A4: Since the 2013 purchase of Smithfield Foods, multiple bills have been proposed to provide more oversight of foreign investments in U.S. agricultural companies (including in 2017 and 2020), but until recently they each died in committee. Even if these bills had passed, they would have strengthened oversight on purchases of U.S. companies, not agricultural land specifically, leaving most land acquisitions unregulated. Furthermore, policymakers have signaled no efforts to improve state- or national-level information on foreign purchases of U.S. farmland, leaving the true picture obscured.
It is important to note that foreign entities are not the only ones aggressively buying up U.S. farmland. Many large corporations, pension funds, and wealthy individuals are investing in agricultural land in the United States and abroad. Advocacy groups like the National Family Farm Coalition argue that the larger threat to national security is corporate capture of U.S. land resources, whether those corporations are U.S.- or foreign-owned. The NYFC also points to both urban and rural development as a threat to the future of U.S. farms, since converting farmland to other uses drives up prices and makes the land unaffordable for beginning farmers. Along similar lines, climate-related efforts to increase biofuel production and expand afforestation and reforestation could reduce the amount of land available for food production in the future.
Only in March 20, 2020 Russia included a lot of land in Crimea in the category of border territory. This meant that, according to Russian law, land plots owned by foreigners had be sold within a year. Thus, these procedures ended only in March 2021.
The list of lands of agricultural designation is designated by each subject of the Russian Federation independently. The legal regulation of these plots is contained in the Federal Law No 101-FZ of 24.07.2002 On turnover of lands of agricultural designation.
This is obvious, but needs to be mentioned. Foreigners are allowed to rent agricultural land, land in sea ports and land in border territory. If you have your eyes set on a property in one of these zones, maybe renting it could be an alternative for you.
The abovementioned prohibition of Article 3 applies only to farmland and only to direct shareholders of a Russian organisation. So, in theory at least, multinationals can easily set up a Russian subsidiary and let the Russian subsidiary have a subsidiary of its own that is then the owner of the agricultural land plot. According to the letter of the law, this structure is legal, but many scholars condemn it, because it basically allows those with deeper pockets to avoid the obligation.
The Land Code of the Russian Federation allows foreign citizens,stateless persons, and foreign legal entities to purchase landplots located in Russia. There are many exceptions to this rule,however, and foreigners should be certain they understand the rulesbefore attempting to purchase land in Russia.
Foreign citizens, as well as Russian legal entities with morethan 50 percent share of foreigners in their charter (joint-stock) capital, may possess land plots of the lands ofagricultural destination only under the leasehold right (Article 3of Federal Law No. 101-FZ dated July 24, 2002). There areessentially two categories of land foreigners should be awareof;
All over the world, the countries are gradually running out of fertile land. And those land plots that are still available for sale cost so much that not every investor is ready to risk his finances. In Russia, agricultural land is fertile, the cost is several times cheaper than in the European Union, large blocks of land can still be found on sale.
Purchasing agricultural land in Russia guarantees 12-30% income per year. However, the sales transaction involves some difficulties. According to the Russian law, registration of an agricultural plot by foreign citizens is impossible. But you can do the following:
More and more foreign investors from the USA, Germany, Canada, India, Australia, China, and Latin America become interested in buying agricultural land. Currently, more than 20% of agricultural land in the Central part of Russia is owned by foreign companies.
Under current law, foreigners are allowed to buy property on almost the same terms as Russians. They are forbidden, however, from owning real estate in border zones, agricultural land, land near sea ports, infrastructure hubs and military establishments.
Foreign citizens do have the right to acquire land for agricultural purposes. However it may be done only under the leasehold right. Foreign companies doing so must be sure to include one Russian partner owning no less than 50% of shares.
In March and April, protesters in Kazakhstan criticized the draft of the bill. Ultimately, a clause that would have allowed the leasing of Kazakh forests for up to 25 years was nixed in the final version. But other critiques, particularly the narrow focus of the ban on agricultural land only, remain unaddressed
Nothing is that simple, however. Ostensibly, foreign investors could obscure their investments, such as subletting from Kazakh owners. The results would be much the same, just without the direct public fuss and far less oversight. Furthermore, the Kazakh economic problem remains in place: If Nur-Sultan aims to diversify beyond oil and gas, it needs to pursue investor-friendly reforms and banning the sale and lease of agricultural land to foreigners is anything but investor-friendly.
Rep. Cody Harris, R-Palestine, filed a bill to prevent foreign governments from purchasing agricultural land. A similar bill passed last session to prevent foreign governments from owning critical infrastructure, like power and water facilities.
In addition to protecting American agricultural land from foreign entities, the Promoting Agriculture Safeguards and Security (PASS) Act would add the Secretary of Agriculture as a standing member of the Committee on Foreign Investment in the United States (CFIUS) to consider agriculture needs when making determinations affecting national security, and require a report to Congress from USDA on the risks posed by foreign takeovers of U.S. businesses engaged in agriculture.
INTRODUCTION
Russia's economy continued to expand in 2005, with the pace
of growth picking up considerably in the second half of the year.
