Ownership of U.S. land, specifically agricultural lands, by foreign persons or entities has been an issue that traces to the origins of the United States. Today, approximately fourteen states specifically forbid or limit nonresident aliens, foreign businesses and corporations, and foreign governments from acquiring or owning an interest in agricultural land within their state. To see a compilation of the various restrictions enacted by each state, check out the National Agricultural Law Center’s Statutes Regulating Ownership of Agricultural Land chart here. Although these states have instituted restrictions, each state has taken its own approach. In other words, a uniform approach to restricting foreign ownership has not been established because state laws vary widely.
In the past two years or so, the issue of restricting foreign investments and ownership in privately held farmland emerged or reemerged in the majority of states. This reemerging interest in restricting foreign investments in U.S. land, especially agricultural land, is partly due to a Chinese-owned company purchasing over 130,000 acres near a U.S. Air Force base in Texas. Another transaction that raised concerns among some lawmakers is the purchase of 300 acres near an Air Force base in North Dakota by the Chinese company Fefang Group.
Each of these states have proposed legislation that would restrict foreign ownership and investments in agricultural land to some degree. Like the states that currently have laws, most of these states have introduced bills that take its own approach to restricting foreign purchases of agricultural land within their state. Of these states, Indiana is currently the only state to enact a foreign ownership law within the past two years. This is the first article of a series that highlights recent state proposals seeking to restrict foreign ownership of farmland. This article discusses the proposals introduced in Alabama, Arkansas, California, and Indiana.
Alabama
In December 2021, an Alabama state lawmaker proposed SB 14 to “restrict ownership of agricultural land to United States citizens and resident aliens only.” Despite no uniformity among states’ foreign ownership laws, Alabama’s SB 14 took a similar approach to Iowa’s foreign ownership law. In fact, the bill contained many of the same statutory provisions contained in Iowa’s law.
Under SB 14, three classifications of foreign persons and entities would be prohibited from purchasing or acquiring an interest in Alabama “agricultural land”: (1) nonresident aliens; (2) foreign businesses; and (3) foreign governments. Only three states with foreign ownership laws—Iowa, South Dakota, and Wisconsin—restrict these three classes of foreign investors. Under the proposal, “agricultural land” was defined as “agricultural land” as “[l]and suitable for use in farming,” which includes the production of agricultural crops, eggs, milk, horticultural crops, including fruit, raising poultry, and grazing or producing livestock. Further, the production of timber, forest products, nursery products, and sod also qualified as “farming” under SB 14. Therefore, under this proposal, foreign parties would be prohibited from purchasing farmland suitable for producing these agricultural commodities.
However, like all foreign ownership laws, SB 14 contained some exceptions to the proposed restriction, most of which are common to appear in other states’ laws. For example, the bill would have permitted foreign investors to acquire farmland by inheritance or by taking a security interest in the land. Although these exceptions would have provided ownership rights to restricted foreign parties, these exceptions were limited. Specifically, if a foreign party acquired ownership of farmland under either of these exceptions, SB 14 would have required the party to sell or dispose of their ownership interest in the property within two years from the date they gained their interest. Ultimately, SB 14 was not enacted which means nonresident aliens are still permitted to take and hold real property, including agricultural land, within the state of Alabama. See Ala. Code § 35-1-1. For a detailed discussion on each provision of SB 14, read NALC’s “Restricting Foreign Farmland Investments: Alabama’s Proposed Constraints on Foreign Ownership” article here.
Arkansas
Alabama is not the only state that recently attempted to adopt another state’s foreign ownership law in their own state. In 2021, the Arkansas state legislature introduced SB 312 that, under the original version of the bill, included identical language and provisions contained in Missouri’s foreign ownership law. The Arkansas legislature enacted SB 312, which is codified at Ark. Code Ann. § 2-3-111, but the law is entirely different from the original version that was proposed. In fact, the law does not restrict foreign ownership of agricultural land. Rather, the new law simply requires certain “foreign persons” to report their ownership interest in agricultural land within the state to the Secretary of the Arkansas Department of Agriculture. Essentially, this reporting requirement corresponds with the federal reporting law under the Agricultural Foreign Investment Disclosure Act (“AFIDA”) of 1978.
The original version of SB 312 underwent this complete transformation partly because it used Missouri’s law as a template for the legislation. In 2013, the Missouri state legislature amended the state’s foreign ownership law to assist the Chinese company Shuanghui International Holdings in its purchase of Smithfield Foods. Essentially, the amendment permitted foreign purchasers to acquire and own up to “one percent of the total aggregate agricultural acreage” within the state. Mo. Rev. Stat. § 442.571(1). This enabled the Chinese company to move forward with its acquisition of Smithfield Foods. Because of this legal history and the fact that foreign investors already owned over one percent of Arkansas agricultural land, the original version of SB 312 was likely impractical to restrict foreign investments in the state’s farmland.
California
On September 13, 2022, California’s state legislature passed SB 1084 which sought to restrict certain foreign investments in the state’s agricultural land. According to the text of SB 1084, its purpose was to restrict potential “foreign government control of California’s agricultural land and natural resources” and to “secure the integrity” of the state’s farmland “due to the effects it has on the global food security.” To accomplish this, the bill provides that “a foreign government shall not purchase, acquire, lease, or hold any interest in agricultural land in the State of California.”
