Backflip or sanity?


Barnaby Joyce has decided to support the sale of two northern territory cattle stations to Indonesian investors. According to the Australian this has led to claims of hypocrisy. My view is that it reflects a return to sanity.

First, foreign investment itself is not the ‘bad thing’ as it is sometimes portrayed in the popular press. Much of Australia’s growth since white settlement has been built on foreign investment. Without it we would all be much, much poorer.

Second, it is often claimed that foreign investment in farms undermines food security. This is clearly nonsense. Food travels across borders and Australia controls what crosses over these borders (most of the time!). So it is actually the foreigners trusting us not to act capriciously and seize their property that is the relevant risk. They can’t sneak the food overseas against our laws or needs.

Third, it is argued that preventing foreign investment in farms protects farmers. This one is laughable. if you are a farmer, the farm land is your biggest asset. You want as many potential buyers as possible for that asset when it comes time to sell out and retire. When I was at the ACCC, the biggest proponents of Coles and Woolworths being allowed to buy small independent grocery stores were the owners of small independent grocery stores. The opponents were Metcash and its associated lobbying groups who saw the sales as reducing Metcash’s ability to supply those stores.

So what drives the concerns. Unfortunately the concerns are regularly expressed against Asian interests investing in Australia. Despite large amounts of investment in Australia from the UK and North America, this hardly raises a murmur. So I suspect that a lot of the opposition is driven by irrational fears or racism.

In summary the new Minister for Agriculture’s decision is sanity. Hopefully we will see more of it in the future.


3 Responses to "Backflip or sanity?"
  1. ABC TV ‘Supersized Earth’ showed the Costa del Polythene, southern Spain. Suppose the Traditional Owners of a slice of coastal NT or the Cape wanted to grant a 99-year lease to a large horticultural corporation based in Beijing. The plan would create water capture, port, roads and a vast expanse of greenhouse food production. With their advanced solar power plants they’d be completely independent. OK, some thought would have to be given to adverse weather events, eg, cyclones. But, could it be viable as well as beneficial, and what would be the main impediments, apart from entrenched hostility?

  2. The relationship between farmers and the land ownership is more complicated than presented. If someone owns a farm then for them, the more buyers than can buy it, the higher the price for agricultural land, and all the better for you. But if you work on farms but don’t own one and want to, high agricultural land prices are bad. Same goes for someone leasing farmland. Much the same situation exists with residential property.

    If a farm is part of a co-operative or government run irrigation scheme, and the new owners of that farm don’t wish to be part of that scheme, then them leaving the scheme can destroy the financial viability of surrounding farms. I expect the same could be true of a joint packing, abattoir or port facility.

    If the new owners of a property are more likely to utilise 457 visas than the old ones, then this will drive down the price of labour. This is good for some people and bad for others.

    If the new owners of a property are more likely to export food than the previous ones, this will increase the domestic price of that food.

    While people that own a small number of supermarkets who wish to retire might like the option of selling to Coles or Woolworths, such owners who wish to buy more supermarkets would prefer to not have to compete with Coles or Woolworths when doing so. Not to mention the impact of supermarket concentration on primary producers and food manufactures.

  3. “First, foreign investment itself is not the ‘bad thing’ as it is sometimes portrayed in the popular press. Much of Australia’s growth since white settlement has been built on foreign investment. Without it we would all be much, much poorer.”

    Stephen, I find the vocabulary of economics so bizarre that I can’t help but think it is almost designed to obscure reality.

    Foreign investment. What do we mean by investment here? In economic models investment usually means the purchase of new capital goods, which facilitates greater levels of production in the future. Here we simply mean a transfer of real property, where nothing is created or destroyed – a bundle of rights were simply passed into foreign hands for a fee. The farm will still be there if an Aussie buys it, even at a lower price.

    With that in mind I question the implicit assumption that we would be not only poorer, but much poorer, in the absence of foreign investment. What you are saying is that when terra nullius was declared we became richer? Or was it actually the capital investments after that time that made us rich (some of which are foreign made, but trade in goods is not classed as capital investment, despite many goods being investment when defined in the economic sense).

    At this point you probably agree and believe I am simply nitpicking, because, hey, that’s what blogs are good for. Maybe the following questions might explain my thinking here.

    1. Would China be richer now with greater foreign investment (as in transfers of property?)
    2. Do major land owners yield much political power?
    3. Why do foreigners seem to value our assets higher than local buyers?
    4. Do any countries politically manage their foreign investments for domestic policy goals?
    5. Are we simply playing into the hands of trade policies of our neighbours?

    These are the real political questions that MUST go hand in hand with any analysis of foreign investment, trade and debts. And they lead to your second point about our control of borders and trade, as if it is absolute and we operate in a magical land where power and corruption are the stuff of fantasy. Hey, maybe the government could just enact a resources rent tax and foreign owners of domestic assets would roll over and pay it. Or maybe not.

    Your third point seems a little tangential, and essentially says that the winners are those who make the most money from an action. Which you would agree is not a valid measure against which policy decisions should be made.

    So is it racism? Perhaps. But I would say most opponents of foreign investment consider all foreign investment to be very much the same.

    The appropriateness of foreign investment (in this case I mean transfers of real property or other assets) is a moral and political question, not really an economic one. A bit like defence – should we build submarines locally or abroad. What if the guys that build our subs are the enemies in our next war? What if China is simply printing money to keep their currency low and buying AUD assets with it to keep our currency high? Do we really play into the hands of foreign economic policy like that?

    I mean if we take this one step further and rely rely on our economic models, all borders are bad, and we should simply get together as one globe an enact the ‘scientific’ policies prescribed by economists. The very fact that no one would want this tells us a lot about the difference between human society, morality and politics, and economic models.

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