the superannuation and financial sector and the agricultural sector to bring about mutually beneficial relationships. That will be the key to this—that we do see enough investment in our Australian agricultural industry, as is so desperately required. Many Australians, I believe, want to see their superannuation go towards the agricultural sector, but we need to concentrate on the factors we learned in the inquiry to see that this happens.