Russia's Ministry of Economic Development and Trade (MEDT)
forecasts GDP to grow by 6.5 percent for the year, although this
is considered a conservative estimate by many. Fixed capital
investment from foreign and domestic investors increased by 12.4
percent year-on-year in January-November 2005, compared with an
11.1 percent increase during the same period in 2004, with higher
than expected growth in investment taking root in the latter part
of the year thanks to a widely perceived improvement in the
business climate.
Direct foreign investment in Russia is still quite low by
comparison with other transition economies in Europe and by
international standards generally. Russia's Federal State
Statistics Service estimates that FDI inflows reached $14.2
billion by the end of the third quarter of 2005. Applying
Central Bank of Russia methodology, this amounts to approximately
2-2.5% of GDP in FDI inflows in 2005. While this marks a
substantial increase over last year's $9.4 billion, the energy
sector continues to dominate the investment climate, comprising
40% of net FDI inflows in light of several multi- billion dollar
projects ongoing during 2005. Royal Dutch/Shell and Exxon Mobil
expect to spend USD 20 billion and 12 billion respectively on
their offshore oil and gas projects in Sakhalin, while
ConocoPhillips increased its stake in LUKoil from 7.6 percent
(for which it paid USD 2 billion in 2004) to 16.4 percent.
According to the Russian Ministry of Finance, net capital
outflows for 2005 are estimated to reach $5.4 billion, marking a
sharp decline from the $9.3 billion outflow in 2004. In contrast
to capital flight during the 1990s, the majority of current
outflows involve legitimate movement of money to more secure and
profitable investments abroad, reflecting the maturing of the
Russian business sector. As evidence of this trend, by third
quarter 2005 the U.S. was the number one destination for Russian
investment abroad, knocking Cyprus from its long-term lead to
fourth place. Investment inflow statistics also illustrate that
repatriated Russian money is no longer as significant a source of
foreign investment as it was during the mid/late 1990s. In 2005,
the United Kingdom and the Netherlands were the top two source
countries for foreign investment in Russia, a reflection of these
countries' heavy investments in Russia's energy sector.
Although these figures indicate that the Russian investment
climate has strengthened in recent years, pending necessary
improvements still include: establishment of a truly independent,
competent and effective judicial system; reform of so-called
natural monopolies in power, gas and community services; banking
reform to improve the effectiveness and capacity of the financial
sector; accounting reform to promote greater transparency and
facilitate integration with the international business community;
and further improvements in corporate governance. Furthermore, a
thorough overhaul of government bureaucracy aimed at streamlining
functions and reducing corruption has long been high on the
agenda of businesses, large and small, Russian and foreign, which
operate in this country. Although the government has also
embraced this cause, as evidenced by the ambitious spring 2004
Administrative Reform agenda, it has made only limited progress
to date.
OPENNESS TO FOREIGN INVESTMENT
President Putin has repeatedly foreign investment as a
critical element of Russia's economic development, though in some
cases the Government of Russia (GOR) is less willing to permit investment strategies
that keep project control in foreign hands. In practice, the GOR
has favored joint ventures with local entities or direct cash
injections. At times, however, Russia's commitment to foreign
investment has been called into question -- most obviously in the
energy sector. Over the past year, the GOR has tightened its
grip on the sector and has shown little inclination to allow
foreign companies anything more than minority stakes (and often
only 20 to 25 percent) in larger projects. Nevertheless, because
of the absolute size of these projects, even these small stakes
add up to hundreds of millions, if not billions, of dollars.
ExxonMobil and ChevronTexaco continue to press their case with
the GOR that they remain the rightful license holders of the
Sakhalin-3 field. [Background: On January 29, 2004 the GOR's
Commission on Production Sharing Agreements failed to confirm the
validity of a 1993 tender for the Sakhalin-3 oil and gas fields
granted to Exxon, Mobil and Texaco. Since that time, the
successor firms ExxonMobil and ChevronTexaco have invested more
than $60 million in exploration of these fields. The GOR has
indicated that they may re-tender this property in the future.
End background.]
In 2005, the government debated a new Law on Natural
Resources that represents an improvement over the current law (as
amended). In the current draft of the new law, the government has
included several of the key provisions sought by industry,
including a guarantee that licenses will carry over from the
exploration to the development stage, a provision that licenses
will be based on civil rather than administrative law, and a
limitation on the number of reasons for license revocation.
However, the draft includes language that would restrict foreign
companies from taking a majority stake in so-called "strategic
fields." The GOR has yet to define "strategic," but has
indicated that the list of such fields will be short.
As a practical matter, commentators report that the demand
for investment in agriculture outstrips the ability of domestic
banks to provide the necessary project financing, forcing project
developers to use a consortium of financial institutions or
request assistance from input suppliers. In addition, despite
supportive statements by government officials on investment in
agricultural processing facilities, some projects have not taken
off due to entrenched interests, lack of clarity, or attempts to
turn into an advantage legal ambiguity regarding land procurement
and control issues. The GOR's stated interest in substituting
domestic production for imported agricultural products provides
some encouragement for domestic investment in agriculture.
