Proposed Legislation Would Authorize CFIUS to Scrutinize Farmland Purchases by Foreign Buyers

Background and Rationale for the New Law

Currently, CFIUS’ review focuses in large part on foreign investments in US businesses involved in the development or production of critical technologies (such as defense articles and services, items on the Commerce Control List and emerging and foundational technologies), critical infrastructure, and real-estate transactions near certain military or security facilities.

The bill, the Foreign Adversary Risk Management (FARM) Act, first introduced in Congress in 2021, most significantly would designate the agricultural supply chain as critical infrastructure and critical technology, to make sure CFIUS has clear jurisdiction over farmland and related facilities. In addition, the FARM Act would:

• add the US Secretary of Agriculture as a permanent member of CFIUS;
• add language to protect US agriculture from foreign control through transactions, mergers, acquisitions, or agreements; and
• require the US Department of Agriculture (USDA) and the Government Accountability Office (GAO) to report to Congress on current and potential foreign investments in the US agricultural industry.

The FARM Act legislation will be introduced in the US Senate by Sen. Tommy Tuberville (R- AL) with GOP Sens. Roger Marshall of Kansas, Cynthia Lummis of Wyoming, Mike Braun of Indiana, Kevin Cramer of North Dakota, and Rick Scott of Florida. According to a statement from Sen. Cramer, “Food security is national security. Our government must be diligent in conducting risk assessments of agriculture investments by foreign adversaries – for reasons including geopolitical strategy, U.S. supply chain protection, and support of American farmers and ranchers[.]”

Rep. Ronny Jackson (R-TX) will introduce the legislation in the House, along with Democratic Reps. Abigail Spanberger of Virginia and Vicente Gonzalez of Texas, and more than two dozen other co-sponsors.

Real Estate Transactions Under CFIUS

CFIUS is an inter-agency committee led by the US Treasury Department to review transactions that could result in control of a US business by a foreign person (referred to as “covered transactions”) in order to determine the effect of such transactions on the national security of the United States. CFIUS operates pursuant to section 721 of the Defense Production Act of 1950 (the “Exon-Florio” amendment), as later amended by Congress and as implemented by Executive Order. For additional background on CFIUS, see our previous alert.

In 2020, the Treasury Department, on behalf of CFIUS, released the comprehensive final regulations to implement the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA), which was a major overhaul of CFIUS reviews under Section 721. The final regulations expand CFIUS’s jurisdiction and are divided into two separate regulations — the first dealing with regular investments and the second dealing solely with real estate transactions. As explained in our previous alert, FIRRMA authorized the review of certain real estate transactions, i.e., purchase, lease or concession of real estate, near designated sensitive facilities such as US military installations, airports, and seaports. To be considered a covered real estate transaction, the foreign person would have to obtain a combination of certain property rights (e.g., such as the right to exclude others from accessing the property).

Recent CFIUS Farmland Transactions

On October 17, 2022, Fufeng Group Ltd., a Chinese food manufacturer, filed a voluntary notice with CFIUS in connection with its purchase of a 370-acre site in Grand Forks, North Dakota, to build a $700 million wet corn milling facility where Fufeng intends to extract high-valued amino acids, lysine and threonine, which are essential ingredients in animal nutrition feed formulations. The Grand Forks site is located approximately 12 miles from the Grand Forks Air Force Base and Cavalier Space Force Station, neither of which are on the list of designated military installations or US government sites subject to CFIUS jurisdiction under 31 CFR Part 802, which authorizes CFIUS to review real estate transactions.

In a statement on December 13, 2022, Fufeng announced that CFIUS had concluded its review and determined that the land purchase was not a "covered transaction" under CFIUS jurisdiction. In CFIUS’s determination letter to Fufeng, CFIUS stated that it will not take further action regarding the transaction but added that it reserves the right to start a new review if it learns that the parties omitted material information or submitted false information as part of the filing.

Existing Reporting Requirements

Under the Agricultural Foreign Investment Disclosure Act of 1978 (AFIDA), foreign persons or domestic entities which have more than 10% ownership by a foreign person either directly or indirectly, are required to submit a report to the USDA upon the acquisition or transfer of any interest in agricultural land. However, AFIDA does not include any limitation on such transactions beyond the reporting requirement. According to a December 2021 USDA report, foreign interests hold approximately 40 million acres of US agricultural land, an increase of more than 2.4 million acres from the previous year. Those holdings account for about 3.1% of all privately held agricultural land, and 1.8% of all land. Chinese investors own just under 384,000 acres of US farmland, or less than 1% of all foreign-held farmland according to the USDA report.

Conclusion

While the legislative outlook and timeline for the FARM Act is uncertain, stakeholders should be aware of the increased scrutiny of foreign investments in the US agriculture industry. Both the COVID-19 pandemic and Russia’s invasion of Ukraine have turned up the spotlight on supply chain problems and challenging economic inter-dependencies involving foreign adversary nations. As a result, the tools of the US government will continue to evolve, and US companies’ and investors’ economic activities involving those nations will continue to draw scrutiny.