Additionally, the proposed legislation also sought to restrict “state controlled-enterprises” from purchasing the state’s farmland. SB 1084 specifies that a “state controlled-enterprise” is a “business enterprise in which the government has a controlling interest.” A foreign government has a “controlling interest” if it owns (1) 51% or more of an interest in an entity, or (2) less than 51% of an interest in an entity, but directs the business activities of the enterprise without influence of another party. Accordingly, foreign governments that have a “controlling interest” in a business entity that holds an interest in California agricultural land would be subject to the restriction and is likely in violation of SB 1084.
Under SB 1084, the definition of “agricultural land” has the same meaning as defined under federal law, which states agricultural land is “any land located in one or more States and used for agricultural, forestry, or timber production purposes….” 7 U.S.C. § 3508(1). Therefore, if a piece of property is being used to produce agricultural commodities or timber, it would likely qualify as “agricultural land” under SB 1084.
Furthermore, SB 1084 directed the California Department of Food and Agriculture (“CDFA”) to publish an annual report based on information provided to it by USDA through AFIDA. The bill sought for this report to include information concerning changes or trends of foreign-owned farmland and the extent of foreign-owned water rights and foreign-owned water desalination facilities. However, the proposal did not specify that the report include information concerning only foreign governments, but agricultural land under “foreign ownership.” Because “foreign ownership” was not defined, it is unclear whether the bill sought to require CDFA to include in the report farmland investment information of foreign individuals, foreign business entities, and foreign governments.
Although both chambers of California’s legislature unanimously passed SB 1084, Governor Newsom vetoed the bill. According to a veto message to the California State Senate, Governor Newsom claims he did not sign SB 1084 because federal law already requires foreign governments to report their farmland interests to the U.S. Department of Agriculture (“USDA”) under AFIDA, and bill’s data reporting requirements “would create new and arduous responsibilities for the [CDFA].” Because the state legislature did not override the governor’s veto, SB 1084 was not enacted into law. To learn more on California’s SB 1084, read NALC’s “California’s Attempt to Restrict Foreign Agricultural Land Investments” here.
Indiana
In 2022, Indiana enacted SB 388 which restricts a “foreign business entity” from purchasing certain types of agricultural land located within the state. The foreign ownership law, which is codified at Ind. Code Ann. §§ 32-22-3-0.5 et seq., prohibits foreign business entities—such as corporations, LLCs, and partnerships—from acquiring agricultural land “by grant, purchase, devise, descent, or otherwise…located within Indiana for the purposes of crop farming or timber production.” Ind. Code Ann. § 32-22-3-4(a). The term “crop farming” under the law means “cultivation of land for the production of agricultural crops, consisting of plants or plant products that can be grown and harvested exclusively for profit or subsistence.” Ind. Code Ann. § 32-22-3-2. The law also prohibits a foreign business entity that owned agricultural land before July 1, 2022 from selling or transferring the land to another foreign business entity “for the purposes of crop farming after June 30, 2022.” Ind. Code. Ann. § 32-22-3-4(b).
In general, Indiana’s foreign ownership law does not completely restrict or prohibit foreign business entities from acquiring or holding agricultural land within the state. It only prohibits crop and timber production on foreign-owned agricultural land. Accordingly, the law does not restrict a foreign business from purchasing farmland to produce some other type of agricultural commodity, such as livestock or poultry. Further, the law would not prevent a foreign business from acquiring agricultural land in order to convert the land into some nonfarming enterprise.
Like every foreign ownership law, Indiana’s law includes exceptions to the restriction. One exception is an acreage limitation which permits foreign businesses to purchase up to 320 acres of agricultural land for crop and 10 acres for timber production. Ind. Code Ann. § 32-22-3-0.5(a)(2)(A). The law also exempts foreign business investments in agricultural land for the purpose of operating and/or constructing a confined feeding operation or for the production of eggs or poultry from the restriction. Ind. Code Ann. § 32-22-3-0.5(a)(3)–(4).
Indiana’s law also includes a reporting requirement. Under the law, foreign business entities must report an acquisition, sale, or transfer of agricultural land for the purposes of crop farming or timber production to the state’s secretary of state and attorney general. This provision directs the attorney general to “review the reports…and investigate an acquisition, sale, or transfer of agricultural land if the attorney general believes” the transaction violates the state’s foreign ownership law. Ind. Code Ann. § 32-22-3-6(a). All agricultural land in violation of this law “is subject to forfeiture to the state.” Ind. Code Ann. § 32-22-3-6(b).
Conclusion
In the coming months, several states across the nation will begin a new legislative session. As a result, some states may attempt to enact a restriction on foreign ownership in agricultural land. The next article in this six-part series will discuss the foreign ownership proposals introduced in Florida and Missouri.
On January 18, 2023, NALC is hosting a webinar that will focus on the federal and state legislative proposals that seek to increase oversight and restrict foreign investments and acquisitions of land located within the U.S. More information on this upcoming webinar will soon be available on NALC’s website here.
To learn about the federal proposals to restricting foreign investments in agricultural land, click here.
For compilation of state laws governing foreign ownership of agricultural land, click here.
For more on foreign ownership of agricultural land, view NALC’s Foreign Investments in Agricultural Land: FAQs & Resource Library here.