Additionally, though some agricultural sectors are struggling,
the food processing industry is more profitable, and is expected
to continue to grow as Russia's retail sector continues its rapid
expansion. Newly announced programs supporting agriculture as a
national priority may help strengthen the grain, oilseed, dairy,
and poultry industries in the short term.
A new Forest Code, expected to be adopted in spring 2006,
should stimulate foreign investment in the sector by providing
tax breaks. In 2004, total investments in the forest industry
were estimated at $1 billion, up from $825 million in 2003.
These investments included an estimated $280 million in foreign
investment, of which 70 to 80 percent was channeled into
downstream wood processing. According to the Federal Agency for
Forestry, $2 billion of total annual investment is needed to
modernize the Russian forest sector. Insufficient investment by
both the federal government and the private sector hinder further
development of the fisheries sector in Russia.
Russia's vigorous GDP growth and rising incomes have attracted
increasing interest from foreign investors, despite the
difficulties of doing business here. In addition, many regions
have developed laws and programs to attract FDI (including plans
to establish techno-parks near universities and export zones near
ports and borders). Although tax reforms at the federal level
aim to create a level playing field for all investors and limit
the scope of incentives regions can offer, in practice, large
foreign investors continue to receive such incentives (though a
completed investment project is often later expected to provide
social services and other benefits to the local population).
Although these positive factors increase Russia's ability to
attract FDI, chronic shortcomings in the investment climate
continue to dampen potential. The lack of clarity in Russian tax
law and administration, inconsistent government regulation,
unreliability of the legal system, and crime and corruption all
dissuade investors. In addition, recent economic reports have
all concluded that corruption is getting worse in Russia.
The 1991 investment code guarantees foreign investors rights
equal to those of Russian investors (although some industries do
have limits on foreign ownership - see below). The July 1999 law
on foreign investment confirmed the principle of national
treatment. This 1999 law includes a grandfather clause that
protects certain large investments (over approximately USD 33
million) from unfavorable changes in tax or other legislation
until the project's breakeven point, but for a period of not more
than seven years. However, in practice, these protections have
not been provided due to the lack of implementing regulations.
The Russian government is developing legislation to oversee,
and possibly limit, foreign investment in "strategic sectors."
What exactly constitutes a strategic sector is still undefined.
However, it seems clear that the defense industry and national
security sectors will fall into this category. While officials
had expected to have a draft law ready by late this year, the
timeline has slipped into early or mid-2006. For now, government
experts are still locked in debate about whether to review
individual investment deals on a case-by-case basis or to set
across-the-board limits to foreign ownership in key sectors.
Both positions have high-level backing and it remains unclear
which approach will ultimately prevail.
Explicit restrictions on foreign direct investment are in
effect for certain sectors. A 1998 law on the aerospace industry
limits foreign ownership to 25 percent of an enterprise, although
some existing joint ventures were "grandfathered." In late 2005,
legislation was passed eliminating foreign ownership limits in
the natural gas monopoly Gazprom. This action followed the GOR's
assumption of a direct majority stake in the company.
In 2003, Russia enacted several amendments to the insurance
law that effectively liberalized the market, allowing majority-
owned Russian subsidiaries of insurers from the European Union to
sell life and mandatory forms of insurance in Russia. Although
the law only permits those companies with offices in the European
Union to open subsidiaries offering life and mandatory forms of
insurance, the regulator has interpreted the legislation as
allowing any foreign insurer to set up life insurance operations
in Russia provided that the company has an office in the EU via
which the investment is made. Russian law does not permit
foreign insurance companies to establish branch offices in
Russia.
A 1998 law limits foreign investment in the electric power
giant Unified Energy Systems (UES) to 25 percent or less,
although it has not been enforced to date. UES Chairman Anatoliy
Chubays is pushing to attract foreign investors into the divested
electricity generating companies that will emerge from the
restructuring of UES.
Prior approval by the relevant government authority (e.g.,
State Property Committee, Ministry of Industry and Energy,
Ministry of Natural Resources) is required for foreign investment
in: new enterprises using assets of existing Russian enterprises;
defense industries (which may be prohibited in some cases); and
the exploitation of natural resources. Approval is also required
for all investments over 50 million rubles, investment ventures
in which the foreign share exceeds 50 percent, or investment to
take over incomplete housing and construction projects.
Additional registration requirements exist for investments
exceeding 100 million rubles. Projects involving large-scale
construction or modernization may also be subject to expert
examination for environmental considerations. In sectors that
require licensing (e.g. banking, mining and telecommunications),
procedures often can be lengthy and non-transparent. While new
business registration procedures go through a so-called "one-stop
shop" approach run by the Ministry of Economic Development and
Trade in effect since July 2002, the new law does not modify any
of the requirements for foreign direct investments noted above.
The 1998 bill "On Additional Measures to Attract Investments
into Russian Automotive Industry Development" includes a clause
that exempt